Real estate is one of those investment options that can be very rewarding, mainly due to its steady cash flow and low-risk high return potential. Many real estate investors consider house flipping or managing rental properties as the best investment strategies that provide the most substantial profit.  But while these are great strategies, they also require a lot of work and extensive real estate knowledge to be effective.

The good news is that, with passive real estate investing, you can earn extra money without the work and attention. But what exactly does “passive” mean, and how do you know if it’s right for you? This article discusses what you need to know about passive and active real estate investment. 

What is Passive Real Estate Investing?

Passive real estate investing is when you place your capital into a real estate venture, but you will let someone else do all the work for you. In other words, it’s a form of real estate investment that you’re not directly managing. 

As an investor, all you need to do is make a capital investment in something equity-based, like a mutual fund, then earn some extra cash without buying properties yourself. From there, a property management company will do all the physical labor while you patiently collect the income generated from your investments.

There are a few common passive real estate investment opportunities that can help you get started, including: 

• Real Estate Crowdfunding - is an investment opportunity where numerous smaller investors pool their resources to make a single investment and assume less risk. 
• Remote Ownership - is another form of passive investing that allows you to obtain complete control of a property without actually having to manage it.
• Real Estate Investment Trusts (REITs) - are companies that operate as trusts which invest, finance, or manage real estate properties that are typically income-producing. They pay out their profits as shareholders' dividends per year.
• Real Estate Funds - are a type of mutual fund that is long-term and invest in public real estate securities like REITs. However, unlike REITs, they provide value through appreciation rather than dividends.

Passive vs. Active Real Estate Investing

The main difference between passive and active real estate investing is the work and attention required to make your investment profitable. In an active real estate investment, the investor will do all the heavy lifting, such as managing rents or flipping houses. Conversely, passive investing takes the burden of work away from investors.

Is Passive Real Estate Right for You?

If you want to invest but don’t want to flip houses or be a landlord, passive real estate investing might be your best option. It offers the same potential profit as an active real estate investment but with less work and responsibilities on your part. Ultimately, you’ll receive profits from dividends or other streams of regular income without significant active participation.

Here are a few more reasons why passive income investing might be for you:

• You won’t have to deal with tenants, clean toilets, or repair property damages
• You won’t have to deal with a bank to own a property
• You don’t have to be an expert in real estate
• You can make money even while you sleep

Conclusion

A real estate investment is one of the best ways to earn extra income with minimal risks. Whether you prefer passive or active real estate investing, the profit doesn’t make much difference. What’s important is you don’t put all your money into one investment. Try to diversify your portfolio and remember to always do your research before investing. While no investment can guarantee a return on all your principal, your due diligence can help you find the safest and more lucrative investment for your capital.