Those who have been searching for houses to flip or multifamily properties to hold may find the process to be challenging. Finding an initial deal to get started with is not always easy. Some might even find themselves pondering a return to the stock market as a result of these difficulties.
However, there are a wide range of other options to choose from. There are numerous real estate investors out there who are able to derive a passive income from their choices.
Becoming a Successful Passive Real Estate Investor: A How To Guide
There are seven different paths that can be followed in these instances.
Path #1: Slowly climbing the ladder with a series of smaller deals that become larger over time.
Path #2: Having access to sizable amounts of capital and making a big splash early on.
Path #3: Finding deals for sponsors.
Path #4: Raising capital for sponsors and partners (there are numerous legal pitfalls to be aware of).
Path #5: Finding employment within the industry.
Path #6: Passive investing.
Path #7: Finding a mentor.
The sixth part is the one that will be discussed in much further detail. Even the top real estate investors find themselves struggling to locate the best deals. Everyone is looking for that house to flip that will provide them with enough passive income to retire from their day job.
Sadly, there are too many people who have allowed themselves to be seduced by HGTV. These types of channels make investors believe that the process is simpler than expected. As a result, competition for the top properties is hotly contested. Prices are starting to skyrocket as a result of this shift in mentalities.
Profitable deals are now much harder to come by. When the market drops, investors get burned. Investors who are able to sidestep these pitfalls and get the most out of their investments will often field a number of questions from those who are looking to duplicate their success. Everyone else wants to know how they can work less and make more.
The Benefits of Earning More and Working Less
Passive real estate investing comes with a number of advantages. The investor no longer has control but they are forgoing much of the risk. The tax benefits that are available to active investors are still available. Wealth and profits are built without having to quit the day job. Finding a great sponsor is easier than vetting a series of deals.
How To Make These Investments As Passive As Possible
There are three methods to consider in these instances:
1. Active passive investing.
2. Passive passive investing.
3. Using a crowdfunding portal for either.
Active Passive Investing
These investors will stop at nothing to vet the people that they are working with. If they are considering a syndicator, they will take the deepest dive possible into the person and the deal itself. An active passive investor also stays involved over the course of time.
They pride themselves on taking the time to get to know each investor and make the person prove their worthiness to them. In person visits, background checks and Google searches are all part of the equation. References must be checked and financials must be analyzed.
Passive Passive Investing
Due diligence is required. The investor must take all of the same steps as above and then some. The only difference that takes place in these instances is a lack of critical review. These investors review the sponsor, trust their decision making and do not feel the need to hold their hand each and every step of the way.
Related: Debunking The Sweat Equity Myth
Some investors are going to be too busy to review each sponsor in depth. This may seem like a plan that is doomed to failure but this is the same investment strategy that is used by those who invest in mutual funds. They are not going to go through every line item because there is already a basic level of trust in place.
Real estate crowdfunding portals offer smaller sums of capital with smaller levels of risk. On the other hand, the crowdfunding portal is not going to vet sponsors on behalf of the investor. There is only so much that can be done.
When possible, real estate investors must carefully vet their sponsors and the deals that they are considering. This will save investors a sizable amount of hassle in the years to come. Partnering with an expert is another great way to make sure that a portfolio continues to grow. Working harder to make less should never be the goal, when the inverse is this attainable.