This article is a paid partnership with Sera Capital. The content was provided by the advertiser and is published for informational purposes only. Real estate investments involve risk and may not be suitable for all investors. Being a landlord was once considered one of the most popular passive income options in the real estate market,…
This article is a paid partnership with Sera Capital. The content was provided by the advertiser and is published for informational purposes only. Real estate investments involve risk and may not be suitable for all investors.
Being a landlord was once considered one of the most popular passive income options in the real estate market, but things have changed. You may find an excellent tenant, but reaching that point could take months or even years. Then, if the occupant damages the property, falls behind on rent or makes another decision that makes them liable for eviction, the laws for eviction vary by state.
Landlords also spend significant time and expenses to find properties and make them suitable for tenants. The preparation process repeats whenever someone moves out. Repairs can also result in unexpected bills, and you must familiarize yourself with the applicable laws about fixing things in time to avoid legal troubles. These are some of the many reasons why functioning as landlords may be more trouble than it is worth.
Luckily, there are many compelling passive real estate alternatives to choose from.
1. Real Estate Investment Trusts
Real estate investment trusts (REITs) enable you to add real estate to your investment portfolio without having to buy property. They are similar to mutual funds because this strategy pools money from numerous investors, offering participants the opportunity to earn dividends without directly buying, managing or financing properties. Parties hoping for regular income get it through REITs, which are obligated to pay out at least 90% of their taxable income to shareholders each year.
Because experienced teams run many REITs, those using them as investment options get many of the real estate industry’s advantages without the potential headaches, such as property management and investment decision challenges. These possibilities also offer relatively low entry barriers, increasing the overall accessibility for people interested in real estate investment.
There are also potential downsides to think about, such as the typical sensitivity to interest rate fluctuations, which may adversely affect profitability. Investors may see similarly disappointing results during economic slumps, requiring them to carefully consider the possible outcomes before moving forward.
2. 1031 Exchange Investments
No matter which passive investment strategy in the real estate industry you choose, remaining aware of your tax obligations will help you prevent any unpleasant surprises with far-reaching complications. Many investors have become interested in 1031 exchange funds due to their tax-favorable features.
They allow investors to defer capital gains taxes on real estate sales by reinvesting the proceeds into a like-kind property. Numerous stipulations exist, such as the requirement that both the relinquished and newly purchased properties be in the United States and that you complete the exchange within a specified time limit.
These particulars make it a good idea to speak with a provider that is well-versed in 1031 exchanges. Sera Capital operates with a fee-only, independent fiduciary model to give clients transparent and unbiased advice so they receive solutions matched to their specific needs. Its professionals can answer your questions about the best investment options to buy with 1031 exchange funds and help you make informed decisions before embracing this potential wealth-building opportunity.
3. Fractional Real Estate Investing
If you have considered real estate investing as something beyond your reach, that may be an inaccurate perspective given the rise of fractional investments. They’re a way for people to invest as little as $100 to own part of a property without taking on management responsibilities.
These properties are usually single-family homes. You earn money from tenants’ rent payments and whenever the property’s value rises. Getting started is as straightforward as using a dedicated platform that pools your money with other investors to buy and manage the home. Although each platform charges variable fees for its services, it directly handles maintenance, tenant issues and property taxes.
Something to know about this passive investment option, though, is that the overall returns are generally low. However, that’s to be expected given the low starting investment.
4. Real Estate Syndication
Real estate syndication is an option for investing in residential or commercial real estate, particularly when people lack the financial resources to purchase entire properties themselves. In these arrangements, real estate syndicators take responsibility for finding and executing real estate deals and delivering the relevant returns to investors. People who like the appeal of property investing but want to take a hands-off approach appreciate this option for its ease.
However, one investor who participates in five syndications cautions that you do not have control over the ultimate performance. He recommends finding a trustworthy syndicator with a strong track record. Other investors have noted that they like how this option allows them to invest in larger-unit properties they could not access independently.
5. Peer-to-Peer Property Lending
Diversification in lending options has led to situations where people no longer need to restrict themselves to traditional ways of obtaining loans. The rise of peer-to-peer property lending is an excellent example of an alternative that allows participants to bypass intermediaries and engage directly with each other when borrowing or lending.
This passive income strategy also enables you to lower the potential risk by spreading it across multiple loans, borrowers or platforms. That way, if one of your decisions does not go as expected, the overall adverse effects should be less severe. This option also lets you get started by engaging specialized platforms, making it accessible to beginners or to people who want to start small before potentially scaling up later.
However, this technique can be competitive, as borrowers usually receive offers from numerous lenders and accept one or more depending on their circumstances. The risk of borrowers defaulting on their loans may also be above-average on some platforms. That is particularly likely if these individuals have utilized peer-to-peer lending because their poor credit scores made them ineligible for traditional funding sources.
Moving Beyond the Landlord Role
There are increasing opportunities for passive investment in real estate without being a landlord, and it’s easier than you may have thought to diversify your portfolio. Once you choose the appropriate course of action, professional advice can help you make the most confident decisions.
Sera Capital offers access to nationally recognized 1031 exchange advisers and consultants for investors who want to learn more about that type of real estate investment. Its professionals also offer free 20-minute consultation calls to help you learn more about the best investment options to buy with 1031 exchange funds, tailored to your situation and goals.
