How to Build a “Set-It-and-Forget-It” Real Estate Portfolio Without Owning Rentals

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Rental investing isn’t passive. I know firsthand—I once owned 20+ rental properties.

It takes a ton of work to buy them, stabilize them, and manage them, year in and year out. Even if you hire a property manager, you then have to manage the manager.

Rentals, flipping, and wholesaling—these are all business models. They appeal to plenty of entrepreneurs looking to launch a side hustle or full-time business. But make no mistake: They involve starting a business.

I don’t want a side business. I just want the cash flow, appreciation, and tax benefits of real estate investments.

So, for those of you like me who want a real estate portfolio without having to run a real estate business, what options do you have?

Entry Level: REITs

Anyone with $10 can buy a share in a real estate investment trust (REIT). You buy and sell them with the click of a button in your brokerage account, just like any other stock.

They’re cheap, liquid, and easy. So what’s the catch? There are several, unfortunately.

First, by definition, you’re paying market value for them, as they trade on the open market. Don’t expect a bargain or outsized returns.

Second, you pay taxes on the dividends at your full income tax rate. And unlike some other ways to passively invest in real estate, you don’t get a juicy depreciation write-off.

Third—and arguably worst of all—they’re too correlated with the rest of the stock market. I’ve written about this before: They act as just one more sector of the stock market, with a similar correlation as other sectors like utilities or consumer staples.

That means they don’t provide true diversification. They trade on public stock markets alongside other stocks and generally move to the same market rhythms.

Goldilocks Level: Co-Investing

To solve all three of those problems with REITs, you need to go up a level and invest in private placements. But that doesn’t mean you have to be rich or invest the typical $50,000 to $100,000 in a single investment.

When I say “private placement,” I’m referring to passive real estate investments that don’t trade publicly on stock exchanges or get hawked by crowdfunding companies. Options include:

Private partnerships with investors

Private notes

Real estate syndications

Real estate funds

I’ve invested in all these and continue investing $5,000 every month in a new one or two. I approach it as dollar-cost averaging for my real estate investments.

Yes, operators do typically require a minimum of $50,000 to $100,000—if you invest by yourself. This is why I don’t.

I invest alongside other members of a co-investing club. We all meet on a Zoom call to vet a new passive real estate investment together, grilling the operator with questions. Then we boot them off the call and have an internal club discussion to analyze risk and returns.

We can then each invest $2,500 or more if we like it—or skip it and wait a couple of weeks for the next one.

Wealthy Level: Solo Private Placements

Of course, the wealthy could potentially invest $50,000 to $100,000 by themselves in a new passive investment every month.

That said, you’d need a massive income to do this kind of dollar-cost averaging, investing $50K to $100K every month. That’s $600,000 a year, minimum, just in real estate investments.

Granted, not everyone practices dollar-cost averaging. But then you start getting tempted to try and time the market, which adds a whole new risk to your investments.

Tracking Your Passive Investment Portfolio

As you start stacking up all these passive real estate investments, how do you keep track of them all? How do you track returns for them?

You have a few options. I keep a spreadsheet of all my investment accounts, and I list all my real estate investments on it as well, along with my initial investment and the approximate yield. This helps me track my passive income as well for measuring my “FI ratio”: the percentage of my living expenses that my passive income can cover. When that reaches 100%, working becomes completely optional.

As another free option, I also use Credit Karma’s net worth tracker. It’s not as good as Mint was, but Intuit discontinued Mint and imported the data to Credit Karma. The better to sell you other services, my dear.

As a paid option, Vyzer specializes in tracking alternative investments alongside traditional paper assets.

Finally, my co-investing club has an automated tracker for its group investments. It updates with the current yield for each investment.

A Counterweight to Stocks

I want my real estate portfolio to look almost as diverse as my stock portfolio. That includes geographical diversification, property type, debt versus equity, operator diversification, and even timeline diversification.

My stock portfolio provides relatively liquid investments I can sell anytime. They’re more growth-oriented, paying almost no income yield. But they’re easy to put in an IRA, diversify, and automate weekly contributions and investments through a roboadvisor.

Real estate is not liquid and is harder to invest in through an IRA. It requires much larger minimum investments, which makes it harder to buy once or twice a month for dollar-cost averaging.

But it generates high income yields for me and provides built-in tax benefits and true diversification from the stock market. A stock market crash won’t necessarily derail any of my real estate investments.

That high yield on many of these investments will also help me avoid selling any stocks in the early years of not working full-time. I don’t plan to “retire” in the conventional sense, but I will gradually shift from traditional work to writing novels and other not-so-lucrative work. The longer I can delay withdrawing from my nest egg, the better.

If you’re wealthy enough to practice dollar-cost averaging in private placements by yourself, I tip my hat to you. For the 99.99% of the rest of us, consider joining a co-investing club if you want to build a set-it-and-forget-it real estate portfolio like I have, with the full cash flow, appreciation, and tax benefits real estate offers.

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