There are other passive options out there for investing in real estate other than multifamily syndications. If syndications just aren’t for you, or if you want to diversify your portfolio, than here are some other great opportunities for you to invest into your financial future. All of these examples will typically require at least one active investor in the deal, as with syndication. So you’ll need to partner with an active operator if you want to be completely passive in this opportunities.
Single-family units: Those wondering how to create passive income in real estate can start off with the most common of examples. Perhaps the simplest type of property to understand, a single home or condo can be purchased and rented out to only one tenant. Single-family tenants tend to take more psychological ownership over the home, leading them to take better care of the property. However, when vacant, a single-family unit will bring in no income at all.
Duplexes, triplexes and quadplexes: Properties with two to four units offer similar benefits to single-family units while offering a lower requirement for intensive management when compared to apartment complexes. Due to the increased number of tenants, these properties can be a little tougher to manage than a single-family unit, yet tend to provide a better cash flow prospective. The risk of a potential vacancy is spread across multiple units instead of just one.
Commercial buildings: Commercial properties can be leased to retail tenants with long-term leases, thus promising a more stable stream of income. However, commercial tenants can be more difficult to replace, and tend to highly customize the property to their business needs. Investors should plan for longer vacancies, as well as having to consume the cost of remodeling spaces between tenants.
Mixed-use developments: Demand for mixed use development projects has increased steadily, and can provide a home for residential, office, retail, industrial and institutional tenants. Investors can enjoy a variety of income streams and lease lengths within one property.
Industrial complexes: Although residential properties tend to come to mind with the mention of passive income, properties geared toward the commercial sector need not be ignored. Commercial warehouse, storage or manufacturing facilities can provide steady performance while requiring minimal management. You should notice too, that tenant turnover can lead to extended vacancies with this asset.
Self-storage facilities: Self-storage facilities continue to be very much in demand and can be found almost anywhere in the U.S. All facility costs and vacancies can be spread across many units, equating to a relatively low per-unit cost. Plus, you have very little maintenance upkeep in these properties, which maximizes cashflow. However, these facilities require a customer service and management team, often staffing the premises for extended hours. In addition, owners should factor in security and insurance expenses.
Mobile home parks: Mobile homes offer an attractive housing option for residents under economic stress, or in markets where housing prices have skyrocketed. Investors who own a mobile home park typically own the land, while collecting rents from residents who choose to locate their mobile home on the property. Since you own little to no actual real estate in this asset class, you have practically no maintenance expenses and your tenants actually own the home so they typically take care of the property better than someone just temporarily renting.
Land lots: Investing in land, itself can be a unique niche, and can be used to improve or split up to be sold as smaller lots. This strategy can be effective if the investor finds a plot of land in an area that is up-and-coming or will soon be developed, and sells it for a profit. However, land can be tricky, as there are very little ways to produce an income while it sits empty.
Vacation rentals: Certain properties are great as a short-term or vacation rental candidate, especially in markets with a significant transient population, as well as tourist attractions. Investors who own a vacation rental can often charge more on a per-night basis, than they would with a long-term tenant. Meaning you can practically triple your cashflow with this niche than if you were renting by the month! However, vacation rentals require constant scheduling, dealing with cancellations, paying for housekeeping services, and worrying about slow seasons.
Real Estate Investment Trusts (REITs): REITs can be thought of as a mutual fund, and offer individuals with an opportunity to invest in the real estate sector while remaining completely passive. The target of REITs are usually high-end or commercial properties, and can fluctuate in correlation with the general stock market.
Tax liens & deeds: The government reserves the right to seize a property when taxes go unpaid. Investors have the opportunity to buy up tax lien properties at a significant discount, but should only take action if they have a solid strategy in place.
Note investments: Homebuyers have the option of taking out a home loan in the form of a private note, instead of a conventional loan. There is a large market surrounding the buying and selling of these notes, some of which are delinquent. Investors can purchase performing and non-performing notes from other owners at a discount. This provides them with the right to collect monthly payments or take ownership of the property if the property owner fails to make payments.
Hard money lending: Investors who have sufficient liquidity can consider privately lending money to help other individuals purchase property, who promise to pay back the principal at a high interest rate. The end user is often a fix-and-flip investor who needs quick access to liquidity to jump on a deal. However, there is always a risk that the deal will not go well and the borrower will default.
Property rehabs: Fixing and flipping properties requires a more active role in real estate investing, but can be quite lucrative. Properties that are located in a promising rental market, but are not up to par in terms of appearance and condition, can go through a rehab phase before being rented out. In order to be a passive partner in this niche, you could be the lender to the active investor.