Buying and renting out a residential property is sometimes misperceived as a passive real estate investment. It can involve a lot more time and effort than many investors plan for. Passive real estate investment offers similar benefits, with much less day-to-day involvement.
Many imagine real estate as a path to financial freedom. It is a way to generate passive income month after month. While it is true that real estate can produce long-term wealth, it’s not always hassle-free.
Real estate is a large industry with lots of opportunity and a variety of ways to invest. Before diving in, investors should evaluate their goals and desired level of day-to-day involvement to determine which real estate investment method is best for them.
Active real estate investment means that the investor is highly involved at every step of the investment. With passive real estate investment, on the other hand, investors can still enjoy the benefits that real estate investments have to offer, with much less day-to-day involvement.
Sometimes, new real estate investors envision owning rental properties as a mostly hands-off process of buying a property, renting it out, collecting rent, and benefiting from appreciation of the property value. In fact, the time and energy required to make this happen is comparable to a full-time job.
In an active real estate investment, the investor must research the market, select a property for purchase, make decisions about maintenance, repairs, screening and accepting tenants, and handle many of the day-to-day affairs of property management. These investors also source their own deals, secure financing and make improvements to the asset to drive value.
Typically, active real estate investors purchase the property below market value with the vision of generating ongoing rental income while accruing long-term asset appreciation. Properties purchased can range from small condos to large apartment complexes with multiple buildings and many units.
The active real estate investment approach works best for investors who want to be the main decision-maker and executor of every aspect of the asset. Typically, these are investors with real estate expertise, negotiation experience, and the ability to manage the assets full-time.
Passive real estate investing, on the contrary, is a form of real estate investing in which an investor places capital into a real estate venture that the investor does not have any direct responsibility for managing, while enjoying similar benefits to owning the asset themselves.
A passive investment approach to real estate investing offers investors the possibility of earning passive income, tax benefits, and asset appreciation, knowing an experienced owner/operator is managing the asset. It also allows for investors to scale their investments faster if they desire, because they are not limited by their location or time commitment.
For example, an investment in a private equity real estate fund offers investors upside potential on the long-term appreciation of the asset, and ongoing cashflow through the collection of rents.
When it comes to real estate investing, investors have two options: active or passive.
While active real estate investing requires more time, it can also lead to greater profits.
On the other hand, passive real estate investing has a lower bar for entry and can bring passive income with no work required on your part. So which is right for you?
If you’re torn about what type of real estate investing you want to start with, we can help.
Lucern Capital Partners
Lucern Capital Partners is a real estate investment firm that targets value-add multifamily and mixed-use assets along the U.S. East Coast. With over 55-years of combined real estate experience, the Lucern Capital Partners team has successfully transacted on over $2.5 billion of debt and equity real estate transactions during their careers. They bring that knowledge to accredited investors to provide income-generating investments in institutional-quality multifamily and mixed-use assets through the Lucern Multifamily Value Fund I, L.P., and standalone transactions.