Active real estate investing gets all the glory with TV shows and the mainstream media, however, sometimes passive real estate investing can turn out to be a best option for many would-be real estate investors. Let me explain.
What are your options if you live in a real estate market that offers very low returns?
You could spend every waking hour looking for that once-a-year deal or you could dive in and try to make a skinny deal (low cash flow) work. Either way, you are not getting a great return on your money or your time. As for skinny deals, they rarely work out and you might find yourself making up for negative cash flows in the long run. As for the once-a-year deal, you can look for it but from my experience you would likely give up before you found it.
Another option is to look to invest in a market far from home. Finding a market that offers better returns is not that hard, but then you need to step up so you can build and manage a team remotely. Investors do this all the time and I would even suggest this option is better than our first option of doing nothing or buying skinny deals. However, this means you will have signed up for long distance land lording and that will bring surprises and headaches.
The final option I suggest is to find an experienced active investor in a profitable market that has a defined, proven and successful model. This active investor would likely have a program that offers double digits returns, provides tremendous security and enables the passive investor to truly have mailbox money. The passive investor will need to vet the active investor and make sure they understand how they are protected and how both parties will be better off working together.
Passive Investing can be great for investors who live in low return markets or who just don’t have the time to learn active investing:
- They can establish an agreement that provides them a better return than their local market.
- They will have none of the long distance land lording headaches
- They can establish significant downside protection by understanding the model
What if you work full time and just can’t find the time to do all the work required to become proficient at active real estate investing?
You could keep stashing money in a savings account, the stock market or even gold/silver. These options aren’t terrible and they are available to everyone. But they offer very little cash flow, and in the case of gold, it offers no cash flow to pay bills each month.
What if you have an IRA and you want to diversify from the stock market?
Many investors feel their IRA’s are locked into either picking stocks or mutual funds. This is simply not the case. Some IRA investors who want a steady return instead of the daily gyrations of the stock market have looked to real estate as a way of establishing secured returns.
Passive real estate investing should be considered an option especially if you live in a low-return market, have no time, or want a means of diversifying your IRA. As always, before you invest, make sure you understand how you are protected, how you both will make money, and have a clear understanding of your downside protection.