How to do Passive Investing in Commercial Real Estate


Passive commercial real estate investing has been around since a while due to its unique benefits. When you are interested in investing in commercial real estate but are not sure about the knowledge that you have or think that you don’t have the required time to spend on studying the markers briefly, passive commercial investing is the way to go.

There are savvy commercial real estate investors, and then there are not-so-savvy ones. The passive commercial real estate investors fall into the not-so-savvy category and here’s everything you need to know about the passive investing in the world of commercial real estate.

First things first – What is Passive investing?

Passive investing refers to the act of investing in assets or properties, without much investment of the investors’ time and energies. Passive investing is investing in assets without spending too much time or time, but to earn high returns, nonetheless.

Therefore, a typical passive real estate investor is a person who expects to make good returns from his portfolio of properties without his direct involvement or with least of his direct time. In a nutshell, if you’re interested in investing passively, you are looking at a scenario where you’re trying to maximize your returns but minimize your involvement in the deal.

One of the most common ways of getting into the world of real estate investing by passive investing is buying rental properties. Many investors making good returns on their real estate investments have their different day jobs or other active works and investing in properties is more of a side hustle. Renting out single-family properties or multifamily properties, in a way that the investor has least intervention in executing the deals, negotiating or closing of the transactions, and reap the benefits of rental income, in the long run, is one of the best examples for passive investing.

Does that sound familiar to your needs? If yes, passive commercial real estate investing is a good deal for you and you should consider getting into this business.

The big difference between Active Investing and Passive Investing

Active investing and passive investing are the two sides of the overall investment spectrum. The big difference between the two is in fact the difference between the mindsets or mentalities of the active investors and passive investors. Passive investing particularly appeals to the crowd of people who enjoy or prefer a more ‘hands-off’ approach, where every single decision of investing does not require them to spend lots of time studying the market or doing some on-site inspection works, negotiating the deals, getting the best deals and closing of transactions.

It is for people who want to invest in commercial real estate but do not really wish to go through the whole research and analysis process or crack their head too much thinking and calculating about their returns!

Active investing, on the flip side, appeals to people who are knowledgeable about the real estate market and are willing to exchange their time and energies for good returns and make some seriously big money.

Active investing requires investors to invest, not just big money, but also significant parts of their days into analyzing and understanding the nature of the real estate transactions they’re getting into making their decisions based on these research and analysis. Flipping of commercial real estate properties from time to time is thus one of the most common forms of active investing and requires the investors to put in loads of time and effort. So, which one are you? An aggressive investor or a passive investor?

If your answer is passive investor, here are some ways and tips you can do assist investing in commercial real estate and make a fortune!

Tip # 1 – Rental properties investments are your best bet

If you’re looking for passive investing, investing in rental properties is your best bet. It doesn’t require you to continually look at the changes happening in the real estate market, or look at the properties you could probably buy and sell an existing one, etc.

Investing in rental properties allows you to totally cut down on time and extra energies you’d otherwise be spending. So, your first step would be to check out the best rental properties where you can invest and reap long term benefits from those deals.

Tip # 2 – Explore your interests in investing in business spaces

Once you’ve decided to rent out properties and enter into the passive investing, the next step would be to analyze the type of rental property you’d be interested in investing in. There are two broad categories in here – residential properties and business spaces.

If you’re renting out business spaces, there’s a good chance that you can get as close and accurate to the passive investing as it requires very fewer efforts from your side. You might want to make some repairs and renovations to the property. And then, you’ll have to find the best tenants for your property.

These are the two necessary steps involved, and voila, you can already get going. There won’t be many reasons where you’ll be required to intervene here, and since it’s a business, you’re most likely to receive your rental income on time, every time. That is a huge plus because you don’t have to worry about your regular pay-ins now and can concentrate on your more active forms if works or businesses.

Tip # 3 – Residential spaces? Single-family rental properties versus multifamily properties

If you’re not interested in renting out commercial business spaces, your next best catch would be residential spaces. Now, there are two main forms of residential spaces which are single-family rental properties and multifamily properties. Single-family rental properties, as the name suggests refers to a single stand-alone building that will be occupied by a single family or a group of bachelors sometimes.

Multifamily properties, on the other hand, are buildings with a collection of multiple separate living units, meaning, multiple families can live together in the same building with independent living units. How can you decide which one is the best one for you? The answer to this question largely depends on your budget.

If you are running on a low budget but want to explore investing in commercial real estate, single-family rental properties could be the best option as these are cheaper than multifamily properties or even business spaces. You pay less for investing in the single-family property, and the returns from such deals will be comparatively less too.

On the flip side, with multifamily investments, you’ll be shelling out a large amount of money initially, but the returns are far more attractive too. A wise idea would be to explore both forms of residential properties and make the best plan that’ll help you make the maximum returns. Remember that, your goal at the end of the day with any commercial real estate investing is to maximize your profits, so if you’re sure about the returns, there are always commercial real estate loans available in the market that will cover your back.

So, if you’ve got your eyes on that super expensive multifamily property, but are worried about pooling in the initial investment costs, look no further and check out our deals on commercial real estate loans at private capital investors.

Tip # 4 – Location, location, location

One thing you cannot overlook when it comes to investing in commercial real estate is the location of the property. The location of your property matters a great deal and is the most significant deciding factor influencing your total returns from the investment.

Be it business spaces, or residential spaces, location of your property can be a huge game changer for you. Especially when you’re planning on passive investing in commercial real estate, site of the property is probably one of the first things you might want to look into. Here are some questions, concerning the location of the property you need to find answers to base your final decision of buying a property or not.

•    What is the proximity of the property to various public places like parks, gyms, restaurants, theatres, shopping malls, etc.?

•    What is the occupancy rate of the other similar properties in the location you’re looking at? Is it a rate that convinces you that the rental demand for this location is arguably high?

•    What is the demographic of this location? Who do you think will be the probable tenants if you plan to rent out any property in this location?

•    What is the appreciation rates for the properties of similar nature in the neighborhood? Is it a rate that convinces you to invest in the properties of this location?

This is a brief list of must-ask questions regarding the location of the property before you move ahead and plan on investing in the properties of a particular area.

Tip # 5 – Remember always to be geared by the core purpose of your passive commercial real estate investing

More often than not, investors who begin with passive investing tend to end up spending so much more time and energies on maximizing their returns than they had expected to when they started with it. They are slowly growing quite obsessed with their returns on investments, which makes them think a lot and put in a lot of effort, for just a nominal rate of increase or change in their profits.

Now, is that a bad thing? No, it’s not. But what is terrible is that, in doing so, investors forget their primary purpose behind passive real estate investing – to invest in real estate to maximize returns while also minimizing their investment of time and energies and personal involvement! If you’re finding yourself going away from this primary purpose, you should either get into active investing by jumping all in or gear yourself back to your real goal.

Juggling around passive investing and active investing is only going to kill a lot of your time, and your results in terms of high returns will not be as great either! So, make a wise decision when you reach that time and steer back to your original purpose.

Want to learn more? Get in touch with us today.

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