An Overview of Passive Real Estate Investing and How to Get Started

What kind of lifestyle can real estate investing give you? 

Real estate is a vehicle.  But real estate is also a vehicle to wealth if you are thoughtful in your approach to real estate investing.  As an active real estate investment vehicle, real estate investing takes a lot of work especially in the initial phases after acquiring each property.  And building active real estate wealth generally takes time, so you need patience.  It took me about 8 years to go from not much passive cash flow to over $100,000 a year in passive cash flow.  I used my active income to generate passive cash flow through real estate investments.  I continue to do that even now, but I am also using passive cash flow from my passive cash flow investments to continue making investments in more passive cash flow deals.  Once you are up to a certain amount of investment dollars, the passive cash flow snowballs and enables you to make further investment.     

How to become an instant passive cash flow real estate investor?

The bottom line is that if you already have capital to invest regardless of the amount, you can become a passive cash flow real estate investor almost immediately.  You still need to do due diligence on the deal itself and the Sponsor of the real estate investment, but you can readily achieve passive cash flow through passive real estate investing if you already have cash to invest.  You can invest with friends and family Sponsors that you know.  You can also invest through Crowdfunding sites.  In addition to investing in the deals I am the Sponsor of and in addition to investing with friends and family Sponsor that I personally know, I also invest in Crowdfunding deals. 

Passive real estate investing has become easier and harder at the same time with the advent of Crowdfunding.  It is easier than ever to invest in real estate deals especially if you are an accredited investor because Crowdfunding has made it so that Sponsors can actively market their deals to accredited investors.  It has become harder because you are becoming a layer removed from the deal and from the Sponsor.  Additionally, investors who do not have as much experience investing in real estate do not seem to delve deep enough into the deals that they invest in to know whether the deal is one that fits their investment goals.  While I have mostly had good experiences in Crowdfunding deals, each Crowdfunding platform and each deal and Sponsor on each Crowdfunding platform needs to be evaluated just like you would do so if you were investing directly or through your friends and family contacts. 

The Misnomer

Passive cash flow is such a misnomer in most cases when it comes to real estate investing.  The reason is that someone somewhere is actively involved in owning and managing real estate.  Someone has to take tenant applications, screen tenants, collect rents, pay bills, oversee repairs and maintenance issues, handle tax matters, prepare financials, and make distributions to investors.  The real estate business, in actuality, is an active operating business.  There is a lot going on behind the scenes for the operator. 

So how can you achieve true Passive Cash Flow in real estate?

The way to receive true passive cash flow through real estate investing is to become a passive cash flow real estate investor.  Becoming a passive cash flow investor takes time and due diligence to find the right deal for you and to evaluate the Sponsor of the deal.  And passive cash flow investing requires having investable cash.  The old adage that it takes money to make money is a realism in passive cash flow investing.  Passive cash flow investing takes money.  You do not need a lot of money to start investing passively, however, my definition of passive cash flow is doing very little to nothing at all related to the actual real estate in order to obtain cash flow in return for your investment dollars.  If you already have some money to invest, you truly can achieve a state of passive cash flow in a fairly short time period.  For example, if you have $1,000,000 to invest and you can achieve a 7% cash-on-cash return, you will make $70,000 per year in passive cash flow.  Many people I know start with smaller amounts and build from there, but many people I know have $10’s of millions to invest.  If you are just starting investing and have $25,000 to invest, your cash-on-cash return would be $1,750 per year using the same 7% cash-on-cash figure. 

And the way that you really compound your earnings in real estate investing is when you have a capital event either upon a sale or refinance.  Assume that you achieve a 15% IRR over a 5-year hold, then your initial capital would grow by 75% (15% x 5 years).  In the $1,000,000 example, you would ultimately receive $1,750,000 back in return of equity, cash flow, and capital event proceeds.  In the $25,000 example, you would ultimately receive $43,7500 back in return of equity, cash flow, and capital event proceeds.  One thing becomes apparently clear.  Real estate investing is a scale business.  The more money you have and the more money that you have available to invest, the faster your money can grow.  

Avenues for obtaining more Passive Cash Flow through Real Estate

There are many ways to obtain passive cash flow through real estate investing.  The most common ways to obtain passive cash flow through real estate investing follow:

  • Public Real Estate Investment Trusts (REITs)
  • Private Real Estate Investment Trusts (REITs) through your broker
  • Friends and Family Real Estate Investments
  • Privately traded Investments or Funds geared to high net worth investors
  • Crowdfunding
  • Real Estate Debt Funds or Trust Deeds

There is also no shortage of asset types that can be invested in including the following:

  • Residential
  • Multifamily Apartments
  • Office
  • Retail
  • Industrial
  • Self-storage
  • Medical
  • Seniors housing
  • Student housing
  • NNN Investments
  • Ground-up development
  • Funds
  • Mortgages

Downsides of passive cash flow investing

While the benefits outweigh the downsides of passive cash flow investing, the following are some downsides relate to passive cash flow investing:

  • Lack of control
  • Little to no involvement in operations

Benefits of passive cash flow investing

  • Choice of deal to invest in
  • Choice of geographic regions to invest in
  • Choice of Sponsors to co-invest with
  • Little to no involvement in operations
  • Cash flow for investment dollars
  • Above-average returns
  • Ability to create the lifestyle you want to have

Passive cash flow investing is a pathway to a great lifestyle.  Start as early as you can.  Start with the amount of money that you have available to you.  Learn while you are investing.  Take the time to educate yourself.  Take the time to evaluate the deals that you like.  Take time to evaluate which Sponsors you like.  Take the time to evaluate the geographic regions that you like investing in.  As your cash flow increases from your passive cash flow investments, and especially if you are still building your passive cash flow to the level that replaces your active income or to the level that covers your lifestyle, do everything you can to continually re-invest the cash flow earned from your passive cash flow investments.  Over time, re-investing that money will snowball into even more passive cash flow and increased net worth. 

The big caveat is that you, as the ultimate steward of your money, have to be smart.  You cannot just invest in any deal.  You have to know your goals and where you are trying to get to.  You have to evaluate the deals that you are investing in, you have to evaluate the Sponsors that you are investing with, and you have to continually learn and grow in the real estate investing business.

Guardrail Finance has solutions that can assist you in your journey

We can help.  If you have interest investing in passive cash flow investments, you can sign up to receive news about the deals we are Sponsor through our Investor Management portal.  You can also become a Member of our Passive Real Estate Investor Wealth Club where present a video repository on real estate while also presenting real estate ideas, strategies, and investment opportunities that we are Sponsoring and co-investing in.  We invest in every deal that we offer.  We believe that it is important to align our interests with our investors.  We believe that our investors should make the lion’s share of the profits.  We are fairly compensated, but we are strong believers that investor capital should receive a Preferred Return on the capital invested and that investor capital should be entitled to the majority of the profits from every deal.  We invest alongside our investors and we act as a steward of the capital and deal throughout the lifespan of each investment.

Until next time, happy investing!


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