Passive Real Estate Investing for Retirement

By Peter A. Elwell, CFA | October 30, 2023

Forms of passive income you may have in retirement include 401(k) plans, IRAs, pensions, Social Security, and annuities. These sources can help you stay financially secure and enjoy your retirement without being concerned about money. However, this income may not be enough to finance the retirement you want.

If you are looking for other passive income sources for retirement, you may want to consider real estate investing. Though real estate may seem like an active investment that requires ongoing work, you can build a source of entirely passive income through rental properties and other means. Investing in real estate for retirement is a strategic approach to gaining a consistent, tax-advantaged income source. With 1031 Crowdfunding, you can set up your retirement real estate investment in a few steps.

What Is Passive Real Estate Investment?

Passive income refers to an income stream for which you do not need to actively and continually work for your money like you would at a job. Of course, it requires some effort, but you typically don’t need much, if any, ongoing work to maintain your investment.

For most passive income streams, the bulk of the work happens before you make your investment — the research you will do beforehand to find the best investment vehicle.

For example, if you buy rental properties, your investment may be primarily passive, but you may still need to do work to screen tenants, clean up after a tenant leaves, make your monthly mortgage payment, and maintain the property. You might put more physical and mental energy into it than investing in the stock market, though you can still make money each month without having to work at a 9-to-5 job every day.

The most passive real estate investments are those for which you invest money for someone else to use in purchasing, leasing, maintaining, repairing, and administering the properties to earn income. Passive real estate investors receive a portion of monthly revenues from real estate income. If the property sells, you will receive part of the proceeds proportional to your investment. None of this requires any ongoing effort on your part — only the time and capital needed to make the initial investment.

What Makes Real Estate a Powerful Investment Strategy for Retirement?

Compared to other passive income sources in retirement, real estate investing offers many advantages, including:

  • Appreciation in net worth: Real estate investments tend to appreciate over the long term, leading to a higher net worth and an increased cash flow. However, in the near- to mid-term, the market value of your investment property may fluctuate, and your income will depend on factors like the property’s location.
  • Tax advantages: Investing in real estate can create some tax efficiencies by factoring in the cost of repairs, interest, and depreciation.
  • Expense coverage: Your rental property should generate rental income from your tenants. Your rental property could potentially generate enough income to fully — or at least partially — cover ongoing expenses like your mortgage payment, utilities, maintenance and repairs, insurance, and property taxes. With this supplemental income fully or partially covering these expenses, you can use any leftover rental income for your own use.

Real estate investments can also incur these risks:

  • Illiquidity: Real estate investments have a lack of liquidity. If you need to sell your real estate assets quickly, you risk selling below market value.
  • Upkeep and maintenance expenses: Maintenance and repair costs for real estate can be expensive. Underestimating the expenses of repairs or having unforeseen maintenance needs can make it more difficult to cover these costs when they arise.
  • Vacancy: Single- and multi-tenant properties generate income from rent. High vacancy rates result in lower income and can make it more difficult to cover mortgage, insurance, taxes, and other property expenses.
  • Negative cash flow: Factors such as high vacancy rates, high maintenance expenses, and loan financing costs may cause your real estate property to have higher expenses than profit.
  • High fees: While real estate investment trusts (REITs), Delaware Statutory Trusts (DSTs), and other private placements can offer tax advantages, they may have higher fees than other traditional equity and debt investments, like stock and bonds, mutual funds, and exchange-traded funds (ETFs).

What Are the Benefits of Passive Real Estate Investments for Retirment?


Regardless of your investment strategy, you can enjoy several benefits when you choose to invest in real estate to earn passive income.

Boost Your Retirement Savings

One significant advantage of generating passive income via real estate investing is that you can pad your nest egg. You can reach your financial goals faster, and you may even be able to retire early. If you’re already retired, investing in real estate can help mitigate the risk of running out of savings.

Freedom in Retirement

When you have a passive income source, you can live your life and worry less about money. Travel the world or enjoy a leisurely retirement.

Alternate or Additional Source of Income

A carefully constructed portfolio can create an additional stream of income with more predictable payments. You can also use your real estate income to augment or supplement your savings, investments, Social Security, pension, or other primary retirement income sources. However, your income can fluctuate unexpectedly from a tenant not paying, unforeseen expenses, maintenance needs, and more.

Tax Advantages

When you own a rental property, you can enjoy the tax advantages of property ownership. You may be able to deduct several expenses, including interest, depreciation, travel, and repairs. By investing in real estate, you can reduce your tax liability and may also pay a capital gains tax instead of ordinary income tax, which could save you money.

Appreciation to Increase Your Net Worth

Some assets, like cars, depreciate over time as a matter of course. Though market fluctuations can impact the value, if you select a solid property in a desirable location, you may see an increase in your net worth and cash flow.

Funds for Financial Needs

Your other income sources, like a pension and Social Security, may not be enough to cover all your expenses. The passive income from your real estate investments can help cover these expenses and keep you financially secure.

How to Tell If Passive Real Estate Investments Are Right for You

Ask yourself these questions when determining if passive real estate investing is the right choice for your retirement income:

  • How much money do you have to invest? Real estate investing in a passive strategy could require less capital than an active investment. For example, investing in a real estate investment trust or crowdfunded real estate investment requires a smaller capital outlay than purchasing the property outright as with an active investment.
  • How much time do you have to commit to investing? Passive real estate investments have a shorter time commitment compared to active investing, which requires managing the property and related operational tasks.
  • What knowledge do you have about various investment vehicles? Passive real estate investments require investors to have an understanding of investment analysis.
  • Can you invest in your target asset class on your own? Passive investing options like crowdfunding and REITs in real estate can allow you to explore new investment opportunities and diversify your investments in ways not possible on your own. For example, if you want to invest in an urban apartment community, purchasing REIT Operating Partnership (OP) units or investing in a crowdfunding opportunity makes the investment possible.

Ways to Earn Passive Income From Real Estate in Retirement

Investing in real estate can be a fantastic approach to generating wealth. However, not every method of real estate investing is right for everyone. If you want to earn passive income from real estate investments, you can choose to invest via the stock market, rental properties, or real estate crowdfunding.

Real Estate Investment Trusts

You can select a traded or non-traded REIT that specializes in a specific type of commercial real estate, such as apartment buildings, hospitals, data centers, and office spaces. Doing so can allow you to invest in property types you otherwise wouldn’t be able to afford directly investing in.

Traded REITs

If you want to use the stock market to invest in real estate, one of the popular ways to do so is a traded real estate investment trust. Traded REITs are similar to mutual funds, as you will purchase shares in a trust through a public stock exchange, and the managers will invest the money in commercial properties. On the other hand, non-traded REITs are real estate investments with company shares that aren’t listed on a public exchange.

A REIT needs to distribute the majority of its taxable income to its shareholders to avoid corporate income taxes. As such, REITs can be an excellent choice for investors who are seeking passive income and long-term capital appreciation. Since traded REITs trade like other stocks, they can be a great addition to a retirement account.

Non-Traded REITs

A non-traded REIT differs from a traded REIT in that these are not listed on public exchanges. This means investors can access otherwise inaccessible real estate investments with potential tax benefits. Non-traded REITs are designed to reduce or eliminate taxes while providing potentially profitable returns.

Since a non-traded REIT is not traded on a securities exchange, these investments can be illiquid for long periods. Non-traded REITs can incur front-end fees, which can potentially be higher than traded REIT fees.

Rental Properties

Investing in rental properties tends to be the least passive source of income, but if you hire a property management company, this investment strategy can become much more passive. However, you’ll still need to do some upfront work.

Investors can begin investing in rental properties by paying for a property outright or getting a mortgage for a modest property.

For residential, seek to invest in and identify these properties:

  • Properties in locations with good schools and reputations, as these areas are more likely to appreciate than a cheaper property in a less-than-ideal location.
  • Buildings in neighborhoods where the house prices have steadily increased in value over the past few years.
  • Properties near major highways or public transportation.

For commercial, some common examples are:

Properties with more than one unit, such as a duplex, can potentially generate more income due to the higher number of tenants and rental payments. Multifamily properties provide diversification in the income stream and reduce the likelihood of 100% vacancy. However, commercial properties may have a high purchase price and operation expenses.

You may want to stay local for your first property, so you can keep an eye on your investment. Be wary of large employers leaving your city and opening offices or factories elsewhere. Ideally, your rental property will be in an area with a robust market, job growth, and reasonable taxes.

Real Estate Crowdfunding

Real estate crowdfunding is one investment option that has grown increasingly popular recently. With this strategy, an experienced real estate developer or investor finds an attractive investment opportunity, negotiates the purchase price, deals with a lender, and arranges all the necessary work.

However, without the necessary capital, the developer can’t complete the project. They may decide to fundraise by giving others a chance to invest and gain a financial interest in the project. This strategy is real estate crowdfunding.

Investing via crowdfunding can offer you many benefits. Crowdfunded real estate investments could generate annualized returns for investors, so when projects go well, and the value-adding strategy is successful, you can make a predictable monthly income with appreciation potential.

At 1031 Crowdfunding, we have an online marketplace of investment properties where investors can invest in securities, making it different from traditional crowdfunding.

How to Get Started With Real Estate Investment for Passive Income

Ready to start generating passive income from real estate investment? Here are some things to get you started:

1. Make a Plan

There is no one-size-fits-all strategy, so your first step to getting started with real estate investment is making a plan that works for your financial goals and circumstances. Are you more interested in investing in crowdfunding or the stock market? Do you want to be a landlord? Do you want to own rental properties and hire a management company to do the hands-on work for you?

At this point, you determine what type of investments you are interested in, how involved you wish to be and how much capital you are looking to invest.

2. Focus on Diversification

Keep diversification in mind when you are getting started. Diversification can make your portfolio more well-rounded and therefore have higher chances of success, so you may want to consider several investment strategies, property types, and geographical locations. By diversifying, you will be more likely to grow a stable, predictable income stream through your retirement.

Depending on the amount of capital you want to invest, this may mean purchasing multiple rental properties, investing in several different mutual funds or trusts, or investing in crowdfunded properties. To balance risk and reward, diversifying is a must.

3. Research Real Estate Market Trends

Some real estate market segments may perform better during a period of economic downturn or market volatility. For instance, the multifamily sector could outperform commercial properties, despite a challenging economic environment. Though there are still risks associated with multifamily housing, demand for residential rentals tends to be more reliable than for commercial properties. While everyone needs a place to live, not everyone is a business owner, and not every business can weather times of economic downturn.

When you research and understand the market in your area, you can find the right opportunities for real estate investment and build a passive income stream.


4. Select the Right Sources for Capital

If you don’t have enough savings to fund your investment, you may want to seek other sources of capital, such as a mortgage or loan. You can also leverage your retirement assets to generate rental income. However, doing so can incur risk. For example, if you borrow against your 401(k) while you are under the age of 59 ½, you must repay the loan with interest within five years to avoid penalties and taxes.

If you have a self-directed IRA, you have the opportunity to make investment decisions based on your expertise and knowledge, so you can use it to buy residential properties, commercial residential properties, or land that can generate passive income. When you leverage your retirement assets, you can avoid taking on a loan and paying interest to a lender. If you choose to follow this route, you will have to follow the associated IRS rules.

5. Get Professional Help

If you’re a first-time real estate investor or you’ve been a rental property owner for several years, you may want to get assistance from professionals who can discuss the advantages and disadvantages of different investment options available to you.

To get started with investing, you may want to turn to the professionals at 1031 Crowdfunding. Our online marketplace is an excellent starting point for your real estate investment portfolio.

Register With 1031 Crowdfunding

Register With 1031 Crowdfunding


Enjoy the many benefits of passively investing in real estate with 1031 Crowdfunding, such as freedom in your retirement and the potential for a more predictable source of income, tax advantages, appreciation to increase your net worth, funds for financial emergencies, and mortgage repayment.

At 1031 Crowdfunding, we help our clients invest with confidence by offering inspired solutions. Our state-of-the-art resources and platform can facilitate your real estate investment strategy, regardless of whether you’re investing in real estate for retirement income or want to increase your cash flow.

To streamline the investment process, we offer a turnkey solution for REITs and other investment vehicles and handle the logistics. Our process is simple — browse the properties in our marketplace, complete the paperwork online, and close in only three to five days. To start investing and building your passive income streams, register with 1031 Crowdfunding and include real estate as part of your retirement portfolio.


This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.

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