Passive Real Estate Investing for Retirement

By Peter A. Elwell, CFA | December 22, 2021

Everyone is financially better off with a source of passive income, and retirement will be much more enjoyable if you don’t have to worry about money. Forms of passive income you may have in retirement include 401(k) plans, IRAs, pensions, Social Security and annuities. However, these 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 many view real estate as an active investment that requires ongoing work, you can build a source of entirely passive income by investing in real estate today.

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 Are the Benefits of Passive Real Estate Investments?


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 ensure you don’t run 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, all while you have regular, reliable income coming in from your investments.
  • Consistent source of income: By choosing your investments wisely, you won’t have to worry about reduced income or market fluctuations, and you are more likely to receive roughly the same amount each time you expect payment.
  • 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 save on the fees charged by other investment options, such as 401(k) contributions and stock market investments. You 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. In contrast, real estate is more likely to appreciate. Though market fluctuations can impact the value, if you select a solid property in a desirable location, the odds are better that you will see an increase in your net worth and cash flow.
  • Funds for financial emergencies: Your other income sources, like a pension and Social Security, may not be enough to cover all your unexpected expenses. If you need to pay for medical care or home repairs, the passive income from your real estate investments can help cover these expenses and keep you financially secure.
  • Fast and simple mortgage repayment: When you have a tenant paying rent, you can charge enough to cover the mortgage payment and the other expenses like property taxes and maintenance. After a few years of owning a rental property, compound interest can allow you to build a powerful source of passive income that requires little or no out-of-pocket cash.

Ways to Earn Passive Income From Real Estate

Investing in real estate is 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, real estate crowdfunding or partnering with an active investor.

Stock Market

If you want to use the stock market to invest in real estate, one of the popular ways to do so is a real estate investment trust. REITs are similar to mutual funds, as you will purchase shares in a trust, 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. As such, REITs are an excellent choice for investors who are seeking passive income and long-term capital appreciation. Since REITs trade like other stocks, they are a great addition to a retirement account.

You can select a standard 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.

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.

You can either get a mortgage on a property or pay in cash if you have enough savings. Initially, you may want to find a modest property with potential rather than the fanciest, most expensive property you can find. Additionally, if you can find a property with more than one unit, such as a duplex, you can make even more cash each month by increasing your number of tenants and rental payments.

Search for homes in locations with good schools and reputations, as these areas tend to be more likely to appreciate than a cheaper property in a less-than-ideal location. If you can find a neighborhood where the house prices have steadily increased in value over the past few years, you may want to consider investing in that area. Remember that rentals near major highways or public transportation also tend to be appealing.

You may want to stay local for your first property, so you can keep an eye on your investment. Be wary of large employers relocating to your city and opening offices or factories. 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. For example, if they convert an office building into a hotel to bring in more money, they can negotiate the purchase price, deal with a lender and arrange 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 in crowdfunding can offer you many benefits. Crowdfunded real estate investments regularly generate high annualized returns for investors, so when projects go well and the value-adding strategy is successful, you can make a significant amount of money.

Partnering With an Active Investor

Finally, you can also team up with an active investor, or managing partner, to build passive income in real estate. If you want an alternative to investing in rental properties, you may want to partner with someone who is willing to take on a more active role while you primarily sit on the sidelines.

With this option, you can invest your money in residential properties and not have to do the work to find or maintain them, and the active investor will have more capital to purchase new properties. Even though you aren’t actively managing the properties, you will receive a portion of the income generated and a share of the profits made after a property’s sale.

How to Get Started With Real Estate Investment for Passive Income

Ready to start generating passive income from real estate investment? Follow the steps below.

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 successful, 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 loan. You can also leverage your retirement assets to generate rental income.

For example, 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 or commercial residential properties. You can even leverage your cash to buy 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


Enjoy the many benefits of passively investing in real estate with 1031 Crowdfunding, such as freedom in your retirement, a consistent source of income, tax advantages, appreciation to increase your net worth, funds for financial emergencies and fast, simple 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 1031 exchanges 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.

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