Passive Real Estate Investing: What is it & How Does it Work?

Tirios Team

February 3, 2023
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Table of Contents

I. Introduction, and Importance of Passive Real Estate Investing

II. Types of Passive Real Estate Investments

III. Definition and Benefits of Active Real Estate Investing

IV. Definition and Benefits of Passive Real Estate Investment

V. Active vs Passive Real Estate Investing

VI. Expected Average Return for Passive Real Estate Investment

VII. Conclusion

Passive income has emerged as one of the most favorable ones, with meager fees, good transparency, and tax efficiency. Passive real estate income has become the shield that provides security during uncertain times and acts as a source of income post-retirement, etc. Passive investors can focus on other productive activities after investing in real estate. Let us delve deeper to learn more about passive real estate investing. 

What is considered a passive real estate investment?

One can passively invest in real estate through crowdfunding, REITs, funds, or remote ownership. In detail, let us look at the passive real estate investing examples for passive investing in real estate.

1. Crowdfunding

Real estate crowdfunding allows users to invest in partial shares of company stocks. Real estate crowdfunding involves a group of investors contributing their money to become part of a real estate deal. 


REITs (Real Estate Investment Trusts) operate as trusts and invest in various real estate types, like commercial properties. Investors can make money through these trusts by investing in them like stocks. 

The benefits of REITs include the following:

  • Wider diversification
  • Lower risk factors
  • The potential appreciation 

3. Real Estate Funds

Real estate funds are like mutual funds that invest in public real estate securities. Many real estate funds invest in REITs. Real estate funds are long-term investments that provide value through appreciation rather than dividends. Real estate funds are managed by professionals, which saves investors the trouble of doing extensive research on where they should put their money.

4. Remote Ownership

Remote ownership is considered a passive investment. Through remote ownership, an investor can own an investment property but hires a property manager who will be responsible for the maintenance of the property. 

Remote ownership is a good option because this passive investment strategy allows many seasoned real estate investors to earn real estate passive income by complete ownership of the property without playing an active role in managing the property

What is active real estate investing?

Active real estate investors purchase properties, put their money and time into managing properties for rental income, and can even build new homes for sale. Active investors are involved in every part of the process of real estate investing, from selection to obtaining financing to personally guaranteeing the loan and managing the investment. 

The main benefit of active real estate investing is control. The investor selects properties based on location, budget, and other factors. Another significant benefit of an active approach is that the investors can keep all of the income that the property produces. 

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What is a passive real estate investment?

According to The Internal Revenue Service (IRS), investors can earn real estate passive income from two sources, either through a rental property or a business in which one does not actively participate, such as stock dividends.

So, how to passively invest in real estate. There are two methods of passive real estate investing—direct or indirect. 

1. Direct passive real estate investing

In a direct method, an investor will purchase a property or portion of a property to rent out. 

2. Indirect passive real estate investing 

Individuals can invest in indirect passive real estate investing in REITs (Real Estate Investment Trusts). 

The indirect form of real estate investing is considered passive because there is no requirement for daily management, and investors collect passive income as returns or dividends from funds. 

Some benefits of passive real estate investing include the following:

  • Minimum Capital

Investors can begin passive real estate investment with little capital. Investors can access commercial real estate investing through Real Estate Investment Trusts.

  • Less Time and Commitment

 Passive real estate allows an investor to gain capital without hard work. As a passive investor, you have to be involved in the operation of the property, and you can sit back to watch it grow. 

  • Tax Efficiency

Tax efficiency helps to maximize the returns. REITs are tax efficient to invest in because they are tax-exempt at the trust level as long as they pay out a minimum of 90 percent of their profits to shareholders. 

Is passive investing better than active?

The critical difference between active and passive real estate investing is based on the time and effort the investors are willing to make to support the investment. Investors who can find, purchase, and manage a real estate property will ultimately decide between active vs passive real estate investing.

Consider the following factors to move forward with either active or passive real estate investing. 

 1. Control Over Management Decisions

Consider your preference for control when determining between an active and passive investment.

2. Required Knowledge

When determining whether to participate in an active or passive investment, individuals determine their ability to analyze cash flows and make management decisions to determine the most suitable.

3. Time Commitment

When deciding between active and passive real estate investments, investors should consider their available time and choose the best option.

4. Risk

In an active approach, the investors who purchase the property bear the risk. For passive investors, there could be less risk for each individual.

What is the average return for passive real estate investment?

Residential real estate averages a 10.6 percent annual return on investment, according to the S&P 500 Index, while Commercial real estate averages 9.5 percent in the United States. 

A real estate investment syndicate pools capital from multiple investors to acquire real estate. Real Estate syndications offer returns consisting of capital appreciation and passive income. As a real estate syndication investor, you can expect an average annualized return of 10-14% and cash-on-cash returns of 4-7%.


Real estate can be a high-yield passive income if you are committed to passive real estate investing and want to keep the passive dollars flowing. Passive income can be an excellent way to generate income and help create extra financial security. You can also take help from various passive real estate investing books to get knowledge of passive real estate investing. 

Tirios is a great platform built for individual investors to generate passive income. Tirios has a 1% management fee per year and a $59 property management fee, one of the lowest in the industry. You can start investing in Tirios with as little as $1,000. Join the Tirios family today!


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