When reading about real estate investing, often times investors think of active real estate investors, who are essentially landlords. There are also both direct and indirect passive real estate investors. Passive real estate investing is investing in real estate without substantial hands-on effort or active participation from the investor. They invest through syndications, online crowdfunding, individual real estate funds, and real estate investment trusts. In fact, many would argue passive real estate investing requires the least experience and hassle while offering more diversification and liquidity.
Direct Passive Real Estate Investing
With direct real estate investing, an investor will purchase a property or portion of a property that is subsequently rented out. Often, real estate investors that purchase entire properties will hire what is known as a property manager, or property management company, to take care of the day to day maintenance and tasks such as collecting rent. Post-purchase of the property, hiring a property management company allows an investor to essentially be hands-off in the management of the property. Hence the term passive real estate investing in this context.
Indirect Passive Real Estate Investing
To the contrary, indirect real estate investing is a process where individuals invest in a REIT (Real Estate Investment Trust) or a real estate related mutual fund. This type of real estate investing is considered passive because there is no day-to-day management needed and it’s also considered indirect because it doesn’t involve a specific piece of real estate. Investors then collect passive income as returns or dividends from funds.
Regardless of which method you prefer, there is a great potential for positive cash flow and overall wealth generation in real estate investment markets. In upcoming posts, we’ll dive into more specifics about REITs, as well as other types of real estate funds investors are often more drawn to.