Are you looking for passive real estate investing ideas? Who doesn’t want to earn passive income from real estate?
For many years, real estate has been one of the most reliable ways of earning passive income. And even today, many millionaires say it’s the best investment you can make.
But there is one challenge: What is the best real estate investment for beginners? There are many passive income real estate investing ideas, but not all are beginner-friendly.
In this guide, we’ll talk about a few ways to invest in real estate for beginners.But before that, let’s understand a few basic things.
What Is Passive Real Estate Investing?
First off, before we get into the nitty-gritty of this topic, let’s understand what the word ‘passive” means.
Unlike what many people think, passive income doesn’t mean making money without doing anything.
When people hear the word ‘passive income’ they think it’s all about choosing an investment, pumping in the money, and waiting for profits to start trickling in without doing anything.
This is a misconception that makes people think it’s easy to do but it’s not the truth.
According to best essay tips, one of the best writing service providers in the UK, passive investing means putting your money in projects that allow generating passive income without playing an active role.
Buying shares of a company is a good example of passive investing as you don’t participate actively in the daily operations of the company.
Passive real estate investing is, therefore, a form of investment in which you put your money into a real estate project that you’re not going to take an active role in the management of, and which then generates on-going profits for as long as your venture is working.
You can invest passively in real estate in many ways like in Real Estate Investment Trusts, crowdfunding, micro-investing, or through a direct investment in individual real estate contracts, etc.
Note that even though real estate can help to accumulate great wealth, some ways of investing in this sector aren’t for everyone.
In case active real estate investment isn’t for you, you can try one or a combination of the following ways:
Ways To Passively Invest In Real Estate
Buying into a real estate investment trust or REIT is one of the smartest ideas for earning passive income for beginners.
How a REIT works is simple:
You buy shares in a real estate investment trust, then the REIT’s managers invest the money into a range of other commercial properties such as shopping centers, hospitals, residential buildings, apartments, etc.
Single shares can cost around $5 to $100 making REITs accessible to everyone interested in this real estate investment method.
The good thing about REITs is that they trade like stocks and there are REITs that specialize in any type of commercial property.
Investors in real estate investment trusts are paid in dividends depending on individual shares from the income generated by the company.
You can choose to sell your shares at a higher price than you purchased them as well.
Pros and Cons Of Investing In REITs
This passive real estate investment idea isn’t without its benefits and drawbacks.
Let’s take a look at the benefits:
- Less work and low risk compared to owning individual real estate properties.
- Multiple passive real estate income streams.
- Accessible to everyone interested including beginners.
- You can sell your shares any time you want.
- Higher dividends than common stocks.
- Diversification because they follow the real estate cycle instead of stock market .
- Hedge against inflation because rents can rise to keep pace with inflation.
- There is a lack of control as you cannot control the investments.
- It’s hands-off so you might not gain experience in the process.
- Lower returns.
- Market volatility.
- Are subject to changes in property values, tenant occupancy, and local demand.
- Sensitive to rises in interest rates which can impact property values and demand.
Real Estate Crowdfunding
Real estate crowdfunding is one of the latest methods of investing passively in real estate.
This method involves investing in specific real estate projects by giving loans to buyers.
Crowdfunding platforms vet buyers and projects before they are opened to members. Some popular platforms are RealtyMogul, Fundrise, and PeerStreet.
You can invest in real estate crowdfunding in two ways: debt or equity investing.
With debt investing, you invest in a mortgage loan on a property, then you earn a certain percentage of the interest when the loan is paid back.
Equity investing, on the other hand, is when you invest directly in a property then earn a share of ownership – this means you earn a portion of the income or profits generated by the property.
Unlike in purchasing REITs, crowdfunding involves investing in individual real estate projects.
You can make money with real estate crowdfunding in various ways.
For instance, you can redeem shares after a given period, earn regular income dividends from your share of the property, or receive a percentage of the profits from a sold property if you don’t redeem your shares.
Pros and Cons Of Real Estate Crowdfunding
- You can invest in big real estate projects with small capital.
- It allows diversification.
- It is hands-off. You’re exempted from taking an active role.
- You’re allowed to choose the project you want to invest in.
- Less control.
- It’s slightly risky as the success or failure of your investment is tied to a single property.
- Can be a long-term commitment so no cashing out as easily as with buying REITs.
- Low returns.
Real Estate Flipping
Real estate flipping, otherwise known as “fix and flip,” involves buying a house at low cost, repairing or remodeling it, and then reselling it for a profit.
With this real estate investing method, you buy a house or property at a discounted price (because the owners of the property are looking to sell it quickly or the house needs major fixing/repairs) then renovate or upgrade it to improve the value and sell it at a higher price.
Pros and Cons Of Real Estate Flipping
- It’s a hands-on real estate venture.
- Greater profit potential.
- Great for investors with relevant experience in construction, plumbing, realty, etc.
- It’s a short-term commitment.
- There is a lot of work involved.
- Higher financial risk – you may buy a house or property needing more costly repairs than you had anticipated.
Real Estate Micro-investing
Real estate micro-investing is a relatively new development made possible by the Tax Cuts and Jobs Act of 2017. Micro-investing enables individual consumers to buy shares of actual properties for small investments, often as little as $5.
Micro-investing is similar to REITs, but whereas REITs own large numbers of properties, micro-investing enables investors to become part owners of specific properties. For example, one micro-investing platform lets people own shares of a luxury condominium in Miami; another provides ownership in a commercial office complex in Atlanta. Micro-investing enables investors to participate in the returns and potential price appreciation of real estate properties and enjoy tax benefits and diversification, but without the risk and large upfront cost.
Pros and Cons of Real Estate Micro-investing
- Easy to start investing
- Low initial investment
- Provides passive income
- You can choose which properties to invest in
- Won’t provide big returns
- You don’t have control over how the properties are managed
- You may have to keep your money invested for a set period of time
Learning passive real estate investing can be complex, but once you understand an investment method, it can be a rewarding and life-changing venture.
The good thing is that passive real estate investing enables you to create wealth over a long period without taking an active role in the project.
We hope you found this blog post The Beginner’s Guide To Passive Real Estate Investing useful. Be sure to check out our post Learn About Real Estate Investment And The Strategies To Make Money for more great tips!
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