by Dave Van Horn
Often, I’m asked by other real estate investors, “How can I invest more passively?” This is a question that I’ve even asked myself many times over the years, especially as I’ve become frustrated or tired of one investing strategy or style over another.
I think it’s quite normal to question one’s strategy over time because let’s face it, things change. Markets change, financing changes, and our individual goals change. But I also think some of the confusion comes from the government and the IRS. After all, the IRS calls real estate investing “passive” from a taxation point of view, but really, most the time it’s anything but passive.
So, what’s an investor to do? If you’re running low on time, or if you’re just plain tired of dealing with all the nonsense that comes along with investing in buy-and-hold real estate, how can you make things more passive?
Years ago, when I was just starting out in real estate, I was too busy doing everything to even have time (or money) to hire help. I did my own bookkeeping, taxes, sourcing of deals, marketing, leasing, property management, maintenance, turnovers, renovations, evictions, financing applications, raising capital, managing contractors and vendors, etc. You name it, and I’ve probably done it.
The good news is today, I don’t do many of those tasks myself anymore.
For example, I don’t do too much bookkeeping on my individual real estate deals, if any, and I rarely look for deals, as they seem to find me or I just buy larger tapes of assets. I still oversee things like marketing and raising capital, but I rarely manage contractors, and I don’t do any maintenance, renovations, or property management anymore.
In fact, when you’re really serious about becoming a more passive investor, you prove it by getting rid of all or most of your tools. This was by far the hardest thing for me since I was a contractor and property manager for many, many years.
But if you want to be more passive, you have to take a look at all you’re currently doing and ask yourself three questions:
- What am I best at?
- What will I make the most money doing?
- What do I enjoy doing the most?
If you find something that answers all three, you’re good to go.
But keep in mind, even as the boss of a business or the owner of properties, we can’t be afraid to ask for help.
Perhaps you could get a strategic partner who has specialized skills and can take some things off your plate. Maybe it’s as simple as co-investing with a JV partner. Or perhaps if you want to maintain more ownership and control, you could just find a better money partner or even a general contractor.
3 Passive Real Estate Investing Strategies
Besides outsourcing or finding a partner, you can also adopt different investing strategies that are more passive.
Many investors, especially high income earners, choose this method if they don’t have the time to learn and operate a whole new business model. If that sounds like you and you’re looking for a quicker way to invest, there are plenty of options available.
1. REITs & Funds
Some folks will just invest in real estate investing companies or REITS (real estate investment trusts). There are also all sorts of funds one can invest in. For example, there are hard money funds, real estate funds, note funds, tax-lien funds, peer-to-peer lending funds, insurance policy funds, apartment and commercial real estate funds (mobile homes, storage centers, office condos, strip stores, etc.), and even hydroponic farming funds (marijuana and Stevia). The list goes on and on.
Just investing in the financing side of real estate (i.e. hard and private money or notes) can be much more passive than dealing with tenants, toilets, and townships. Investing in paper, backed by real estate, absolutely has its merits. In fact, performing notes have been one of my own personal favorites when it comes to investing passively.
3. Commercial Real Estate
When it comes to buy and hold real estate, I must admit that these days, I’m more drawn to larger commercial real estate projects, mainly because with larger projects I can afford to have a team in place to handle management or maintenance without needing my pretty face in the day-to-day operations.
As I’ve gotten older, I’ve become more concerned with safety and diversification and less interested in investments that come with a whole lot of aggravation. Maybe this is why my focus has shifted more towards passive investments like private money, notes, private placements, and other businesses, such as leasing land, garages, storage centers, and apartments.
But enough about me. Let’s talk about you.
[Editor’s Note: We are reposting this article to help out our newer readers.]
Are you simplifying your life and making your real estate investing more passive? If so, what strategies or investment opportunities are your favorite?
If you’d rather be more active, that’s great too! What are your plans for investing in the future?
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