Why Be a Passive Investor
The goal of passive investing is to build wealth gradually. Passive income typically refers to an income stream that is somewhat automated. You make an upfront capital investment – often in real estate, a mutual fund of other equity-based vehicle – and then receive an ownership stake in that investment, from which you are paid dividends or other types of regular income. What makes this form of income passive is that you are not directly managing the investment. Passive real estate investing, therefore, is a form of real estate investing in which you place your capital into a real estate venture that you will not have any direct responsibility for managing.
If you want to get into the real estate investment game, but don’t have the time to find, finance, manage, and sell properties yourself, perhaps passively investing as a limited partner is the right way for you to go.
True financial freedom is achieved when passive income outpaces living expenses, giving the investor freedom to pursue his or her passions or to accelerate their wealth creation with more aggressive investing. With a focused plan and a commitment to consistently planting “money seeds” in the right soil, any investor can create passive income that lasts for generations. Here are some more reasons to consider becoming a passive investor.
Earn money while you sleep
When you are a passive real estate investor, you do not deal directly with the hassles of day-to-day-management. Leaky faucet? You’re not getting a call at 2am. Broken gate? It’s not your responsibility to call the handyman. Passive real estate investing can be quick. You do your due diligence, sign legal paperwork online and transfer funds almost immediately. And as soon as your investment is processed, you become an equity stakeholder in that real estate venture and can start possibly realizing passive income and/or a portion of that venture’s growth. In other words, you have the potential to make money while you sleep. Primarily when investing in properties with existing tenants where there is existing cash-flow, your money is working for you 24/7.
In an equity-structured investment, passive real estate allows tax-deferred cash returns that can let you keep more of your earnings. This is one reason that real estate can be a more powerful passive investment than other forms of passive investing. Unlike interest payments or stock dividends, which can be taxed at your highest income bracket, the pass-through potential benefit of real estate ownership allows your share of the depreciation expense to offset your income.
You won't have to deal with the bank
Working with banks to obtain financing is difficult. Since the economy went south, banks have started to require even more documentation to get loans, and the process is both time-consuming and mind numbing. When you are a passive real estate investor, your investment is tied to a professional private real estate investment company that already has relationships with select banks. They navigate the bank financing waters on your behalf so you don’t have to.
Your passive investments let you leverage the expertise and experience of others
You always have the option in any investment to go it alone, whether that means investing in stocks through an online brokerage or buying your own investment property. But there is something to be said for leveraging the intelligence of the people around you. Some real estate investors devote their lives to learning the in’s and out’s of the market, and passive real estate investing gives you the chance to benefit from their deep education.