Generating passive wealth – aka making money while you sleep – is a nice idea.
But as a busy professional, most of the passive wealth generation ideas being bandied about aren’t truly passive. Or at least they won’t be truly passive until a few years down the road. Most require your active participation to get them up and running.
Based on your workload now, you just don’t have the time for that.
You don’t need a second job, just additional sources of revenue.
Therefore, you need a truly passive avenue to invest, which offers real returns.
Truly passive wealth means investing in assets that generate income for you, meaning your money works for you, not you working to earn.
The aim of passive wealth generation is to help you eventually replace your earned income to a point where you can choose to work or not.
It frees up your time to take on challenges you want to focus on or spend more time with your family.
For those who successfully achieve true passive wealth generation, they can retire from being “busy professionals”, and start to live life as they see fit.
You will notice that we didn’t use the term passive income, and that’s deliberate.
Wealth creation is a long-term process and will not happen overnight. It also requires the discipline for reinvestment.
With passive wealth, it also means that in addition to your stable, predictable income, you are also enjoying asset appreciation and that primarily comes from investing in real estate.
The typical real estate investment process requires that you essentially become a property manager. You’ll need to manage tenant problems, handle late-night phone calls, management issues – the works. And even if you outsource property management, these are still ultimately your responsibility.
On the other hand, there’s property flipping. This means buying, fixing, and selling a property. This requires your active involvement in all aspects of the process. Hence, this cannot be a source of passive real estate investment.
None of these equate to what we recommend as passive wealth creation through real estate investment. As a busy professional, you do not have the time to dedicate to these types of projects.
The third option is one that we use at XSITE Capital to generate passive wealth for our clients who are often extremely busy professionals. To consider real passive wealth, you need to invest in real estate and the best option for passive real estate investment is by investing in commercial and real estate projects where you won’t need to manage the investment or the properties.
In this option, active ownership of property doesn’t mean ‘landlord’ with the attendant headaches. With passive investment, you allow those with the expertise to generate and manage the property investments on your behalf. You enjoy the returns in terms of income, tax benefits and asset appreciation.
This is often referred to as apartment syndication and is one of the smartest ways for real estate investment.
Building a strong wealth foundation – one that can last through multiple generations – should be your goal for passive wealth generation.
As long as you have the discipline and the right investment partners with you, you can build your passive wealth system.
If you’re interested in learning how to build passive wealth through multifamily real estate investment, click here!
There are many ways to build wealth and achieve financial freedom with real estate investing being just one of those many methods.
According to a Forbes magazine article “how the world’s billionaires got so rich”, real estate investing was one of the top 3 industries that have produced the most billionaires.
The real estate industry has been a great source of wealth for many generations prior, and that hasn’t changed in today’s reality.
For new and seasoned investors alike, multifamily investing is an excellent addition to your portfolio, and multifamily investing is a great way to build generational wealth.
“Multifamily” simply means multiple families dwelling in one building, such as apartment buildings.
Individuals, families and organizations can build generational wealth by investing in multifamily properties.
There are many benefits to investing in multifamily properties, especially considering:
There are many ways to invest in multifamily properties, including active investing, passive investing and debt investing.
An active investor goes out, sources great deals and purchases them.
A passive investor provides funds towards the purchase of the property and receives an ownership share of the building.
Finally, a debt investor provides the funds necessary for the purchase of a building as a loan over a defined period of time and receives interest payments.
As an active investor, you are responsible for identifying the right market and suitable properties in which you would like to invest.
The active investor also has to build the team necessary for the management of these big assets.
In a syndication model, the active investor:
Active investors are also responsible for making sure investors receive their promised returns.
The active investor typically owns 20-40% of the deal, and they receive a share of the cash flow from the building and any profits on exit based on their ownership share.
The passive investor is not involved in the day to day management of the asset.
Being a passive investor is ideal for busy professionals who are looking for stable alternative methods of investing.
Typically, passive investing works for investors who like the stability of real estate, but do not have the time to deal with the day to day management of big real estate assets.
The passive investor contributes money towards the purchase of these assets and receives a share of the entity which owns the asset.
As the income of the property grows, so does your investment. That’s because the value of these properties is based on income.
As a passive investor, it is not usual to earn 10-20% annual returns on your investment. In addition, you also receive multiple tax benefits derived from cost segregation studies and bonus depreciation. This can help erase any tax liabilities from all your passive real estate income.
Other savvy investors build and maintain generational wealth by being debt investors in multifamily properties.
Many savvy investors love multifamily assets because of the stability they can provide.
As a debt investor, you provide anywhere from 60 – 90% of the funds necessary for the purchase of multifamily assets as a loan, and receive an interest on the funds provided.
One huge advantage of being a debt investor is you occupy the first position on the capital stack, which means if something were to go wrong with the property, you are in the first position to get your money back.
This is usually done through family offices which are in charge of managing the wealth of wealthy families. Family offices love this type of investing because it is a good hedge against inflation as rent goes up with inflation, and the interest they receive helps their money grow.
Depending on what your goals are and where you are on your financial journey, you can use either one of these methods to grow and maintain generational wealth.
As the economy changes due to the COVID-19 pandemic, many other real estate classes are feeling the pinch but multifamily investing still remains strong.
This is consistent with what was seen in the 2008 recession as well. If you are looking for a great way to grow your wealth, multifamily investing is definitely one you should consider.
A word of caution however: it takes time to build generational wealth.
Multifamily investing is not a get rich quick scheme, so don’t expect to become a billionaire after your first investment. But due diligence coupled with hard work over time will produce exciting results.
If you’re ready to start investing in multifamily properties and grow your investment portfolio, click here to learn more about the process with XSITE Capital.