How to Grow Your Money with Passive Commercial Real Estate Investments
What if you could invest money in commercial real estate property, watch that investment grow and contribute little time to managing it? It’s possible via passive real estate investing. A passive commercial real estate investment is a type of investment in which the investor does not need to take an active role in day-to-day property management. In short, the investor does not do physical labor or maintenance, such as repairs, nor do they personally act as the landlord.
Although investors do not need to commit much involvement or time to earn a cash flow, there is still a bit of work required—mostly homework. Before and after investing, the investor needs to properly evaluate the opportunity and keep up with how the investment is operating and appreciating. Depending on that evaluation, one may want to increase or decrease aspects such as utilities, renovations, management fees, etc.
Passive Commercial Real Estate Investment vs. Active Commercial Real Estate Investment Opportunities
There are several features that differentiate passive investors from active investors. Here are the major differences:
Active CRE Investors
- Own and manage the property, typically in-person
- Property management duties include repairs, lease agreements and more
- Have greater control over the investment
- Receive increased tax benefits
- Require experience to get into this type of investment
Passive CRE Investors
- Does not deal with properties in person
- Have less control over the investment property
- Do not receive the same tax benefits
- Do not require experience
4 Real Estate Passive Income Options
There are four major passive income streams available:
- Invest in Real Estate Investment Trusts (REITs)
REIT companies invest in various types of commercial real estate and provide profits in the form of shareholder dividends each year. By investing in REITs, which are typically publicly traded on the stock market, those passively investing in real estate can watch their money grow over the long term.
- Debt Investing in Commercial Real Estate
Passive investors can invest in a large commercial property through fractional real estate debt ownership. Typically, passive investors utilize online platforms to indirectly invest in mortgage loans and remotely invest in a property. EqualSeat is a very popular choice.
- Invest in Real Estate Funds
A type of mutual fund, a real estate fund invests in public real estate securities. Unlike REITs, real estate funds provide profits through appreciation, not dividends, and are more diversified.
- Partner with an Active Investor
Partner with someone who is interested in taking an active role in a commercial property. They can act as the managing partner, taking on the in-person tasks, allowing the other party to passively invest.
Is Passive Income Through Real Estate Right for You?
Passive income through real estate may sound enticing, but it isn’t for everyone. In most cases, passive real estate investing is a long-term play to grow wealth. Passive investors also typically see lower returns than active investors. But it is a great option for those with little experience in the commercial real estate market.
Essentially, investors must weigh the benefits and drawbacks of passive real estate investments against active investments. Is it worth it to watch money grow year over year with little involvement? Or would you rather see potentially more rapid-growing returns on self-managed properties?
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial offers competitive and collaborative commercial loans. We partner with credit unions and brokers to connect them to real estate investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of our commercial loans. Extensia Financial is a proud member of the AVANA Family of Companies.