How Small Investors Are Making Passive Income in Real Estate

Building real estate passive income isn’t overly complicated. Though real estate investing might be a simple investment choice, the relatively high costs presented a barrier to entry for many would-be tycoons.

In the past, purchasing a property on your own was the only way to get into this style of wealth building. But in recent years, the doors to real estate passive income have been opened through REITs, fractional investing, and more.

When you think of real estate, passive investments are not the first thing that pops to mind.

For many real estate investors, building a portfolio of rental properties is the name of the game. With a rental property, you can build passive income streams. The tenant pays rent each month, which equals profit for the investor.

The good news is that you can generate passive income through real estate without ever worrying about a broken toilet ruining your night. And the best part is that you won’t need thousands of dollars to get started.

1. Real estate investment trusts: REITs are a great way to invest in real estate passively. REITs are companies that own and manage real estate assets, like apartment buildings, shopping malls, office buildings, and more. By investing in a REIT, you’re buying shares in a company that owns these real estate assets.
2. Crowdfunded real estate is another way to invest in real estate passively. Crowdfunded real estate platforms allow investors to buy and sell shares in individual real estate projects. These projects can range from single-family homes to commercial buildings.
3. Real estate syndication is a way for investors to join forces and pool their money to purchase a large real estate asset. By investing in a real estate syndication, you’ll become a part-owner in a large real estate asset. You’ll be able to get a share of the profits the asset generates.
4. Peer-to-Peer lending means investing in real estate without actually buying a property. Peer-to-peer real estate lending platforms allow investors to loan money to real estate developers, who use the money to finance their projects. Investors collect interest payments on the loan and earn returns of between 6-12%.
5. Online real estate platforms enable you to invest in residential or commercial with a click of a button. These platforms provide investors with access to properties across the country. Some platforms even allow you to invest in rental properties without ever leaving your home.

Investing in real estate can be a great way to generate passive income. While active real estate investments might require fielding unexpected phone calls, passive real estate investing is an entirely different beast. This approach requires less hands-on work, and it’s becoming increasingly popular among small-scale investors.

With the passive approach, you can invest in real estate without ever having to worry about late-night maintenance calls. Here’s a closer look at how some small investors are generating passive income through real estate.

If you don’t want to purchase the entire asset, fractional investing lets you purchase a piece of a bigger asset—essentially, shares in an asset. 

Right off the bat, the ability to add real estate to your investment portfolio without committing thousands of dollars is very attractive. Most of us don’t have thousands of dollars to make a down payment or purchase an investment property outright.

Fractional investing in real estate is similar to purchasing a share of stock at a major company. You’ll be able to buy a piece of an income-producing asset. But the management of the company is left to the professionals. With that, you can tap into the power of investing in real estate without needing thousands of dollars upfront or committing to becoming a property manager.

The fractional investment approach gives investors at all levels a chance to tap into real estate as an asset class. Since you get to reap the rewards of your portion of the asset, there’s an opportunity to collect passive income.

Fractional investment opportunities seem to be popping up everywhere in the real estate market. A few of your options include:

• Elevate Money offers fractional investments in commercial properties with top-tier business tenants, so there’s a potential for steady income over multiple years. You’ll need to make a minimum investment of $100. Plus, you should plan on having the funds locked up for at least 5 years.
• Arrived Homes: If single-family residential properties are more your style, you can purchase shares in individual homes through Arrived Homes. Again, you’ll need just $100 to get started. Although the funds are locked up for at least 5 years, you can start enjoying a quarterly payout of rental income from your portion of the investment property.
• Lofty.ai: This platform provides fractional investments in single-family rental homes. You’ll need a minimum investment of $50, and the funds are tokenized for blockchain security. You’ll also enjoy daily payments from your portion of the rental income.

One of the best parts about fractional real estate investing is that the platform handles the operational details so you don’t have to find a property management company. Instead, the platform you invest through will keep it up, running, and earning money.

REITs

A real estate investment trust (REIT) is a company that owns a property or several properties. As an investor, you can purchase a share of the REIT. The company will handle the management of the property. But you’ll receive a portion of the profits.

REITs are a great way to invest in real estate without having to manage the property yourself.

Concreit is one of the leading REITs in the industry. It was founded in 2017 and focuses on commercial real estate investments and provide investors with access to real estate opportunities across the United States. Their REITs are backed by dividend-yielding multi-family housing and commercial real estate.

Concreit is an attractive option for investors because you can start with as little as $1. Concreit also offers a variety of options for investors, including real estate-backed loans, multi-family housing, and short-term real estate. The minimum investment for each option varies, but are always backed by multi-family assets and short-term real estate. If you're interested in passive income, seize it with concreit.

Real estate crowdfunding

You know what crowdfunding is, but unlike gofundme, real estate crowdfunding gives investors a chance to pool their funds to buy real estate. Like the options above, you won’t be responsible for the headaches that come with managing tenants.

Fundrise presents one way to invest in REIT. You’ll only need $10 to get started and you can expect to earn quarterly dividends. But you should expect the funds to be tied up for at least 5 years. If you decide to work with Fundrise, you’ll invest in a REIT.

If you are looking for passive income, Fundrise presents an option called “fixed income.” The point of the Fixed Income portfolio is to produce an income for investors like you. After you invest, you can expect the funds to start rolling in on a quarterly basis.

And with this style of real estate investing opportunities, you won’t even have to deal with any legwork needed to make a deal or work with tenants. However, like all real estate deals, there's a chance the projected returns won’t be quite as high as you had hoped.

Real estate syndication

Investors can take a passive approach through real estate syndication deals.

Real estate syndications often involve real estate professionals, or sponsors, with the knowledge required for a successful deal. But funding is always a key piece of a real estate deal, and that’s where investors have the opportunity to step in.

In most cases, you’ll need to be an accredited investor to participate in syndication deals. The amount of money required for each deal varies. Although many syndication deals require large amounts of cash, some have lower capital requirements.

Real estate syndication opportunities can give you access to unique real estate deals. Plus, you’ll have the chance to diversify your portfolio—though platforms like CrowdStreet can also do that.

A downside is that most syndication deals tie up your capital. Though some investors are comfortable with this lack of liquidity, not all are. Make sure to get a detailed expected timeline. And keep in mind that not all deals will produce great returns.

Peer-to-Peer lending

Peer-to-peer lending gives investors an opportunity to raise the funds they need to complete a particular project.

If real estate investing is part of your strategy, you’ve likely noticed that real estate projects aren’t always cheap. In fact, it can often take thousands of dollars to rehab a property or make enough improvements to increase its value.

In real estate peer-to-peer lending, borrowers can be anyone from a house flipper to a real estate developer. As an investor, you have the ability to loan funds to a borrower. But you can evaluate the risk factors tied to each loan before moving forward.

Although peer-to-peer lending comes with risk, it might be the right fit for a bold investor.

Rental properties & house hacking

Real estate investors that can take on more responsibility should consider house hacking as a way to produce a passive income. In this real estate opportunity, you’ll essentially rent out your extra space to earn passive income.

You can choose to rent out rooms or extra units in a multi-family property. Plus, you’ll have the choice between finding long-term tenants or operating a vacation rental for extra money. More creative house hacking opportunities, which don’t involve an on-site roommate, include renting out your parking space or garage storage space.

The extreme amount of flexibility with house hacking makes it a useful opportunity for hungry investors to make the most of their unavoidable housing costs.

Although you’ll have to manage the tenants, this is an opportunity to earn money. At worst, you’ll be able to lower your living expenses. But at best, you’ll earn money on top of your mortgage payment.

Passive real estate investments can help you live the dream. After all, who wouldn’t want to sit back and relax while your money works for you?

But it’s important to note that passive real estate investments come with different levels of risk. As an investor interested in the real estate sector, you’ll need to choose the strategy that best aligns with your goals.

If you are looking to dabble in passive real estate investing, then any of the options above is worth looking into. But each one has slightly different advantages and disadvantages. For example, investors with a higher risk tolerance might be comfortable with peer-to-peer lending. But investors more interested in a traditional style of real estate investing might opt to purchase fractional shares of a property or invest in a REIT.

With the relatively low barrier to entry of some of these opportunities, you might decide to try a few to determine the best fit for your portfolio. Before committing to any strategy, make sure you're comfortable with the liquidity level involved. If you might need the funds in the next few months, many of these real estate investments won’t be a good fit.

As you gain more experience with passive real estate investing, you might decide that you have enough knowledge to pursue purchasing an entire property on your own. Don’t eliminate this option entirely. It’s still possible to turn this type of investing into a relatively passive option with the help of a great property manager.

In today’s world, real estate investment opportunities aren’t limited to purchasing a physical piece of property on your own. While investors can certainly invest by purchasing an entire property, that’s no longer the only option.

As an investor with the drive to diversify, you can get started with $100. Both Elevate Money and Arrived Homes offer an opportunity to invest in real estate for $100. With Elevate Money, you can invest in a portfolio of real estate-backed loans, while Arrived Homes allows you to invest in rental homes. If you're looking to get more bang for your buck on a rental home investment, Lofty.ai is a great option starting at $50 per share.

These platforms offer a chance to invest in real estate without the hassle of dealing with tenants, repairs, and other landlord responsibilities. Plus, both platforms let you earn passive income from rental properties without the headaches.

Before you jump in, make sure that the timeline and risk match up with your long-term investment goals. And if you have the funds, don’t rule out becoming a traditional landlord. Exploring passive income opportunities is an exciting way for investors of all levels to earn financial freedom.