Rental investing isn\u2019t passive. I know firsthand\u2014I once owned 20+ rental properties. <\/p>\n\n\n\n
It takes a ton of work to buy them, stabilize them, and manage them, year in and year out. Even if you hire a property manager, you then have to manage the manager. <\/p>\n\n\n\n
Rentals, flipping, and wholesaling\u2014these are all business <\/em>models. They appeal to plenty of entrepreneurs looking to launch a side hustle or full-time business. But make no mistake: They involve starting a business. <\/p>\n\n\n\n I don\u2019t want a side business. I just want the cash flow<\/a>, appreciation<\/a>, and tax benefits<\/a> of real estate investments. <\/p>\n\n\n\n So, for those of you like me who want a real estate portfolio <\/em>without having to run a real estate business<\/em>, what options do you have?<\/p>\n\n\n\n Anyone with $10 can buy a share in a real estate investment trust (REIT). You buy and sell them with the click of a button in your brokerage account, just like any other stock. <\/p>\n\n\n\n They\u2019re cheap, liquid, and easy. So what\u2019s the catch? There are several, unfortunately. <\/p>\n\n\n\n First, by definition, you\u2019re paying market value for them, as they trade on the open market. Don\u2019t expect a bargain or outsized returns. <\/p>\n\n\n\n Second, you pay taxes on the dividends at your full income tax rate. And unlike some other ways to passively invest in real estate, you don\u2019t get a juicy depreciation write-off. <\/p>\n\n\n\n Third\u2014and arguably worst of all\u2014they’re too correlated with the rest of the stock market. I\u2019ve written about this before<\/a>: They act as just one more sector of the stock market, with a similar correlation as other sectors like utilities or consumer staples. <\/p>\n\n\n\n That means they don\u2019t provide true diversification. They trade on public stock markets alongside other stocks and generally move to the same market rhythms. <\/p>\n\n\n\n To solve all three of those problems with REITs, you need to go up a level and invest in private placements. But that doesn\u2019t mean you have to be rich or invest the typical $50,000 to $100,000 in a single investment. <\/p>\n\n\n\n When I say \u201cprivate placement,\u201d I\u2019m referring to passive real estate investments that don\u2019t trade publicly on stock exchanges or get hawked by crowdfunding companies. Options include:<\/p>\n\n\n\n I\u2019ve invested in all these and continue investing $5,000 every month in a new one or two. I approach it as dollar-cost averaging for my real estate investments<\/a>. <\/p>\n\n\n\n Yes, operators do typically require a minimum of $50,000 to $100,000\u2014if you invest by yourself. This is why I don\u2019t. <\/p>\n\n\n\n I invest alongside other members of a co-investing club. We all meet on a Zoom call to vet a new passive real estate investment together, grilling the operator with questions. Then we boot them off the call and have an internal club discussion to analyze risk and returns. <\/p>\n\n\n\n We can then each invest $2,500 or more if we like it\u2014or skip it and wait a couple of weeks for the next one. <\/p>\n\n\n\n My current portfolio includes 45 of these passive investments, all spread across dozens of cities and operators. It\u2019s a true \u201cset it and forget it\u201d portfolio, where I just sit back and collect distributions every quarter. <\/p>\n\n\n\n Of course, the wealthy could potentially invest $50,000 to $100,000 by themselves in a new passive investment every month. <\/p>\n\n\n\n That said, you\u2019d need a massive income to do this kind of dollar-cost averaging, investing $50K to $100K every month. That\u2019s $600,000 a year, minimum, just in real estate investments. <\/p>\n\n\n\n Granted, not everyone practices dollar-cost averaging. But then you start getting tempted to try and time the market, which adds a whole new risk to your investments. <\/p>\n\n\n\n As you start stacking up all these passive real estate investments, how do you keep track of them all? How do you track returns for them? <\/p>\n\n\n\n You have a few options. I keep a spreadsheet of all my investment accounts, and I list all my real estate investments on it as well, along with my initial investment and the approximate yield. This helps me track my passive income as well for measuring my \u201cFI ratio\u201d: the percentage of my living expenses that my passive income can cover. When that reaches 100%, working becomes completely optional. <\/p>\n\n\n\n As another free option, I also use Credit Karma\u2019s net worth tracker. It\u2019s not as good as Mint was, but Intuit discontinued Mint and imported the data to Credit Karma. The better to sell you other services, my dear. <\/p>\n\n\n\n As a paid option, Vyzer specializes in tracking alternative investments alongside traditional paper assets. <\/p>\n\n\n\n Finally, my co-investing club has an automated tracker for its group investments. It updates with the current yield for each investment. <\/p>\n\n\n\nEntry Level: REITs<\/h2>\n\n\n\n
Goldilocks Level: Co-Investing<\/h2>\n\n\n\n
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Wealthy Level: Solo Private Placements<\/h2>\n\n\n\n
Tracking Your Passive Investment Portfolio<\/h2>\n\n\n\n
A Counterweight to Stocks<\/h2>\n\n\n\n