Five Real Estate Investments (from Most to Least Passive)
When you think of real estate investing, you might think of property management or house flipping, both of which require constant work and monitoring.
When you’re looking for extra income via real estate without the extra work, pursuing passive real estate investments might be the best strategy for you. Instead of handling tasks like tenant management, repairs, or property maintenance, you invest your money in real estate ventures where someone else handles the day-to-day operations. The idea is to generate income or capital gains with minimal time and effort on your part.
Requiring less time and commitment than if you were to flip homes or purchase and manage multiple properties, real estate investing doesn’t require much effort to maintain, oftentimes without even purchasing a property. Read on to learn more about real estate investments from most to least passive.
What Is Passive Real Estate Investing?
Real estate investing is the process of purchasing, owning, managing, renting, or selling real estate for profit. The key appeal of passive real estate investing is that it allows you to earn income and potentially benefit from property appreciation without the hands-on involvement that traditional property ownership requires. However, passive investors still take on risk, such as market downturns, and should be mindful of fees and the performance of the properties they invest in.
Real Estate Investments, from Most to Least Passive
Is real estate a passive investment? It can be with the right investment strategy.
Moving away from the traditional house flipping and maintenance of multiple properties, passive real estate investing is an incredibly effective investment strategy with the right guidance. The passive nature of real estate investments depends on the investment type, your direct involvement, and the level of “management” required. Passive real estate investing generally requires an upfront capital investment, substantial financial planning, and in many cases the involvement of a property management company (for an even more passive, hands-off approach).
Real Estate Debt Funds
A real estate debt fund is a type of investment fund that focuses on providing loans or credit to real estate developers or property owners rather than directly investing in physical properties, making it one of the most passive forms of real-estate investing. This real estate investment is considered less risky than equity-based investments, as the loan is secured by the property itself, making this a great passive income opportunity for real estate investors.
These funds raise capital from investors and use it to fund mortgages, construction loans, or other types of real estate debt. The goal is to generate returns for investors through the interest income on the loans and potential fees, rather than through property appreciation or rental income. These returns are typically issued to the investors on a quarterly or annual basis.
Capstone Capital Partners’ Growth Fund earns healthy returns from loans held by qualified real estate investors in Texas. Take advantage of growth in Texas and partner with an experienced family-owned team!
Real Estate Syndication
A real estate syndication is a partnership or group investment where multiple investors pool their capital to collectively invest in a real estate project, such as purchasing or developing commercial properties, apartment complexes, or large residential developments. The goal is to combine resources to acquire and manage a property that would typically be too large or expensive for an individual investor to handle alone.
In real estate syndication, there are two primary roles, sponsor (syndicator) and investors/limited partners. The sponsor is responsible for sourcing the real estate deal, raising capital, managing the property, and ensuring the investment is an overall success. Investors generate the capital for the deal and receive a portion of the income generated by the property. While the sponsor does most of the work, there is often more responsibility on the investor to stay informed and sometimes participate in major decisions like selling or refinancing the property.
Long-Term Rental Properties
Long-term rentals like single-family homes and multi-family buildings offer a regular stream of rental income. You can hire a property management company to handle day-to-day operations, making it more passive for you as an investor.
A less passive real estate investment because of the management involved, long-term rental properties are usually rented out for 12 months or more and require more of a heavy hand in the process, including monitoring tenant issues, damages, and the risk of vacancies. If a tenant moves out at any point, you may experience a gap between tenants while you search for a new renter. During this period, you won’t have rental income to cover your costs, and you'll need to budget for advertising and tenant screening.
Fix-and-Flip
A fix-and-flip investment typically involves purchasing a distressed property, renovating it, and then selling it for a profit. Investors in fix-and-flip projects can either be directly involved in the renovation process or simply provide funding to a third party that handles the work. With this being such a hands-on approach to real estate investing, it is not as passive as investing in a debt fund, for example.
Investors directly purchase distressed properties, oversee renovations, and manage the sale of the property. This option requires the investor to either manage the process themselves or hire a team of contractors, real estate agents, and other professionals. A fix-and-flip investor must actively manage each step of the process from property acquisition to renovation and sale.
Ground-Up Construction
In ground-up construction, an investor directly finances and manages the construction of a new property. The investor may hire architects, contractors, and project managers to oversee the development. This is a high-risk, high-reward investment that requires a significant amount of time and effort, making it one of the least passive forms of real estate investing.
The investor will likely need to be hands-on with project management or hire professionals, but they are still responsible for overseeing the entire development process. (However, if an investor chooses to participate or invest in ground-up construction funds or syndications, this would increase the passive nature of the investment).
Learn More About Passive Real Estate Investing with Capstone
Real estate investing can be complicated, but with the right team of experts on your side, passive income can be a breeze. With Capstone Capital Partners, you can get started in the growth fund, a private real estate debt fund that targets 10 percent returns for investors that seek steady, passive income.
To learn more about real estate investment opportunities, get in touch with the Capstone team today.
