Real estate investing is a popular strategy for individuals looking to build wealth and generate passive income. One common approach is buying rental properties, where investors acquire a property, find tenants, and collect rent. While this may seem like a straightforward way to make money, many investors caution that rental income should not be considered entirely passive.
After the initial work of purchasing a property, managing a rental involves ongoing tasks such as dealing with tenant turnover, maintenance issues, and potentially evictions. Some investors opt to hire a property manager to handle these responsibilities, but this incurs additional costs. Tess Waresmith, a real estate investor with five units in New England, shared her experience with Business Insider, stating that real estate investing is not as passive as some may believe.
Stephen Yin, another investor based in Los Angeles, echoed this sentiment, noting that the time he dedicates to managing his rentals varies. He explained that while he may have periods of intense activity, such as when purchasing a new property, there are also lulls where he spends minimal time on real estate. However, unexpected maintenance requests can arise at any moment, requiring immediate attention even when he is on vacation.
To alleviate some of the time and energy demands of traditional rental property management, investors are turning to alternative strategies such as real estate syndication and private lending. Real estate syndication involves pooling capital with other investors to purchase a property managed by a syndicator. This approach allows investors to access larger investment opportunities while remaining relatively hands-off in the day-to-day operations of the property.
Waresmith, who invested in her first syndication in 2023, highlighted the benefits of this strategy, emphasizing the passive nature of the investment compared to managing individual rentals. Similarly, Carl and Mindy Jensen, a financially independent couple from Colorado, have shifted towards passive investing strategies like real estate syndication. While acknowledging the uncertainty of projected returns, they have found success in syndication deals that outperformed initial expectations.
Private lending is another strategy gaining popularity among real estate investors seeking passive income. The Jensens, who previously engaged in live-in flips, now lend money to other investors for property rehab projects. By setting interest rates and carefully selecting borrowers, they have built a portfolio of private loans that generate consistent returns with minimal hands-on involvement.
Both real estate syndication and private lending offer opportunities for investors to diversify their portfolios and generate passive income without the day-to-day responsibilities of traditional rental property management. While these strategies may require initial capital and networking to get started, they can provide a more hands-off approach to real estate investing while still yielding attractive returns. As with any investment, thorough research and due diligence are essential to ensure success in these alternative real estate strategies.
