If you've ever invested in real estate, you know firsthand that it's not always a passive investment. Sure, it's nice to collect those monthly rent checks, but more often than not, you need to remind the tenant that it's the first of the month again. On top of that, maintenance issues always seem to pop up, usually when you're out of town and need to track down and manage a contractor remotely.
However, there are ways to make money in real estate that don't require much effort. Here's a look at a few ways to earn some truly passive income from real estate.
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Let someone else take over the management headaches
There are a lot of ways to invest in real estate. One option is to own a rental property like a single-family home, apartment building, or vacation home. Investing in rental properties can require a lot of work if you manage them yourself.
But you can set the investment on autopilot by hiring a property manager for all the hands-on activities like finding and managing tenants and dealing with maintenance.
Meanwhile, even finding a property to buy can be relatively effortless. For example, online marketplace Roofstock has large inventories of available rental homes for purchase. It even provides recommendations of property managers to hire. These options make owning a rental property a relatively passive endeavor.
Invest alongside large real estate investors
Other online real estate marketplaces like CrowdStreet, Realty Mogul, Equity Multiple, and Fundrise enable you to invest in larger commercial real estate opportunities. Also sometimes called real estate crowdfunding portals, these sites allow investors to either become a limited partner in a single property or invest in a real estate fund that holds several properties.
Due to accreditation rules, some deals on these sites are only available to investors with a high income ($200,000 per year or $300,000 if married) or high net worth ($1 million in net worth excluding your primary residence). But if you are an accredited investor, they can be a great way to invest in real estate without much effort.
Investors can browse their portals and invest in individual commercial real estate properties (known as single-asset syndications) offered by experienced real estate sponsors. These sponsors manage the properties, complete any maintenance projects, and handle the eventual property sale. These real estate deals enable investors to benefit from the passive income and capital appreciation the properties produce. But investors give up control, including the ability to sell these illiquid investments.
Another opportunity many online marketplaces offer is the ability to invest in real estate investment funds or non-traded real estate investment trusts (REITs) that they manage. This fund-based investment approach can be an excellent way to earn passive income from a diversified commercial real estate portfolio. These funds tend to be more liquid than single-asset syndication deals, with many enabling investors to sell some or all of their investment once a quarter.
The simple way to invest in real estate
Another effortless way to invest in real estate is through publicly traded REITs. These entities own large portfolios of income-producing commercial real estate managed by experienced real estate professionals. REITs must pay 90% of their taxable income via dividend payments to shareholders, making them a great way to collect passive income.
REITs also allow investors to home in on over a dozen specific property classes like office, retail, and residential. These entities are highly liquid, enabling investors to easily buy and sell them through their brokerage account like any stock.
With over 200 publicly traded REITs to choose from, it does take some effort to find the right ones for your portfolio. An even more effortless way to invest in REITs is through a REIT ETF. These entities hold a basket of REITs, enabling investors to broadly invest in the sector. That reduces the risk of picking a REIT that underperforms the industry.
There are many ways to get into real estate without too much effort
Real estate has historically been a money-making investment. While it can be a lot of work, there are many ways to invest in real estate passively. A great way to start is with REITs. They're a fairly effortless, low-cost, and highly liquid way to start earning passive income from real estate.
