Real estate is a great way to earn passive revenue every month, year after year, right? Not exactly. While it is true that real estate investing can be a great way to build wealth, it doesn't always mean it's completely hassle-free.
Many real estate investors get into rental properties hoping for passive income, only to find out it's more work than they thought. However, that doesn't mean that the dream passive income streams from real estate investing are dead — far from it.
It turns out there are two forms of real estate investing, active and passive investing.
What Is Active Real Estate Investing?
Active real estate investing is what most people tend to think of when they think about owning an investment property. However, active real estate investing can come in many forms, from:
- Fix and Flip
- Wholesaling
- Renovation or development projects
In each of these instances, the investor is highly involved with different parts of the process. For example, they could be involved in the purchase, renovation, or development of the investment. It usually requires the investor's time, capital, and risk. That is because with active real estate investing, there are many moving parts to the process.
The time and energy you spend on these kinds of investments are comparable to a full-time job.
What Is Passive Real Estate Investing?
Passive real estate investing involves making money passively through investing in real estate. There are several forms of passive real estate investing.
They are:
- REITs (Real Estate Investment Trust)
- Real estate funds
- Owning rental property
REITs are similar to mutual funds, although for real estate rather than stocks. One advantage of investing in REITs is that they are federally required to return 90% of the profits to investors. Another benefit is that you can buy and sell shares at any time. That makes them more liquid than traditional real estate.
A real estate fund is sometimes also known as a syndicated deal. To get involved in a real estate fund, you'll need some capital. Traditionally, they'll be a minimum investment of about $25,000 to $50,000. Then, you'll invest with a group of other individuals and take on the risk and reward collectively.
A great benefit of syndication is that you're considered a limited partner, just a fancy way of saying that you invest capital. That's your only job. The manager of the fund finds all of the real estate deals. So you can sit back and wait for the passive income to roll in.
Real Estate Investing: Which Kind Is Right for You?
When it comes to real estate investing, you have two roads: active or passive. While active real estate investing requires more time, it can also lead to greater profits.
On the other hand, passive real estate investing has a lower bar for entry and can bring passive income with no work required on your part. So which is right for you?
If you're torn about what type of real estate investing you want to start with, we can help.
If you own rental properties in Dallas or are looking to learn more about investment properties in Dallas, contact Home River Management.
