One of the best parts about investing in real estate is the fact that you can be a truly passive investor. If you make the decision to passively invest in real estate, you have turned over the management responsibilities of your property to another industry professional. Instead of worrying about patching drywall, fixing plumbing leaks, chasing down past-due rent and any variety of other tasks that must be addressed, you’re simply sitting back and waiting on your monthly checks to roll in. While many people struggle with the idea of not being involved in the daily management of their investment properties, there are several reasons to consider passively investing in real estate, whether this is through hiring a property manager or considering a REIT.
Managing your own property: The pitfalls
When you invest your hard-earned money into a rental property, it can be tempting to want to be involved in everything that goes on in and around the property. Afterall, you’re the one with money on the line, and who cares more about your money than you? However, there are several drawbacks you should consider before you pledge your time and resources to managing your own property.
Property management is incredibly time-consuming, especially if you do it right. If you put yourself in charge of managing your own property or properties, you’re essentially taking on a part or full-time job. Most investors prefer enjoying the returns on their investment without doing the physical labor associated with managing it.
There’s the chance that you will have to deal with clients who don’t pay their rent on time. While it may sound easy to simply throw out non-paying renters, virtually every state has a legal process in place that dictates how evictions work. To further complicate matters, many states are still operating under Covid-19 tenant payment freezes restrictions that further complicate evictions. Instead of dealing with the hassle of chasing down non-payers and legally evicting them, you may want to consider letting a property management company handle it for you.
Certain aspects of successful property management generally include some very specialized skills: Marketing, maintenance, construction/contractor management and other aspects of managing a property will work better if those handling them are professionals in their respective field.
What is passive income?
The term “passive income” generally refers to a revenue stream that is automated. If you hold a traditional job, you know how your cash flow stream works. You get up, go to work , collect a paycheck either via salary or by hour. You’re actively involved in obtaining your money.
Passive income in real estate allows you to sit back and collect monthly or quarterly dividends while someone else does the work. The only commitment from you is the money you’re investing, not your time.
There are countless passive income opportunities out there that are not restricted to just real estate such as affiliate marketing, high-yield CD’s, home rentals, web traffic. All take some level of commitment, whether that’s money, a skill, or a creative output.
Benefits of generating passive income
Many investors don’t realize that there are tax breaks available to passive investments.
For instance, equity-structured investments allow investors to claim tax-deferred cash returns which can make it possible for you to keep more of your money. There are even tax advantages associated with passive income real estate investments like REITs.
Additionally, avoiding the headache of dealing with clogged toilets, busted water pipes and angry tenants is a plus. No matter how pristine a property is, there will always be tenant issues. If you defer the management of your property to a management company, they are responsible for handling those complaints.
Passive real estate investing enables you to increase your total cash flow coming in, diversify your portfolio and collect returns from multiple properties. As a single investor, it’s simply not possible for you to adequately manage multiple properties. Having a management company in place allows you to take advantage of their staff while you continue to add more properties to your portfolio.
How do I generate passive income?
When considering real estate investing that can be done passively, there are multiple options for you to conside. Real Estate Investment Trusts (REITs) allow multiple investors to put their money into a trust that is managed by a trustee who decides what properties are purchased and how they’re managed.
However, REITs may have criteria in place that create restrictions on what type of investors can buy in. For example, many non-traded REITs are only accessible to high net-worth accredited investors. Streitwise is a rare example of a non-traded REIT available to all investors, non-accredited & accredited investors alike.
Non-traded online REITs have pros and cons such as navigating fee structures (avoiding hidden fees not advertised), calculating return potential, and finding the right sponsor. While there are fewer restrictions on the type of investors who can invest in online REITs open to non-accredited investors, you also put yourself at the mercy of the manager of the investment, regardless of their experience.
Real estate syndications operate similarly to crowdfunding, but are generally headed up by a syndicator (or sponsor) who has a proven track record in real estate investing.
Investing with Streitwise
Streitwise gives both accredited investors and unaccredited investors alike the ability to generate passive income through an investment in a diversified portfolio of institutional-quality real estate with an ultra-low cost structure.
Our goal is to distribute quarterly dividends that allow our investors to truly embrace the life of a passive real estate investor and generate passive real estate returns on a quarterly basis.
With a strategic method to how we choose our properties in place, we research the market, the property and other factors that can be the difference in success and failure. Streitwise is designed for passive real estate investors.
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.