Ask Brian: What Are Some Passive Real Estate Investments in 2020?



Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to askbrian@realtybiznews.com.

Keys to investing
One of the keys to choosing an investment strategy is to look at the age and condition of the properties in your own area. Image by thinkpanama

Question from Patti in CO: Hi Brian, The stock market has me scared to death. Especially this year after it tanked terribly from the virus and economic shutdown. By some miracle, I rode it out until almost all of my investments recovered a month or so ago. I cashed everything out of mutual funds and have it sitting in a “do nothing” money market account. I’m convinced that real estate is where I want to move my money. I have a full-time job and don’t want to be a landlord or get into the rehab business. What do you have for a passive investor right about now?

Answer: Hi Patti. There are always good ways to passively invest in real estate. If you don’t want to, there is no reason to research foreclosures, drive around looking for vacant houses, or even apply for a mortgage if you can’t buy with all cash. Patti, you didn’t mention how much you have to invest but if you do have enough cash, turnkey rentals can be a solid passive investment. Many of these properties have been upgraded, have a qualified tenant in place, and have a property manager. For the most part, you don’t do anything more than collect a monthly rent check and do a little oversight to be sure the management company is doing what you want.

Alternatively, you could look into Real Estate Investment Trusts (REIT). There are many variations that you’ll have to study carefully before making an investment decision. To start with, there are both publicly traded REITs (traded on stock exchanges) and private REITs (not trade on stock exchanges). There is a catch with private REITs because you almost always have to meet the SEC definition of an “accredited investor.” There are two major hurdles to being an accredited investor. First, you have to have an income greater than $200,000 (or a married couple with income greater than $300,000) for the past two calendar years and have a reasonable expectation of meeting the requirement in the current year. Or, be an individual or married couple with a $1 million net worth excluding your personal residence. The point is that you have at least a million dollars in investable assets. Those requirements keep a lot of people out of private REITs.

Crowd funding can be a better alternative. Some crowd funding projects require accredited investors but plenty don’t. You’ll need to do some initial research with each crowd funded project but once you invest, almost all of these are passive income. Real estate crowd funding platforms (websites) allow you to research investment options and then pool your money with other investors across the country. I don’t make specific recommendations but a few are DiversyFund, CrowdStreet, and StreitWise (there are many more). Among those, you’ll find projects for both accredited and non-accredited investors.

Crowd funding offers a lot of diverse project types. There are residential investments and these can be large or small including large apartment complexes (large complexes are technically classified as commercial investments). Once you cross all of the way over to commercial real estate, you’ll find projects in a large variety of property types. Some of these include retail, office buildings, industrial, medical, hotels, and other commercial properties.

Keep in mind that crowd funded projects often are not very liquid. Once you invest your money, you might receive regular payments by owning a piece of a profitable building or cluster of homes. If you invest in a new development, you might have to wait until the project is completed to get back your investment and earnings. Be sure to carefully research all of the investment requirements and risks. Some of these you can invest as little as $500 up to hundreds of thousands or more. Your dividends or earnings from the projects are proportional to the amount of money you put into the project.

Patti, you have many passive real estate options. You can even go it mostly alone by researching and buying rentals on your own and then turning it over to a property management company of your choosing. However, crowd funding offers a completely passive way to invest in any market (near or far from you). You won’t be responsible for collecting rent, finding tenants, doing maintenance, or any of the other common tasks involved with property management.

What are your thoughts about passive investing in 2020? Please leave your comment.

Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.