Two Ways to Passively Invest in Real Estate and Get High Returns

First, before I start discussing the two ways to passively invest in real estate and get a high return on the money you invest, I want to acknowledge that if you need to step in and protect your investment, it can become an active investment for you (or the team you invest in). could hire). In addition, the selection of the investment in advance must be an active process. However, excluding those two possible active roles, I would consider this a passive real estate investment strategy. With that full disclosure, let’s continue our discussion of the two ways to invest passively.

First, you could become a private lender.

Private lenders often lend money secured by a particular property. They get a return on the money they invest. Payment arrangements can range from monthly payments, quarterly payments, annual payments, and even lump sum payments when the property is sold. You can receive interest-only payments on these payments with the full principal amount due at the end of the investment period. However, the agreement may include interest and part of the principal so that, over time, the entire loan balance is paid off like more conventional amortized loans.

Generally, when you become a lender on the property, you receive a fixed amount of interest on the money you lend and not part of the profit on the deal. Using an oversimplified example that excludes any discussion of transaction costs, if the loan lasted one year and you lent $100,000 at 8% per year, you could earn $8,000 on that investment.

Second, you could become an equity partner.

Instead of lending money secured by the property, you may want to find a professional real estate investor and agree on how to partner on the deal. You may be providing the money and/or credit to purchase the property and the real estate investor would be responsible for the activity portion of the deal.

With this type of investment, in some cases, you can receive interest on the money you have put into the deal, as well as part of the profits. Or, you may receive only part of the proceeds from the deal.

Again, giving an oversimplified example that excludes transaction and other costs, if you lent $100,000 in exchange for half the profit from the deal and the deal took a year from start to finish, but the profit from the deal, after all expenses, was $30,000, you could earn $15,000 on the deal and the real estate investor would also receive $15,000.

Structuring win-win deals like this is fun and can be extremely rewarding if done correctly. There are almost limitless ways to structure them depending on the needs of the people involved. Some lenders may want monthly income. Others may want to maximize capital growth. Some real estate investors may need living expenses while they invest the time to manage the project; others may have alternate sources for that. Part of what makes the structuring process enjoyable is finding solutions that are truly beneficial to everyone involved.