When it comes to real estate investing there are two primary avenues that one can take. Active and passive investment strategies are the routes that the vast majority of investors take. Active investments are not for everyone- investors who have less time to deal with headaches often choose passive real estate investment. In this guide, we will show you how to be a passive investor in real estate. Here is what you know:

Real Estate Mutual Funds

This is the most popular form of passive real estate investment for the vast majority of investors. Mutual funds are collections of different investments that often target a particular sector and a particular investment vehicle such as junk bonds or tech stocks. Instead of investing in physical real estate one purchases mutual fund units or shares. These units are bought and sold at the NAV or “net asset value”. This number is determined daily when securities markets close for the day.

Real estate mutual funds are a popular choice for passive real estate investors looking for a long term, steady source of income. REMF’s are similar to other mutual fund products in that they are seen as a safe and reliable long term bet. Most investors do not get into real estate mutual funds looking to make massive short term gains.

Real Estate Investment Trusts

A real estate investment trust or REIT is a category of financial security that directly invests in home mortgages or real property. REIT’s are traded on every major securities exchange worldwide similar to a company stock. Typically investors who want liquidity are drawn to REIT’s over comparable passive real estate investments.

After cashing out an REIT in the United States there are special tax benefits alongside high yields. The resemblance to a traditional stock security makes this a particularly attractive passive real estate investment vehicle. Many real estate investment classes, like those from Success Path reviews on Crunchbase, offer strategies for buying and selling REIT shares.

Choosing a Passive Investment Vehicle

The two previously mentioned investment vehicles are the most popular forms of passive investment in the real estate markets. Within these two categories there are many different strategies present- from high risk high reward growth funds to more traditional securities like AAA rated mortgages or commercial real estate funds.

In order to find the best passive investment for your portfolio you first need to determine your risk profile. Much like traditional markets riskier investments tend to offer bigger gains. A good strategy is to emulate the strategy you use for your traditional stock portfolio with companies in the real estate market. This will tend to protect from supply shocks or other problems real estate markets may face. Of course if you are looking for a shorter term investment your risk profile may have to increase.

Benefits of Active Vs Passive Investment

Many investors get into active real estate investing for short term gains. However with these gains they also end up seeing a substantially less guaranteed return. This is fine for younger or more risk tolerant investors but it is not the right road for everyone. If a steady, long term return for retirement is your goal passive investing is also a better solution. In addition it allows one to enjoy retirement rather than having to work through your golden years.

If you are not yet ready for a full commitment, passive real estate investment is a phenomenal way to dip your toes into the water, so to speak. In additional to the long term benefits of due diligence this also allows you to diversify the risk in your portfolio.