Learn how to start with passive real estate investing and how to successfully secure an additional passive income with real estate.
How to Start with Passive Real Estate Investing (With Success!)
Passive real estate investing makes a good way to collect financial returns with little (or no) effort on your behalf.
By focusing on creating cash flow and replacing regular incomes with real estate assets, many investors decide to get involved in one of the passive income real estate investing options.
- But how do you know which investment option is best for you?
- How can you be a passive investor with real estate even if you don’t have a lot of available assets to invest?
- Can you invest in real estate and start earning regular passive income?
- How much money can you even make with passive real estate investing?
All these and other questions regarding passive income with real estate will be answered in our thorough review, in addition to suggesting the best passive real estate investing companies.
What is Passive Real Estate Investing?
Before we get to the core of the topic, let’s explain what is a passive income when it comes to investing. Though it sounds like that, ‘passive’ doesn’t mean you don’t have to do anything and the money will arrive by itself. Exactly the opposite, it is creating earnings without being actively involved in the business.
It’s a powerful strategy to make money work for you. Moreover, it has become one of the favorite ways to earn extra money while you dedicate yourself to other things and jobs.
Therefore, why not take the opportunity and secure an additional income that can lead you to financial freedom?
Even though real estate investing includes finding properties, buying and fixing them, and finally selling them at a profit, earning by passive real estate investing is another story.
As mentioned above, the level of required involvement varies depending on the investment option. Overall, the idea is to make an upfront capital investment in real estate from which you will receive a regular income.
Of course, you will not have any direct responsibility for managing a real estate or investment.
Correspondingly, if you are asking yourself can you earn passive income with real estate, the answer is yes.
There are several ways to passively invest in real estate such as purchasing stocks, investing in trusts, crowdfunding platforms, etc.
We’ll explain below the best passive real estate investing examples, so stay on track.
How to invest in real estate?
There are several ways to (passively) invest your money in real estate but the three main ways include:
- Participating in the stock market
- Through real estate crowdfunding
- By partnering with an active investor
First things first, planning and creating a business strategy is key to having a successful passive income with real estate.
In other words, explore the target market, learn what are current local trends and values, and finally, choose one among the best passive income real estate options.
As each option has its own advantages and disadvantages, in the text below you will find a complete review of the most common ones.
Passive Real Estate Investing Companies: Which one is best?
Real estate investing with passive management can be a complex process with numerous options to choose from. Therefore, to help you decide which one to pick, we featured the main characteristics of the best passive real estate investing companies.
All of them belong to one of the three main ways to be a passive investor with real estate.
First, look at the table below for quick comparison.
For more detailed descriptions, keep reading.
|$5,000||12 – 120||0.5%||Varies||9 – 14%||$80b|
|RealtyMogul||$1,000||6 – 120||1 – 1.25%||Equity||Varies||$400m|
|Fundrise||$500||0||0.85 %||Varies||9 – 12%||$7.5b|
|Roofstock||NA||NA||0.5 % for buyers, 2.5% for sellers||Equity||Varies||$2b|
Formed by industry experts, EQUITYMULTIPLE is a well-known real estate crowding platform. With a professional team experienced in real estate finance, law, and private equity, the company’s goal is to make real estate more accessible to individual investors.
Furthermore, they use technology in order to streamline the investment process and to provide a new level of access to private transactions.
Likewise, they are probably the only real estate crowdfunding company backed by a leading real estate capital market firm Mission Capital Advisors.
Finally, the fact that EquityMultiple has closed on investments accounting for over $2.4 billion in real estate value is another testament to their success.
How EQUITYMULTIPLE works
EQUITYMULTIPLE works with national and regional lenders, sponsors with strong track records, and real estate companies operating in different markets.
After identifying the sponsors, the next step is evaluating the market and diligence process. It’s interesting that they select fewer than 10% submissions, as they strive to offer highly curated and transparent deals.
After you take part in the investing process, you’ll be able to diversify a portfolio of various real estate investment types across asset classes, markets, and projects.
Equally important, it’s good to know that EQUITYMULTIPLE offers three types of investments:
Debt deals work only with experienced lenders. These are debts backed by a company with a long history of real estate investing. Moreover, they are much shorter than other deals provided by the company. You can read more about the debt deals here.
The target rate for investors goes between 7 and 12%.
Preferred equity deals involve only individual investors and are more rewarding than syndicated debts. Therefore, these deals offer fixed quarterly or monthly returns, combined with a fixed portion of the project upside upon repayment. Furthermore, they provide shorter, fixed terms and help manage risk.
The target total preferred return varies between 11 and 17%.
Finally, equity deals are the riskiest and the longest. On the other hand, these investments offer the best rewards with the internal return rate that can be up to 14% and even more.
The company’s primary compensation is 10% participation in the profit of each project. However, the company will receive the fee of the profit only after the full investment has been returned to all investors.
How to invest with EQUITYMULTIPLE
If you want to be a passive investor with real estate by using the EQUITYMULTIPLE platform, here is how. There is a minimum investment for an individual deal and it varies between $5K and $10K.
All residents of the United States can easily register an account on the EQUITYMULTIPLE website. The sign-up process takes a few minutes. After that, you can freely browse the deals and live offerings. Each deal comes with financial information such as a time limit within which you can expect returns, a structure of returns, etc.
Choose the one that fits your investment objectives.
Once you’ve invested money, EQUITYMULTIPLE will monitor your investment performance, send you regular asset management on all your investments, and show you quarterly investor updates. Finally, you will receive earnings directly through ACH bank transfer.
Overall, passive real estate investing with EQUITYMULTIPLE is a great option to consider if you are an accredited and experienced investor.
As the company has a good stream of deals with different return timeframes and risk levels, they also provide secure investment opportunities, a strong support system, and low fees (0.5% annual fee).
RealtyMogul is another way to be a passive investor with real estate. This crowdfunding platform connects investors and sponsors, making commercial real estate investing accessible to everyone.
Even though you have to be an accredited investor in order to invest with RealtyMogul, there are two options for non-accredited investors too:
- MogulREIT I – the minimum investment requirements are much lower, accreditation is needed, and there is more asset diversification when investing in individual properties. The minimum investment is $5k and fees are 1% for annual management + 3% of Equity Contribution.
- MogulREIT II – the company’s new REIT with a focus on the equity of multifamily nationwide.
How RealtyMogul works
RealtyMogul gives its investors an opportunity to invest in a wide range of commercial real estate. Some of these options are office buildings, hotels, self-storage, industrial sites, retail and medical buildings, etc.
If you decide to invest with the company, you will have to purchase shares in a RealtyMogul limited liability company (LLC).
This way, the company minimizes overhead for the investment sponsors, while providing more investment opportunities. Moreover, the platform simplifies tax information and reporting of distributions.
As an investor, you can execute all financial and legal documents online. Additionally, a personal dashboard will show you a project’s progress, a return performance, and the investment’s status.
In like manner, when it comes to returns, you will receive quarterly distributions, which can be reinvested or withdrawn. You can read more about the platform in our RealtyMogul review.
Investing in REITs (Real Estate Investment Trust) is another popular way of gaining passive income with real estate. A pioneer in the REIT market, Fundrise is a low-cost real estate investment platform. Oriented via everyday investors, it offers an easy opportunity to profit from passive real estate investing with a minimum investment of $500.
The company was also the first to introduce eREIT (electronic Real Estate Investment Trust). Similar to investing in mutual funds and ETFs, eREIT has become a way to invest in commercial real estate accessible to the masses.
However, keep in mind that these funds are harder to liquidate and diversification varies by provider.
How Fundrise works
When it comes to passive real estate investing with Fundrise, there are two options.
Firstly, you can invest a minimum amount of $500. It goes to the Starter Portfolio, which is a mix of eREIT and eFunds. The company gives you returns over quarterly dividends.
Secondly, you can invest $1000 and be upgraded to the Core Portfolio. If you opt for this solution, there are three plans at your service:
- Balanced Investing (a diversified portfolio created for greater wealth-building)
- Supplemental Income (a steady income with a focus on dividends)
- Long-Term Growth (potentially superior returns over the long term
Unsure which to pick? No worries because Fundrise provides a three-step questionnaire to help you decide where to invest the money.
If you are a non-accredited investor looking for an opportunity to invest in single-family rental real estate, Roofstock is the answer. It’s the first online marketplace created by investors for investors.
They don’t own any of the properties listed in their marketplace. Quite the opposite, they provide research, analytics, evaluation, and purchase independently certified property transactions. In other words, Roofstok is an online platform that connects buyers and sellers of single-home units.
Moreover, the company enables investors to treat their investments more like stock portfolios. This way, investors can focus on asset location rather than dealing with property management.
How Roofstock works
As mentioned in the previous paragraph, Roofstock allows you to buy stock (for example, rental homes). All listed properties are vetted and certified and all of them can change multiple owners without the tenants having to leave the property.
In other words, you don’t have to hire a realtor or visit the property. Roofstock will negotiate the best price in your name while reducing the cost of funds and trusts.
So, accredited investors can buy shares of a specific property where each share represents 1/10th of the home’s equity. As a Roofstock One investor, you will receive an economic right to the underlying property, which also includes any net rental income after expenses.
On the other hand, Roofstock takes care of all the management and retains a minimum of 10% ownership interest in each property for the first year.
After a six-month period, you will be able to redeem shares or convert them to a traditional ownership model. Not to mention it’s a great opportunity for all those who want to buy real estate but lack the time for diligence.
Let’s not forget to mention the minimum investment, which is currently $5k. When it comes to the pricing structure, Roofstock charges sellers a 2.5% fee or $500, whichever amount is greater.
On the other hand, the fee for buyers is 0.5% or $500, whichever amount is greater.
With M1 Finance, the story is a little bit different.
M1 Finance is an investing platform that allows you to personalize your finances. In the same way, it allows you to invest, borrow, and spend seamlessly. In other words, it’s smart money management. You can create a portfolio with any stock or ETF (exchange-traded fund), completely free.
Additionally, you can borrow money at the lowest rates in the market or move it between investments instantly.
Therefore, a unique mix of automated investing and high-level customization results in helping you create a portfolio on your own specifications. There are no trading or management fees unless you have an account with less than $20 and no trading activity for 90 days. In that case, a fee will be charged.
Other things that are not so cool include no online service support (only via phone or email), no financial advisors nor much help for setting financial goals.
How does M1 Finance work
Well, to earn income with M1’s passive real estate investing you need to invest in public stocks like REITs. The platform provides you with investment portfolio templates, also known as ‘Pies’.
Pies are based on Modern Portfolio Theory, representing a collection of 100 ‘slices’.
Each slice is one investment, for example, a stock. In addition, some of the following categories to choose from are industries and sectors, general investing, plans for retirement, etc.
Finally, you’ve got to choose do you want to invest all your money in one of those prebuilt templates or customize it in your own way.
After that, M1 Finance will manage your account and maintain your allocation with Pies by rebalancing and assigning your new contributions. Once you’ve made a pie selection, M1 will automatically buy investments in the correct proportions.
Note that there is no questionnaire that could determine your investment risk tolerance.
Conclusion on Passive Real Estate Investing
Passive real estate investing has become one of the most popular ways to earn extra money.
Building cash flow, diversification, and equity is one of the important tasks when talking about financial freedom as the main goal. Therefore, different ways of earning passive income with real estate begin to show.
Crowdfunding is mostly managed and executed through online platforms such as EQUITYMULTIPLE. With them specifically, you can expect high return rates, low fees, excellent customer service, and different offering types.
On the other hand, REITs portfolios have a wide range of properties at once, rather than individual properties to choose from.
Onwards remote ownership includes using platforms such as those mentioned above. Similarly, their main goal is to research and purchase properties with management and tenants already in place.
Each passive real estate investing option has its own advantages and disadvantages. Of course, it’s common not to see short-term results or liquidity. However, in the long run, passive real estate investing makes a good side hustle and it is definitely worth the look.
Which of these passive real estate investing examples sounds most appealing to you? Have you already tried one of these?
- 9 Best Rental Income Trackers
- What Does it Take to Retire on Rental Income?
- Should You Sell to a House Investor?
The Alpha financial perspectives will help you find new ways to make money, which are aggressive, unknown and require significant hard work. Use Personal Capital to monitor your cash flow and net worth.