How to Passively Invest in Real Estate

Investing in Multifamily

Multi-family real estate is also very suitable for property investors who wish to build a relatively large portfolio of rental units. The security and tax advantages that come with investing in multi-family homes is what captures the attention of investors. The best investment property for your portfolio is one that generates large returns. Multi-family homes are the best income property for wealth building.

The entire process of buying, managing, or selling a larger multifamily property is income focused. Most sellers do not get emotionally attached to their properties, buyers come to their offers based on financials, and both parties are usually sophisticated investors. This makes the whole process efficient, consistent, and easy to navigate.

Having multiple sources of rental income is a great way to build equity by repaying the mortgage. This will help you repay it faster and therefore build equity over the property since there is a guaranteed income from multiple sources.

Investing in multi-family homes may require a large amount of start-up capital but getting approved for a mortgage loan can be simpler than you’d expect for commercial multi-family properties. Approving loans for a multi-unit property with multiple tenants is much easier for lenders. This is because multifamily housing reduces the cash flow dependence on one tenant. From the lender’s point of view, there is less risk for them that you will default on the loan. 

As a busy professional, one of the primary benefits of investing in a multifamily apartment/syndication is it is a completely passive investment for limited partners. As a limited partner, you will receive the benefits of direct real estate ownership without the headaches of the day-to-day management of the property. The most work is identifying which sponsor and investment opportunity to invest in. Ways to get this type of exposure would be private ventures as always but also in real estate crowd funding platforms such as Fundrise, RealtyMogul or CrowdStreet.

Real Estate Investment Trust (REIT)

Real estate investment trusts (REITs) allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and operates income-producing real estate or related assets. Unlike other real estate companies, a REIT does not develop real estate properties to resell them.

REITs generate income, and so 90 percent of that taxable income must be distributed to the shareholders regularly. REITs make money from the properties they purchase by renting, leasing or selling them. As an indirect real estate investment vehicle, the REIT’s primary purpose is to invest and hold income-generating real estate assets. This requirement makes REITs prefer acquiring income-generating assets while not preferring high option value properties. The rise of the REIT industry only makes the competition for REIT-suitable assets more intense, which drives up prices and lowers yields on properties. This fact may make management lack the incentive to seek high option value assets that could potentially be ‘home runs’ for the REIT shareholders.

Real estate is a great investment option. It can generate ongoing passive income and can be a good long-term investment if the value increases over time. You may even use it as a part of your overall strategy for building wealth. Investing in multifamily properties without day-to-day management responsibilities is bound to be a smarter way for busy people. While every investment in every asset class carries some risk, investing in multifamily apartments has the potential to make smart additions to an investment portfolio.

If you’re a busy professional, investing in multifamily will allow you to participate in the benefits of direct real estate ownership. Your investment can be managed by a professional management team with a previous track record of success. Also, with larger properties, you will benefit from economies of scale, and the risk will be spread across multiple units. You will diversify your portfolio outside of the volatile financial markets, allowing you to focus on your career or business.

5 thoughts on “How to Passively Invest in Real Estate

  1. This is so well written and so wonderful. Thank you so much for this! Look forward to more of your articles.

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