Jun 30, 2021 3:15:00 AM | 4 Min Read

How To Build Wealth Using Passive Real Estate Investments

Posted By
KRI Partners
How To Build Wealth Using Passive Real Estate Investments

Everybody knows you can make a ton of money in real estate. The question is, how are you going to make some of that money? This is a question everybody who considers investing in real estate faces. Should you buy a property yourself or should you invest with a real estate investment firm that generates passive income?

Before we tackle that question, let's make sure we understand what passive real estate investing is and what it isn’t. So many people are misinformed on this issue. Then, assuming making passive income investments is truly a good fit for you, the issue becomes, how do you use real estate passive income to build your wealth?

What Is Passive Real Estate Investing ?

By definition, a passive income investment is one in which you do not have to do any work in order to realize that income other than invest capital. The income from that passive investment is truly because of your capital investment and, other than that, requires no additional effort or work on your part.

It is very common for people to generically classify all real estate investments as passive income and rest assured, that is not the case. In fact, I am here to tell you that operating an apartment community is no different than operating any other business. All the same issues you face in business are also present in apartments. Examples include marketing, sales, customer service, operations, employees, finance, internal controls, purchasing, vendor management, insurance, accounting, etc. As you can see, this is hardly a passive activity!

So, assuming you know you want to truly passively invest in real estate (which most people find is the best for their situation), how do you go about making that investment and begin building your wealth?

Grow Your Wealth With Real Estate Passive Income

Prior to the JOBS Act that was passed in 2012, it was very difficult for most people to even find out about real estate passive income opportunities. The passage of that law enabled most people to have access to private real estate investment placements. I won’t go into the intricacies of the law in this article, just know it was that law that opened up a whole new group of investment opportunities that were previously only available to a few “country club” elite. 

Most people build wealth by investing passively with vetted real estate investment firms. Some of those firms offer opportunities to invest in individual deal “syndications” and some firms offer “fund level” investment opportunities. With fund investments, investors usually enjoy some form of asset diversification within the fund further reducing the risk associated with the investment. Alternatively, syndications generally involve only one property.

Typically, these syndications or funds will offer investors periodic cash flow distributions with the sponsor and the investors participating in the profits of the deal with the sponsor typically receiving a bonus at the end, known as a carry interest, if the property or investment is successful.

It should be noted that these investments do not come with any guarantees to the investors. However, depending on the deal, the success of the project and the sponsor, investors can earn upwards of 15%, 20%, 25%, even 30%+ annual returns on their investments assuming the project is successful. It is one of the main reasons successful investors have a significant allocation to real estate in their investment portfolios.

In fact, many very wealthy people have made their fortunes investing in real estate. It usually is not a “get rich quick” process, but rather a longer-term strategy that tends to build significant wealth for investors over time.

To learn more about investing passively in real estate be sure to reach out to KRI to see if one of their investment opportunities might be right for you.

Topics: Articles

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