what is passive investing and how can you become a passive investor

What Is Passive Investing

Passive investing can mean many things to different people and will most likely be different depending on each of

their perspectives.

People like the thought of real estate investing because they think they can quit their day job and replace their income with real estate investing.

Nothing could be further from the truth.

Investing in Real Estate can be very time consuming, especially if you have never done it before and you

have to learn everything while actually doing it.

That’s how I learned.

People are often mislead or misinformed about what

real estate investing can do for them.

Buying rental properties is a long term strategy and does not provide a good enough source of income to replace

your current salary.

People often think they can buy a rental property and use

the rents to replace their income.

The problem with rentals is that there is barely enough money to cover all the expenses

associated with owning real estate. There is the mortgage payment, taxes, insurance,

maintenance, repairs, management, etc.

"True passive investing is where you invest your money and you

earn a return on that money without any further

involvement on your part."

Most people get into real estate investing, not because they like real

estate, but because they are looking to make money.

Most people are looking to make money, not because they like

money, but because of what money can do for them.

People’s wants and desires can be viewed as a hierarchy of desires with the top being the ultimate desire and

the levels below representing the steps required to achieve the highest level.

Hierarchy of desires

What people don’t realize is that no matter what type of real estate investment

strategy they choose, it requires a lot of work and a lot of knowledge.

Real Estate Investing is not a

get rich quick type of investment

Real Estate Investing is not like investing in some hot new stock that you hear

about. And you aren’t building the next killer internet solution that is going to be

bought by Google.

There are many ways to make money in real estate.

Some real estate investment strategies require more work than others. Usually, the more you are involved, the higher

the return on your investment and the riskier the investment is.

When people think of passive investing they are thinking about exchanging their 9-5 job for something that will provide them with a means to earn an income without having to

exchange time for money.

What may seem like a passive investment on the surface,

may require more work than you think.

For example, I was speaking with someone the other day and they were a silent investor in a fix and flip investment. They ran into a problem and

ended up having to take over the project and spent a lot more money than originally was

anticipated.

“Real passive investing is suppose to be boring. If done correctly, Real Estate Investing is boring but consistent.”

The type of investment you chose should also be based on a number of different variables.

Age, experience, other investment holdings, source of funds, geographical area, net worth, etc. are all things you will need to think about when looking for a real

estate investment.

Risk is another big consideration when looking for investments.

The higher the expected return, usually means the higher the risk.

Risk can be different for different people.

The same factors that were used to consider how passive an investment you are looking for, should also be considered when determining the risk you are most comfortable with. For

example, the older you are usually means you are less likely to take chances with your money.

There is a lot of talk around diversification and how to diversify your investment

portfolio.

Investment experts are always saying to diversify your investments. And then they tell you to put all your money into the stock market, just in different

sectors within the stock market.

“Adding real estate to your portfolio provides diversification as

a separate asset class.”

You can also diversify within the real estate asset class by using different

real estate investment strategies

For example, you can invest in rentals, fix and flips,

development, lease options, wholesaling, mortgages, etc.

As a passive investor, you have to decide which real estate investment is right for you and find ways to invest in

that strategy.

“The key to making money as a passive investor is to

invest with an expert and with someone you can trust.”

“Put all your eggs in one basket and watch that

basket”

Most other types of investing are passive anyway so passive investing is not a new thing. Stocks and bonds, mutual funds, gold, silver, etc

are all passive investments.

People just expect that to be a real estate investor means that they have

to be a more active investor. This is not true.

There are a lot of ways to get started in real estate that does not require you to have any money. But, none of these are

passive investments.

Another theme in real estate investing is that you can get started in real estate investing without any

of your own money. This is only true for active investing.

“Passive investing requires that you have money to invest.”

The main idea with passive investing is that you invest your money and your money will

work for you. You can use real estate to make money as an active investor first and

then invest your money in a passive investment later.

Check out my book for a Step by Step approach on how you can get started in Real

Estate Investing.

Real Estate Investing: The 7 Step Solution to Making Millions in Real Estate

Jim Pellerin has been investing in real estate for over 25 years. He is the

author of Real Estate Investing: The 7 Step Solution to Making Millions in Real Estate

Check out his blog at jimpellerin.com