How to Maximize Returns in Passive Real Estate Investing

Passive real estate investing enables you to earn money while putting forth little effort. The idea is to have your money work for you instead of you working for the money. Naturally, investors want to reap the maximum returns possible from their investments.

People often wonder if putting money into savings accounts or investing the money is “better.” There are benefits to each, but savings accounts won’t give you workable passive income.

There is a strong argument in favor of passive real estate investing, and many options are out there for you to consider. What’s right for you will depend on a variety of factors, such as your risk tolerance level, how much capital you have to invest, your time horizon, and others.

This type of real estate investing is one of the most popular ways people get passive income coming in. To be successful, you must be familiar with its advantages as well as different options to help you maximize your returns

There are many benefits of passive real estate investing that some other investment vehicles don’t provide. For starters, it can pay attractive dividends and your investment appreciates in value.

In addition, passive real estate investing is a hedge against inflation. It’s less risky than other vehicles (like the stock market) and provides better portfolio diversification. Overall, this type of investing also yields better returns than others.

Saving and investing are not the same thing. There are some critical differences between them; one of the most apparent is the degree of risk involved in each.

When you save money, you’re simply putting money away in a safe place, whether it’s a sock drawer or a bank account. There is virtually no risk involved in saving money, especially if the money is put into an FDIC-insured account

The trade-off for assuming no risk is a relatively low or non-existent return. The typical savings products available include things like CDs, money-market accounts, and bank-offered savings accounts.

Savings accounts have little protection against inflation. Since returns are so low, you might lose purchasing power over time. As inflation increases, it can eat away at the money you have in savings. The time horizon for saving is typically short, at five years or less.

Investing, on the other hand, involves some risk. The exact level of risk depends on many things, including the vehicle in which you are investing (the stock market, real estate, etc.). When you invest, you purchase assets that you hope will increase in value over time, eventually giving you more money than you originally invested.

The higher level of risk involved with investing also means higher returns. Investing products are, for the most part, very liquid, which means that they can be converted into cash almost on demand.

The time horizon for investing is long, meaning when you invest, you’re not in it looking for quick returns. Typically, the timeframe for investing is five years or longer. As for returns on investments, the Standard & Poor’s 500 Stock Index (S&P 500) has returned an average of 10% annually.

Regardless of the size or type of your intended investment, it’s beneficial to start early and revisit your options for investing often. Always keep some money aside for investing because you never know when a profitable opportunity will pop up.

Make sure to diversify your portfolio to not only maximize your returns but also beat inflation. Investors who own a broadly diversified collection of investments are more likely to beat inflation over the long haul while increasing their purchasing power at the same time.

The target inflation rate used by the Federal Reserve is two percent, but it’s averaged much higher over the past year. If your return falls below the inflation rate set by the Fed, over time, you’ll lose purchasing power.

It’s important to begin investing as soon as you can; the sooner you start, the sooner you can take advantage of compounding gains , which will allow your money to grow faster over time.

Compounding is when an asset generates earnings that are reinvested (or kept invested in the primary asset) to generate even more earnings. Interest is usually compounded annually, semiannually, quarterly, or monthly. Basically, with compounding, any interest you earn on your investments earns interest on itself.

Compounding is worth your effort to investigate. There’s a reason why Albert Einstein called compounding interest the greatest mathematical discovery of all time. It has the potential to transform your investment capital into a strong income-generating tool. To make compounding work for you, you must do three things:

• Keep your original investment invested
• Reinvest your returns
• Wait (it takes time to accelerate your income potential)

Compounding is one of the strongest ways of positively impacting the growth of your investment and maximizing those returns, as long as you keep your investment invested and reinvest your earnings.

If you have fractional ownership of an investment property, it means that you own part of that property along with other investors. In other words, each investor owns a fraction of the investment property.

This makes investing much more affordable for many people and allows a wider variety of investors to participate. Fractional CRE investing (fractional investing in commercial real estate) is popular as well.

When you diversify your portfolio with fractional investments , you will be entitled to a share of all of the profits and derivative income that the property generates. It’s a lucrative concept that opens up investment opportunities across new classes of assets in different geographic locations with superior investment flexibility.

Fractional investors don’t have to worry about issues like maintaining the properties they have invested in, either. Fractional ownership is considered to be the best way to own an asset these days, and it also limits risk (a risk that is shared is always diminished compared to a risk that is on just one investor’s shoulders).

Since commercial property ownership can be lucrative on a much bigger scale than residential properties, many investors are interested in fractional CRE investing.

If you are serious about investing and want to maximize your returns on your investment, pay close attention to fractional ownership. RealtySlices is a fractional passive real estate investing platform that is characterized by three pillars: accessibility, liquidity, and trustworthiness.

Using a platform for fractional CRE investing or residential investing provides a simple, convenient way to manage investments.

A REIT is another passive real estate investing option for investors who don’t have a large amount of capital to invest. A REIT (real estate investment trust) is a thematic company that finances and/or owns an income-producing property. These trusts pool together the capital of several investors and are modeled after mutual funds.

REITs operate with restrictions that require them to pass on a certain percentage of rental income to the individual investors, which has tax implications compared to fractional CRE. REITs are, however, more liquid.

REITs can generate a solid income stream for investors and allow them to earn dividends without having to finance, manage, or buy properties on their own. Real estate investment trusts invest in almost all types of property, including offices, retail centers, warehouses, apartment buildings, and more.

Real estate investment trusts are worth your consideration if you’d like to minimize risk and invest without putting up a huge sum of money upfront. An REIT is the right approach if immense diversification and liquidity are important to you.

However, if you’re interested in more granular investing in specific kinds of assets or properties, or if you want to invest in specific regions (because they often have the potential for higher returns), fractional real estate investing is the right approach.

When people talk about a time horizon with passive real estate investing, they’re talking about the period of time an investor wants to invest in a property before “cashing out.” Time horizons are either short-term, medium-term, or long-term in nature

Short-term investment time horizons can be as few as ten days or up to ten years. Medium-term time horizons are usually 10 to 20 years, and long-term horizons are 20+ years.

Investors must consider their time horizon carefully because risk and time are closely related. Those who have longer horizons are often comfortable taking higher risks (and higher rewards, too).

An investor’s time horizon can change depending on many factors, some of which include:

• Their income
• Their age
• How close retirement is
• What goal(s) they are saving for
• Personal appetite for risk vs. reward
• Expenses
• Lifestyle habits
• Real estate market trends

It’s vital for an investor to have a clear picture of what their time horizon is in order to allocate their investment portfolios efficiently and stay on track with their goals. Determining your time horizon will help you maximize your returns on passive real estate investing.

Although it’s best to start investing early and often, it’s never too late to begin. Even some college students begin investing while they are in school. Investment minimums are usually low, and by leveraging reinvesting and compounding, your investment can grow to quickly become substantial.

Consider setting aside some money on a consistent basis to put into passive real estate investing as part of a diversified portfolio.

While passive real estate investing used to require extremely large amounts of capital for an investor to participate, thanks to crowdfunding, REITs, and fractional CRE investing, people can invest with relatively small amounts of money.

It’s incorrect to assume that real estate doesn’t belong in early or small investment portfolios. Real estate is one of the best investment vehicles for any portfolio. Real estate investing is largely inflation-proof and can be ideal in any economic environment.

If you want to get ahead of rising inflation, now is a great time to get involved with passive real estate investing. You don’t have to have a huge capital investment to make money with real estate, so start investing with fractional real estate today.