The Two Options for Passive Income in Real Estate Investing in 2022
Passive income is a dream for many people. It’s the idea of making money while relaxing on the beach or even sleeping soundly at night. Real estate has long been touted as one of the primary ways to generate passive income.
The question is, how do you obtain a steady passive income in real estate?
There are two ways you can go about investing in Real Estate: buying properties yourself, which requires a lot of time managing them on top of your day job, or else having someone manage it while working full-time; alternatively by investing in an investment fund that will take care of everything involved so all clients need do is reap returns instead!
Option 1 Investing in real estate investing from square one
Three simple steps to start in Real Estate Investing
1. Don’t Follow the crowds
Investors, most of the time, especially if it’s not their full-time job, investors) are generally looking at where everybody else is going. As a result, the best deals on properties are snapped up before they have a chance to get them. This means you will need to do some serious research and work in order to find good opportunities that won’t be gone by the time you’re ready to pull the trigger. Many people are talking about places that are a hot market right now, like Austin or Indianapolis, but getting it right in those places; you should’ve been there 2-3 years ago.
2. Find Great Local Talent
Every experienced real estate investor will agree that 1 out 10 property managers and contractors are good; the rest usually don’t stay long in the business. The issue is that if you get hooked up with the wrong one, there’s a big chance that it will cost you a lot of money.
Truth be told, there’s no magic recipe for finding good talent; when you especially, go to a new city, you have to do trial and error with boots on the ground, try the best you can and hope for the best. Of course, checking references and keeping track of his previous works is highly recommended.
- EXPERIENCE INVESTOR TIP: Take the property manager to the properties you want to rehab and have them walk you through what they see and how they would tackle different issues, that way, you can have an idea if you’re choosing the right person.
Local talents recommended are:
- Local Property Manager – To oversee and manage daily operations of the property.
- Local Contractor – To coordinate and supervise every aspect of a building or remodeling project.
- Local realtor – to help you out with the marketing of the properties.
- Local attorney – to help you out with evictions.
3. Scale (Stay small or grow) avoid in-between
Once you’ve found the right talent, the next challenge is keeping them busy (especially the contractors), because if they’re good, chances are you’re not the only one interested in their work, so it is primordial to keep feeding them jobs and book as much of their time as you can. This is difficult when you’re starting up, but this is key for scaling.
Pros of Direct Real Estate Investing
- Positive cash flow and appreciation
- Tax advantages
- Control over decisions
Cons of Direct Real Estate Investing
- Requires a significant amount of time and energy
- Risk of financing default
- Illiquid assets (not easy to buy and sell)
Option 2 Investing in a Private Equity Fund
If you’ve read all the way through, you know by now investing in real estate can provide you with good money if you put the time and energy for it or make you lose a lot of money if you don’t.
Now, is there a way to reap the benefits of investing in real estate and gain passive income without having to deal with all the headaches of managing the property?
YES! That’s exactly what Private Equity Funds do, they allow individual investors to invest in properties without having to operate or directly finance them. With an investment of as little as $50,000, you can get started with your first rental property fund and gain exposure right away.
This is also a good way to understand and gain direct experience in the Real Estate Investing world. With a Real Estate Investment Fund you get all the benefits of owning a Real Estate Property, you get a K1 at the end of the year, you’re a limited partner, you get appreciation, you get depreciation and you get the steady cash flow.
Pros of Investing in a Private Equity Fund:
- Real estate profits without having to own, manage, or finance property
- Higher than average dividends and potential for appreciation
- Depreciation to offset income
Cons of Investing in a Private Equity Fund:
- Property-specific risks
- Somewhat illiquid
The Risk in a Private Equity Fund can be many times lower than in direct real estate investing.
This not only because these people have been doing this as their full time job for decades but because of the thousands of assets you can get access to as a limited partner.
Examples With a Real Equity Fund
Voyager Pacific Opportunity Fund II
Rather than having millions of dollars invested in a single asset, The Fund owns thousands of assets with a small investment in each one. It’s focused on three asset types:
- Vacant Land
- Rental Home
- Tax Liens
|Vacant Land||Rental Homes||Tax Lien Certificates|
|WHY?||Produces very attractive cash flow and allows diversification into thousands of unique assets.||Produces steady, reliable rental income, while reducing neighborhood blight and providing quality housing.||Tax liens provide unparalleled diversification, extremely low investment to value ratios, and provide a steady source of interest income and real estate assets to the Fund.|
|WHERE?||Our team has purchased and sold land in 35 states||Very select markets where the rental market is strong and the cost to acquire is very low||Tax liens are sold in 29 states|
|WHEN?||Over the past 18 years, our online land sales have proven to be relatively immune to market fluctuations and the “housing bubble".||Regardless of an up or down real estate market, people need a quality place to live. We take advantage of opportunities to buy these homes when the cost to acquire and the rental income meets our model.||We buy tax liens when they are near their maturity and can begin the foreclosure process.|
|HOW?||We acquire the vacant land parcels using a variety of methods, and then sell them using seller financing.||We acquire rental homes through tax lien foreclosure, county tax sales, and on the open market, and we hold them as long-term rentals.||Frequently, we acquire these assets from tax lien investment funds who need to sell due to the structure of their financing.|
This type of fund is for people looking for steady income, very conservative, low risk.
*Get Started Investing In Real Estate Today*
High Yield Fund III
Is more of a value add opportunistic real estate investing type of deal. This type of deal is in the 3-15 Million dollar range, so higher dollar value but a potentially much higher return.
*Get Started Investing In Real Estate Today*
If I had $100k to invest
Let’s say you have $100K to invest in Real Estate, and you buy one property in let’s say Jackson, Mississippi, you manage it remotely, and all your eggs are in that basket; if it goes wrong, you lose your investment. Suppose you put the same 100k in a Private Equity Fund.
In that case, the risk spreads out over all the assets within the fund, so your risk is spread and management is already taken care of, plus you get all the depreciation and appreciation of those assets and a steady cash flow. Sit back and collect the monthly income, no headaches of dealing with all these assets, having to have boots on the ground, finding a good realtor, a good property manager, good attorney, etc.