There’s a pretty pervasive myth among newbies in investing and wealth building circles that real estate is a passive source of income. However, if you dig deep and look at the actual facts and real life circumstances, you’ll quickly see that real estate investments are rarely 100 percent passive. They almost always require some involvement – and often a lot of it. However, there are a few exceptions.
In this article, we’re going to explore some of the ways that you can strategically optimize real estate investments to make them less time-consuming.
News Flash: Most Real Estate Investments Aren’t 100 Percent Passive
You’ve probably seen a TikTok video, read a blog post, or heard a podcast episode talking about how real estate is the ultimate source of passive income for building wealth. But it’s important to realize that passive exists on a spectrum. On one end, you have “100 Percent Passive” and on the other end, you have “Somewhat Passive.”
Most people assume that “passive” means 100 Percent Passive. But in reality, a passive real estate investment usually lands more on the “Somewhat Passive” side of the spectrum.
Take a single-family rental property as an example. Yes, it doesn’t require 40 hours per week to manage a single rental. However, it does require some time for tasks like:
- Finding and screening tenants
- Collecting rent
- Dealing with maintenance issues
- Accounting and bookkeeping
- Etc.
On some days, this can require several hours of your time. On other days, you might not have to deal with anything. So, yes, it requires less time than a full-time job. However, we’re doing new real estate investors a disservice if we’re communicating that these investments are totally passive.
Tips for Hands-Off Real Estate Investing
If you go into real estate investing with the understanding that nothing is totally passive, you can set yourself up for a much greater chance of success. This context allows you to make strategic decisions that allow you to be more hands-off than if you just rolled with the status quo.
Here are several tips to help make your real estate investing strategy less time-consuming:
Turnkey Properties
If you want to own the real estate but not deal with the headaches, consider turnkey properties. These are homes or apartments that have already been fixed up and are often already rented out. A property management company can be hired to take care of all the day-to-day tasks, including everything from repairs to dealing with tenants and collecting rent.
While you technically own the property and get all the benefits, like appreciation in value and rental income, the management company handles the day-to-day. This option is closer to traditional real estate investing but without most of the direct responsibilities.
Real Estate Investment Trusts (REITs)
Imagine owning a piece of a shopping mall, a bunch of apartments, or an office building without having to actually buy the property yourself. That’s what a Real Estate Investment Trust (REIT) lets you do. A REIT is like a mutual fund for real estate where lots of investors pool their money together. This pool is then used to buy properties. You, as an investor, would own shares of this pool.
REITs are great because they’re easy to buy—just like stocks—and they pay out most of their earnings to shareholders. This means you could get regular payments, known as dividends. Also, because you’re investing through a company that manages the properties, you don’t have to worry about the day-to-day tasks of being a landlord.
Real Estate Mutual Funds
Maybe you like the idea of REITs but are looking for something with a bit more variety. Real Estate Mutual Funds might be right up your alley. These funds invest in a variety of REITs and other real estate related investments. You get a diversified portfolio, which can help spread out the risk.
Just like with any mutual fund, a professional manager picks the investments and takes care of all the analysis. Your job as an investor is much simpler: you just decide how much money you want to invest and when you want to sell your shares.
Build Your Portfolio Your Way
The great thing about real estate investing is that you can build a portfolio anyway you want. If you want to load it up with a dozen single-family properties and hire a property manager to oversee them, you can do that. Or, if you’d rather put all of your money into a multi-family apartment building, that’s an option. Then there are some who prefer to mix single-family properties with REITs, etc. It’s all up to you!
While no real estate investment portfolio is totally 100 percent passive, by leveraging some of the options discussed in this article, you can structure yours in a way that requires less of your time and energy. Best of luck!
