When it comes to passive real estate investing, it seems like everyone has an opinion. Some say it is best to buy real estate and manage it yourself, while others say to simply invest in a public REIT and have it managed by a professional while paying high fees.
In general, real estate is an important asset class to hold in your portfolio due to its tax benefits and inverse relationship to the stock market, as we have consistently seen that real estate rental income often rises as the stock market declines.
There really is no right or wrong answer as to whether active or passive investing is better. It all depends on your goals, time commitment, and how willing you are to learn and put in the needed effort to make active investing work for you.
What is Active Real Estate Investing?
Active real estate investing is when you directly own and operate a real estate asset or real estate portfolio. This typically involves sourcing the property to buy, negotiating the terms of the purchase, and obtaining financing and equity commitments needed to close on the property. After that, the investor is responsible for finding tenants, negotiating lease terms, collecting rents, and finally handling any repairs and maintenance needed on the property.
Many people can successfully manage one or two residential properties on a part time basis, but when buying multiple assets and creating a large real estate portfolio, it will quickly turn into a full time business.
It may seem like running a real estate business would be easy, but when scaled, it can get very difficult and time consuming. In order to be successful, a property owner needs to develop solid professional relationships with the likes of contractors, vendors, lenders, real estate agents, and other professionals. That, coupled with dealing with tenants and maintenance issues quickly adds up to a time consuming job.
While active real estate investing does take a lot of time and effort, there are plenty of advantages. History has proven it is almost always a growing asset class. In addition to the appreciation and rental income, real estate comes with some tax advantages that are generally unavailable with other asset classes, especially when actively managed.
What is Passive Real Estate Investing?
Passive real estate investing employs more of a “hands-off” management strategy. Think of it as an investor outsourcing their real estate management to a professional manager and pays the manager for their service and a portion of profits for their professional service.
There are several ways to invest in passive real estate including publicly traded and non-traded REIT, private real estate firms, crowdfunding, etc.
Another way to invest passively in real estate is through a private real estate syndication. In a real estate syndication, you invest in a real estate deal with many other investors typically through a Limited Liability Company or LLC. This LLC helps protect the real estate investor from potential liability associated with operating the real estate. With a syndication, even though the investment is passive for the limited partners, the investment project as a whole is actively managed. Because it is managed by a professional real estate development firm, the investment gains can be significantly higher than most other passive investments.
Tri-Land Properties is a commercial real estate developer that focuses on grocery anchored real estate. We believe that passive real estate investments are the better choice for most people because of the enormous knowledge and time it takes to become a true real estate professional. By investing with Tri-Land, an accredited investor can have access to institutional grade grocery anchored real estate investments run by a 40+ year successful real estate company. To learn more, please contact RJ Johnson at Tri-Land Properties.