Passive Income Portfolio Management: 4 Things to Know

Passive Income Portfolio Management: 4 Things to Know

Posted by on May 6, 2021

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For long-term investments, Americans tend to prefer real estate. According to a Gallup survey, 34% of Americans said that real estate was the best long-term investment — beating stocks, bonds, mutual funds, gold, savings accounts, and CDs. 

Real estate also doesn’t have to be as hands-on as some believe. There are several strategies that allow investors to invest in income property without putting in a significant amount of time or effort. Who wouldn’t want to make passive income from their income property? Here are a few potential benefits of passive real estate investing. 

Have Your Passive Income Managed by a Professional

Direct real estate investing puts the investor in the driver’s seat. The investor has direct ownership over the property. You pick the location, asset type, investment strategy, financing structure, and exit strategy. However, there are things you must deal with that wouldn’t occur with passive investments; namely the three Ts: tenants, trash, and toilets.  

If time is an issue or you don’t want to deal with the day-to-day operations that come with direct ownership of a property, then passive real estate investing is an ideal option. Plus, you have the experience of a seasoned professional to guide you. Passive real estate investing lets the investor dip their toes into real estate without necessarily having to manage the property themselves. 

Diversification with Investment Types

Passive investments in commercial real estate give investors many potential options for diversification

Different asset classes. Investors can spread risk across a wide range of properties such as retail, office buildings, hotels, multi-family rental properties, and more. Each class has a different risk profile and some may be better suited for a particular demographic or economic cycle. 

Multiple tenants. You’ll likely have multiple tenants paying you rent, which means there’s less risk if one tenant defaults on their lease payment or decides to move out. 

Investment strategies. There are several investment strategies for passive real estate investing. Investors can purchase shares through real estate investment trusts (REITs), crowdfunding, hard money lending, real estate ETFs, Delaware Statutory Trusts (DSTs), or real estate mutual funds.

Different markets. Investors aren’t limited by their location when it comes to passive commercial real estate investing. You don’t have to put all of your eggs into one basket.

Invest in multiple properties. You can invest in multiple properties to diversify and mitigate risk.

Liquidity

Liquidity refers to the ease with which an asset can be converted into cash without affecting its market price. Direct ownership in real estate is among the least liquid investments you can make. However, there are ways to increase liquidity on income property. 

Instead of direct ownership, investors can have easy access to their capital through publicly traded real estate investing. The most popular options are REITs, real estate mutual funds, and real estate ETFs. 

Passive Income from Your Income Property

The potential to increase your cash flow through real estate investing without much effort on your part is one of the top benefits of passive real estate investing. Passive income is money from an investment that doesn’t require you to actively work in order to receive. 

Not everyone has the experience or time necessary to directly own and operate income property. Passive real estate investing is a great way to get started without actively managing property. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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