If you’re considering investing in real estate, you may wonder if passive real estate investing is the right choice. Passive investing involves taking a hands-off approach to investing, as opposed to actively managing investments. It’s important to ask yourself some key questions before deciding whether passive real estate investing is the right strategy for you. In this blog post, we’ll explore some of those questions so you can make the best decision for your financial future.
Do you qualify?
Are you looking to become a passive real estate investor? Building wealth through passive investments is a great way to diversify your portfolio. But, before you jump into investing in passive real estate investments, you should consider if you qualify to do so. Some passive real estate funds require that you are an accredited investor, meaning that you meet certain income and savings thresholds before investing. Others may have very specific income requirements (think major private equity funds). Other passive investment opportunities require no set income. It is important to do your research and determine if you meet the qualifications for the passive investments that interest you. By finding out if you qualify, you will save time and effort while ensuring that your investments will suit your needs. Once you know that you qualify, you can begin exploring how to build wealth through alternative investments and portfolio building.
What is the historical performance of the fund?
Understanding the historical performance of a real estate fund can provide insight into how it has been managed over time and whether it is suitable for you. While past performance does not guarantee future returns, reviewing the fund’s track record to understand the organization’s integrity and experience is essential. Have they stayed faithful to their fiduciary responsibility to their investors? In tough economic times, have they been able to maintain or even grow their portfolio?
In a downturn, what is the service’s plan?
When markets experience a downturn, it can be difficult for passive investors to determine what to do with their portfolios. It is important to understand the strategy of the organization you are investing with and how they will handle a downturn before you invest. Experienced managers should be honest that the market cannot be predicted, but that they have strategies to navigate whatever swings are anticipated, whether the downturn is on the horizon or many years away.
What are your goals for your investment?
Investing in passive real estate can be a great way to grow your wealth, but it’s important to know exactly why you’re investing and what your goals are. Are you looking for financial security for your retirement, or do you want to make additional cash in the short term? Perhaps you’re hoping to build a nest egg for your children’s college fund or to gain financial independence from a corporate job. Knowing exactly why you want to invest passively will help you choose the strategies that best align with your reasons for investing. Some passive investments may have a shorter investment horizon (like a commercial development) whereas other funds or syndications may have a longer investment horizon. Make sure you choose passive investments that allow access to your capital when you’ll need it most.