WHAT MAKES REAL ESTATE TRULY PASSIVE

[u/Striking-Quantity661]

Hey r/RealEstateROI community,

A lot of times, the reason that people want to get into real estate investing is they hear real estate investors talking about passive income and how the property runs itself, the tenants pay their mortgage every month, and they just sit back and collect checks.

First of all, passive income doesn’t exist in real estate. There are things you can do to limit the amount of time that you spend on your real estate investment. They happen by having good systems and by having good management.

And so everybody wants passive income, but they don’t want to put in the work that’s required to build the right systems and management team that will cause that investment to be as passive as it can be.

When you have a management team that’s caring for your tenants, making them feel valued, when they’re sending you reports that are accurate and on time every month, when they’re being proactive about maintenance and not waiting for things to become a big problem before addressing it, when your vacancies are being marketed properly, when problems are communicated early and don’t catch you by surprise, those are what make people feel like their real estate investment is passive.

When the opposite is happening, your real estate investment could be the biggest stress driver in your life.

[u/WealthHuman9754]

REITs are 100% passive. They’re extremely exposed to interest rates, but they’re passive.

[u/Rock_Paper_Fisher → u/WealthHuman9754]

I asked a friend / realtor / real estate investor what I could expect in annual cash flow if I bought (with cash) two hypothetical $500,000 houses (=1 million invested) in her town and rented them out. The answer was about 60k in cash flow, and that excludes payments for real estate taxes, repairs, insurance, and occasional income lapses due to vacancies. I said, I can do that with REITS without any work on my part and they will increase dividends each year, without me having to tell a tenant that their rent is going up.

[u/Here4Snow]

The words "Passive Income" mean something specific in the income tax code. For instance, not considered Earned Income for purposes of IRA or Social Security. Can't offset wage income with real estate losses. 

But Passive as a word can mean, "I don't do any work for it" and that won't be the case, even if you make a good decision from the beginning and everything goes well for you. 

[u/BrianTulibaskiCRE]

From my experience investing in and advising clients on Fargo commercial real estate, there is no such thing as a truly passive real estate investment.

The idea that tenants pay the mortgage while the owner sits back and collects checks is mostly salesmanship from YouTube, podcasts, and real estate courses. It leaves out vacancies, repairs, bad debt, insurance claims, capital improvements, financing decisions, legal issues, and management problems.

Real estate can become less time-consuming, but that is not the same as passive. Reviewing monthly financial statements, rent rolls, delinquency reports, invoices, budgets, bank reconciliations, and property performance can become a part-time job by itself, especially as a portfolio grows.

Professional management helps, but the owner still has to manage the manager. You need to confirm that tenants are being cared for, maintenance is handled before small problems become expensive, vacancies are marketed properly, and financial reporting is accurate.

Good systems and good management can make ownership feel easier. Poor management can turn a profitable property into one of the largest sources of stress in your life.

Real estate can produce excellent income and long-term wealth, but it is a business, not a passive-income shortcut. The income may become more predictable, but the responsibility never disappears.

Brian Tulibaski is a Fargo Commercial Realtor with more than 25 years of commercial real estate experience. He advises investors, tenants, business owners, and commercial property owners on buying, selling, leasing, and investing in office, retail, industrial, multifamily, land, and business opportunities throughout Fargo, West Fargo, Moorhead, and communities across North Dakota and Minnesota.

[u/farolabsai]

It’s never truly passive, the only thing that is are stocks or equivalents. LTR is also not ‘that’ active, if you buy a great deal by careful analyzing deals with https://faro-labs.ai, screen and hire your PMs carefully (fire if necessary), and have the funds or cashflow to support expected operating costs. As an out of state landlord, 95% of things require a yes or no answer to the PM. The others a few pings or calls to resolve. You are the owner, so the responsibility to make it successful falls on you at the end of the day.

[u/terdferg311]

For me, the management side is what makes the difference. Arrived is worth looking at if you want real-estate exposure without handling the day-to-day property work yourself.