[The following is a guest post by the team at Stessa, smart money management software that empowers real estate investors with rental properties to manage and grow their portfolios with confidence.]
As real estate investors, we have a lot to do in a day. Acquisition, management, financing, legal, – the list goes on. While some of these can be fun, there are other aspects that you might dread or that might seem overwhelming.
As you begin your investing journey, it’s critical to learn these various aspects of real estate, in order to achieve your goals and build true wealth for your family.
That said, as you gain more experience and add more rental properties to your portfolio, you tend to lose more and more of your time. This is why making your rental property investing more passive becomes a higher priority for investors as they build up their portfolios.
With the right mindset, digital tools, and team around you, making your investments more passive could supercharge your portfolio and free up more of your time. Sounds nice, right?
If you want to grow your real estate portfolio with a healthy mix of passive real estate syndication investments and active rental property investments but are dreading the hassles of being a landlord, you’re in the right place.
In this guide, we’ll walk through the differences between active and passive investing, how you can put your current and future rental properties on autopilot so they can be as passive as possible, and more.
Before we start, please check out this primer to passive real estate investing to get a better understanding of the basics of passive investing.
Active Versus Passive Investing
There are several factors investors must consider when deciding on the passive versus active route to their real estate. Here are some of the most common ones to consider.
Do you like managing property and tenants?
Property and tenant management is a boatload of work. Some investors enjoy this, some don’t. Yes, you can hire out property management, but then you are also managing managers.
Active investors typically enjoy this type of management, at least in the beginning. Those who explore passive investing want to hand over this entire aspect of investing to an experienced partner or syndicator.
Do you enjoy finding deals?
Finding deals can be exciting. But, it can also be a lot of work without much payout if the deal falls through.
On the passive side of investing, you would typically partner with a syndicator or general partner who has a machine and team behind them to find the most lucrative deals, leaving investors like ourselves out of the equation.
Are you maxing out on your financing?
At times, investors hit a financing wall as they continue to add properties in their personal names. Lenders are risk-averse, and may be reticent to continue lending to active investors once they hit 10, 15, or 20 units under their names.
Moving to a more passive investment strategy means that the financing burden will typically fall on someone else, as you are simply a capital partner.
Making Your Current Rental Property Portfolio As Passive As Possible
Prior to partnering with an expert general partner or syndicator who can help you explore passive investment opportunities, there are some things you can do in your current portfolio to optimize efficiencies and make your role more passive.
Automate and optimize!
There are so many tools out there that move your physical world into the digital one. Whether it’s rent collection, document storage, work orders, expense monitoring, or mortgages, there are a significant number of tools out there that can help you reduce the number of touchpoints you need in your business.
Systems and SOPs
Scott Adams said it best: My philosophy is that losers have goals and winners have systems. Everything you do in your business, you will certainly have to repeat it at some point.
Record and document EVERYTHING you do. We use Google Docs to keep track of each task we do, with checklists, instructions, and sometimes screenshots in each document talking about specific tasks in our business.
This allows us to easily refer back to them, ensure we’re not missing anything, and quickly onboard new team members.
Laptop landlording (remote ownership)
What if you weren’t living down the road from your rental property? What systems, tools, and team members would you need to deploy to enable remote management of your property? Start writing these down, and execute on a few to help make your investing more passive.
The idea is to free up your time to focus on the higher-level tasks of your businesses. You don’t need to be fixing a toilet, or putting up rent advertisements, or reconciling expenses on a monthly basis. There are tools, systems, and team members out there who can help with this.
Best Practices When Making Your Rental Property Investments More Passive
Passive real estate investing can come in many forms. Whether it’s you yourself optimizing your rental property business to make it less hands-on or you partner with a syndicator or general partner who is bringing a lot more firepower to the equation than you ever could.
Making your real estate investments more passive can be a game-changer for helping you quickly scale and diversify your portfolio.
As you continue to build your passive investing and rental property portfolio, keep the following best practices in mind:
Who is the lead or source of the deal?
Knowing, liking, and trusting the active investor or partner in a deal is absolutely critical.
Passive investing due diligence
There is still A LOT of due diligence you must do as a passive investor to ensure not only the deal is going to provide sufficient ROI, but that the active partner is legitimate and experienced.
You still need a team
You will still require a real estate investing team who is experienced in this sector to help guide and protect you through your investing journey—whether you are active or passive!
At the end of the day, the strongest real estate portfolios are often those with a good mix of both passive real estate syndication investments and active rental property investments.
If you’ve been fearful of investing actively in rental properties or are reluctant to add more rentals to your portfolio, take some time to optimize and automate your systems to build a solid foundation for your business, allowing you to grow and add more properties to your portfolio with ease.
Once you do so, you’ll be able to scale and diversify quickly and easily while still maintaining a relatively passive role, thus allowing you to reach your overall investing goals sooner and with confidence.