Many people avoid investing in properties due to the amount of time and energy it takes. After researching and purchasing a potential property you need to actively care for your investment either by becoming a landlord or managing the property. Real estate investment can be time consuming and limiting, how many properties can on person manage at one time? This is why investors who are looking at diversifying with real estate participate in passive real estate investing.
Passive real estate investing removes these headaches for investors who don’t want to deal with the day to day issues of property management. There are many different ways you can do this, each with their own benefits and disadvantages.
You can form a partnership, either general or limited and have the partner take the responsibility of managing the property(s) your partnership purchases. Real estate is an expensive venture that often cannot be achieved without obtaining financing. Pooling resources in a partnership allows participants to purchase more expensive properties with less outside funding. However you need to be able to trust your partner to take care of the properties and your best interests, and if neither of you are experienced in real estate investing problems can occur and you can fall prey to bad deals where income is lost. You can form a corporation which has more income pooling abilities and financial resources, but again you have to make sure at least some participants have knowledge in this type of investing.
Triple Net Leased Property is where you purchase commercial property and lease this property to a business owner who will run their business and take care of the property for you for a length of 15-25 years. This can benefit you and the business as long as the business cares for the property properly and is stable and pays on time. Careful research is involved in this type of venture to make sure you purchase the right property in the right location and also research prospective tenants before making an agreement with them.
Real estate investment trusts (REIT) are corporations that are formed to purchase investment in properties. These specially created companies are federally regulated to make sure they use their funds to invest in properties and distribute the profits among shareholders through dividends. These publicly traded companies provide benefits similar to owning stocks and help with a diversified portfolio. But the income they provide is taxable and cut into profits earned in this venture so that must be weighed carefully with the benefits
So if you want active profits without active effort, add passive real estate investing to your portfolio.