What is Passive Real Estate Investing & Passive Income?

Passive real estate investing is an investment strategy that allows individuals to participate in the real estate market, ideally, without the burden of active management. It is an avenue to generate consistent income and build wealth through real estate and again, ideally, with minimal time and effort required for property management. In this article, we will explore the concept of passive real estate investing, its benefits, different investment options, and how to use real estate as a vessel for passive income.

Understanding Passive Income

Passive income is earning money from a source other than an employer or contractor. The IRS (Internal Revenue Service) calls it unearned income.

It is the opposite of active income, which is income received from a job or business venture that requires active participation. Typically, active income takes the form of salary, hourly or commission based income. Active income puts a dollar amount on the number of hours you put in.

Passive income is non-active income. Earning interest on savings, getting cash back or rewards on a credit card, renting out a space, purchasing dividend-paying stocks, etc. are forms of passive income. For the sake of our discussion, we will focus on creating passive income via real estate investments.

Understanding Passive Real Estate Investing

A common way to create revenue through real estate is through rental income. You buy a real estate property, rent it long-term to tenants or short-term via Airbnb or VRBO. In this case, the rental income may feel like passive income but it is actually not, assuming you are actively managing it.

If you are personally managing tenant issues, the upkeep on the property, and maintenance of the space, you are a landlord creating active rental income. The ideal situation is the opposite - create revenue without all the management. This is where passive real estate investing comes in. The biggest value it creates is passive income.

Passive real estate investing involves investing in real estate opportunities where you, the investor, takes on a limited role, primarily providing capital. Unlike active real estate investing, which requires hands-on involvement in property acquisition, management, and tenant relationships, passive investing allows individuals to leverage the expertise of professionals and enjoy the benefits of real estate ownership without the day-to-day responsibilities.

Benefits of Passive Real Estate Investing

1. Minimal Time Commitment: Passive real estate investing saves you from the time-consuming tasks associated with property management. You can focus on your primary career, personal life, or other investments while their real estate investments generate income passively.

2. Diversification: Real estate provides an excellent avenue for diversifying an investment portfolio. By investing passively in different types of properties, locations, or investment vehicles such as real estate investment trusts (REITs) or real estate crowdfunding platforms, investors can spread their risk and reduce their exposure to any single property or market.

3. Cash Flow and Appreciation: Passive real estate investments often generate cash flow through rental income, which provides a consistent and predictable income stream. Additionally, real estate historically appreciates over time, offering potential capital appreciation and long-term wealth accumulation.

Passive Real Estate Investment Options

1. Real Estate Investment Trusts (REITs): REITs are companies that own and manage income-generating real estate properties. Investors can buy shares in a publicly traded REIT, providing access to a diverse portfolio of properties. REITs distribute a significant portion of their profits to shareholders in the form of dividends.

2. Real Estate Crowdfunding: Real estate crowdfunding platforms enable investors to pool their capital with others to invest in various real estate projects. These platforms typically provide detailed information about the project, such as location, investment strategy, and potential returns. Investors can choose projects that align with their investment goals and risk tolerance.

3. Private Real Estate Funds or Real Estate Syndications: Private real estate funds are professionally managed investment vehicles that pool capital from multiple investors to acquire, develop, or manage real estate properties. These funds are often focused on specific property types or investment strategies, such as commercial properties, multifamily residential rentals, storage units, mobile parks, oil & gas, and other value-add opportunities. Turbine capital focuses on real estate syndication investing by a diversified portfolio of commercial real estate opportunities.

How To Get Started in Passive Real Estate Investing

1. Research and Due Diligence: Before investing, thoroughly research the investment opportunity, including the property, sponsor, market conditions, and potential risks. Evaluate the track record and reputation of the investment sponsor or fund manager to ensure they have a history of successful investments.

2. Understand the Investment Structure: Familiarize yourself with the investment structure, terms, and potential risks. Read and understand the legal documentation, such as partnership agreements or subscription agreements. Consider consulting with a legal or financial professional if needed.

3. Diversify Your Portfolio: Spread your investments across different property types, geographic locations, and investment vehicles. Diversification can help mitigate risks and maximize potential returns.

4. Regular Monitoring: While passive investing requires less day-to-day involvement, it's essential to stay informed about your investments. Keep track of updates, property performance, and any changes in market conditions that may affect your investment.

5. Long-Term Perspective: Real estate is typically a long-term investment. Be prepared to hold your investments

What Role Does Turbine Capital Play in Passive Real Estate Investing?

In short, Turbine Capital does all of the above. At the research and due diligence level, our team does all the work - evaluating the investment opportunity, including the property, sponsor, market conditions, and potential risks. We stress-test the financial assumptions, visit the properties, vet the investment sponsors' track record.

We educate investors regarding the investment structure while negotiating a preferred rate of return. We curate a diversified portfolio spread across varying commercial real estate property types, geographic locations, and investment vehicles.

We track and communicate investment updates, property performance, and cover market conditions that may affect your investment. Ultimately, Turbine Capital makes passive real estate investing more passive. Learn more about our upcoming deals by joining our investor club.