Imagine having the freedom to work because you want to, not because you have no choice. Think of what it would be like to wake up each morning with nothing to worry about because you know your finances are in order. Consider how great it would feel to know that the money you’ve already made is working to make you even richer.
Wealth Building: What Does it Mean to Be Rich?
When you imagine a “rich” person, what do you see? You might envision some happy guy drinking champagne on a private yacht. You might picture him with a spouse or other loved ones nearby. You probably wouldn’t think of a miserable person who works 80 hours a week and has no time for fun.
Is someone really wealthy if they have plenty of money but no time to relax? There are different ways of looking at riches. The concept of wealth can break down into three categories.
1. Financial
Money isn’t everything, but it is the primary aspect of being rich. To achieve true financial freedom, you need to be free of debt. This doesn’t mean you’ll never take on debt to expand your investment portfolio. There are times when getting a mortgage on a new property can be beneficial. The main goal is to make sure your net worth is positive.
The goal of attaining financial freedom is to never have to worry about money again. If you’re single, this is easier to achieve. If you’re supporting a family of 10, your goal should be to build generational wealth you can pass down. Someone with true riches will be able to fall asleep each night knowing everyone they love will be comfortable for the rest of their lives.
2. Time
Freedom of time is another important aspect of a luxurious lifestyle. Some people become so focused on making money they end up taking on too much and never having any free time. The path to riches can’t require nonstop work. All of the richest people on the planet utilize passive investing.
Passive investments are the key to true financial freedom. They require minimal hands-on work. You can manage them from anywhere, from your living room to a beachside bungalow across the world.
3. Location
The last important aspect of a true life of riches is freedom of location. When you aren’t locked into a strict work schedule, you’re free to go anywhere you like. You can manage most passive investments from anywhere. One of the best ways to get into passive investing is through property.
Passive Investments in Real Estate: What Are Your Options?
Getting into the world of real estate is one of the smartest routes to gaining freedom of time, location, and finances. When we discuss passively investing in property, we don’t mean buying an apartment building and renting out the units. While this can be a great option for some, it’s not passive. It requires hands-on work and is best for someone who prefers to remain located near the investment property. True passive investments allow you to enter the property market without all the hassles.
Crowdfunding
Throughout history, people have always turned to investors to help them fund various projects. It’s a great option, but it’s not always possible to find a single investor who can contribute what’s needed. Crowdfunding makes this process easier by allowing multiple parties to pool their money together.
There are two ways to invest in crowdfunding projects.
- Invest in a mortgage for a commercial property.
- Invest in the property itself.
Making an investment in a mortgage means your money goes toward the loan. As the borrower pays back the loan, you receive a percentage of the interest.
If you choose to invest in a property, you’ll get returns on your investment through income generated by said property. You’ll also earn a portion of the profits when the property sells.
How Can it Benefit You?
Maybe you plan to make a big investment, but you’re just short of the amount you’d need to buy in. A benefit of crowdfunding is that it allows investors to enter the market regardless of how much they want to spend.
Even if you have plenty to invest, this makes it easy to diversify. If you choose, you can put your money toward 10 different projects rather than one. You’ll get less of a return if one of these projects does well, but you’ll also have a reduced level of risk. Crowdfunding allows you to choose a level of risk you feel comfortable with.
Another benefit is the platforms make it easy to browse investment opportunities. Rather than spending hours searching the internet, you can find many legitimate opportunities in one place.
How Can You Get Started?
In the past, only accredited investors could use crowdfunding platforms. In May of 2016, the platforms became available for anyone who wanted to make an investment. The JOBS Act, which passed in 2012, was designed to make things easier for small businesses. In late 2015, the SEC finalized provisions related to crowdfunding and accreditation.
To get started, you’ll need to join a property crowdfunding platform, such as Crowdstreet or Fundrise. Both services are reputable. Property crowdfunding is a hot trend, which means many are trying to profit from it. There are a variety of crowdfunding startups popping up these days, and a lot of them aren’t well-capitalized. Anyone can build a website that offers crowdfunding, so doing your research will be crucial. Look into who founded the platform. Make sure they have business experience and knowledge of the world of real estate.
Lending
Becoming a private lender is another way to break into the market. Being a private lender can earn you passive income the same way it does for banks and financing companies. You provide the money upfront, and the borrower pays interest, providing you with an ongoing source of passive funds.
How Can it Benefit You?
If you have a significant amount of capital to work with, this is a good option. A big benefit is that private lenders working with property aren’t limited by the terms of the Dodd-Frank Act. This means you’ll be free to set your own terms for the loan. For example, you could choose to work with risky borrowers that major lending companies wouldn’t consider.
How Can You Get Started?
It can take some effort to establish yourself as a private lender, but once you’ve set up your loans, it becomes a passive venture. First, you’ll need to found your business and get insured. It’s smart to meet with your attorney to discuss the plan and receive personalized advice before moving forward. When you’re ready, you can join a private lending platform that will connect you with interested borrowers.
REITs
A REIT is a special type of investment trust devoted to property. They usually own commercial properties that generate income, such as strip malls or motels. They also may own mortgages. You purchase a stake in one of their properties, and you get a percentage of the profits.
The types of REITs include:
- Mortgage REITs, which purchase existing mortgages and pay out dividends based on interest.
- Equity REITs, which allow investors to purchase a stake in an income-generating property.
- Hybrid REITs, which offer investment opportunities of both types.
- Publicly traded REITs, which are SEC regulated.
- Non-traded public REITs, which offer more security due to not dealing with fluctuations in the market.
- Private REITs, which aren’t traded or regulated by the SEC.
How Can it Benefit You?
REITs generally pay out high dividends. They’re a passive option that can help you with wealth building. They offer diversification without a high degree of risk. Publicly traded REITs offer the benefits of property investment and stock in one.
How Can You Get Started?
If you’re ready to invest in a REIT, you’ll need to meet with a broker. Some brokers only handle publicly traded REITs, and others offer the non-traded variety. Do some research into the different varieties to see what will work best for you, and then find a broker who can deliver.
Grow Generational Wealth: Begin Your Investment Journey Today
When it comes to building wealth passively, you’ll have to figure out what works for you. For investors, no two paths are exactly alike. The key is learning how to balance the risks with the potential gains. Think about what being rich means to you, and then work smart instead of hard. A decade from now, you’ll be glad you did.
For more information on investing, passive wealth building, and living a fantastic life, check out our blog.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
