How to Invest Real Estate for Passive Income
Private real estate funds can help you generate passive income. Here’s how they work.
How to Invest Real Estate for Passive Income
Private real estate funds can help you generate passive income. Here’s how they work.
Can real estate help you generate passive income?
Like many things, it depends. Being a landlord, for instance, is hardly passive—you have to evaluate deals, tour properties, make offers, place tenants, conduct repairs, and handle lease agreements.
Each of those responsibilities takes up time, so “landlording” is more like buying a second job rather than a true passive income investment.
On the other end of the spectrum, there are private real estate funds, which are fully-passive, real estate-backed credit and equity investments.
When you invest in private real estate, you simply select a fund and make a capital contribution. Afterwards, your fund management team takes care of the day-to-day work of underwriting deals, selecting properties, managing assets, partnering with project sponsors, and distributing payments to you.
So, how can you invest in private real estate for passive income? Here’s what you need to know.
Private real estate: eligibility requirements
To invest in private real estate, you’ll need to meet certain financial criteria. These include:
Wealth and/or income minimums
Private real estate investments are only available to accredited investors, The U.S. Securities and Exchange Commission (SEC) defines this term under Rule 501 of Regulation D to mean an investor who has a net worth of $1 million or more (excluding the value of their primary residence), either individually or jointly with their spouse.1
You can also qualify as an accredited investor through the income approach. If you’ve earned $200,000 or more in each of the last two years (or $300,000 or more in each of the last two years in combination with a spouse) and reasonably expect to do the same this year, then you’re an accredited investor.
How common is this designation? The latest available data from 2022 shows that 24.3 million American households—about 18.5% of the total—qualify as accredited through at least one criterion.2 Here’s how that breaks down:
Data source: Review of the “Accredited Investor” Definition under the Dodd-Frank Act. U.S. Securities and Exchange Commission (SEC). December 2023.
Investment minimums
Most private real estate funds will also impose investment minimums, which is the least amount of money you can allocate to a single fund.
All DLP Capital-sponsored funds, for example, have a minimum investment requirement of $200,000.
Other investment firms may impose different minimums. However, minimums ranging from $50,000 to upwards of $250,000 are not uncommon.3
Holding period minimums
Some private real estate funds also require you to invest for a minimum length of time. Because real estate projects like property acquisition, development, and renovation take years to complete, some private real estate funds prohibit redemptions for some time—typically at least two years and up to the duration of the fund’s term.
Other private real estate funds, like DLP Capital-sponsored funds, are evergreen funds. These funds, which can continue indefinitely, are more versatile and do not impose holding period minimums.
For example, investors in DLP Capital’s two credit funds, the DLP Lending Fund and the DLP Preferred Credit Fund, have the flexibility to redeem their fund shares by giving 90 days’ notice. Meanwhile, investors in DLP Capital’s equity funds, including the DLP Housing Fund and the DLP Building Communities Fund, can redeem their fund shares on an annual basis.
Are private real estate funds the right fit for you?
Private real estate is potentially a good fit for investors interested in the potential to earn passive “mailbox money” without the active labor or time commitment that comes with other approaches to real estate investing.
Specifically, a private real estate fund could be worth considering if:
You’re a high-net-worth investor: As an accredited investor, you can invest in an expanded universe of alternatives—private real estate funds included.
You want diversified exposure to real estate: A single investment in a private real estate fund allows you to spread your investment (and risk) across an entire portfolio of properties or loans without having to individually source or deploy capital into a large number of separate deals.
You want the potential to earn truly passive income: Your fund manager handles all the day-to-day work, from underwriting deals to vetting sponsors, allowing you to avoid the time commitment and active involvement that other approaches to real estate investing entail.
You want to allocate away from traditional stocks and bonds: Real estate's performance is driven by different factors than the public markets. By allocating to private real estate, you can potentially insulate your portfolio against stock market volatility.
DLP Capital-sponsored private real estate funds can help accredited investors unlock passive, diversified exposure to multifamily real estate—along with the potential to earn targeted returns of up to 13%.
FAQs
Can you make passive income with REITs?
Public and private real estate investment trusts (REITs) can help you generate passive income. By law, public REITs are required to distribute 90% of their taxable income to shareholders as dividends, while many private REITs offer regular preferred return distributions to investors.
How much should I invest to live off passive income?
The amount you’ll need to invest to generate enough passive income to live off will depend on your annual expenses, as well as the yield of your investments. For example, suppose you need $60,000 a year to cover your expenses. If you invest in a private real estate fund targeting a 6% preferred return, you’ll need to invest $1 million in order to generate $60,000 a year in passive income.
Which real estate investment is best?
No single real estate investment is objectively “better” than the others. The best investment for you will depend on your financial goals, risk tolerance, and time horizon. For example, if you’re an accredited investor interested in a passive real estate investment, you might consider a private real estate fund. On the other hand, if you’re tight on capital or find yourself interested in a do-it-yourself approach, you could purchase a rental property and become a landlord.
How to invest in REITs?
You can invest in publicly-traded REITs by purchasing shares through your brokerage account. To invest in private REITs, reach out to fund managers through their company websites and express your interest in becoming an investor.
Do REITs pay monthly?
Some publicly-traded REITs pay dividends monthly. Others pay quarterly. Private REITs, meanwhile, may pay distributions monthly, quarterly, semi-annually, or annually.
1Regulation D—Code of Federal Regulations. National Archives. May 2025.
2Review of the “Accredited Investor” Definition under the Dodd-Frank Act. U.S. Securities and Exchange Commission (SEC). December 2023.
3How to Invest in Private Equity Real Estate. Investopedia. December 2024.
STATEMENTS ARE THOSE OF DLP CAPITAL ONLY AND ARE NOT GUARANTEED, NOR SHOULD SUCH STATEMENTS BE RELIED UPON. FORWARD-LOOKING STATEMENTS ARE EXPRESSIONS AND BELIEFS OF DLP CAPITAL AND SHOULD NOT BE RELIED UPON. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. NOTHING IN THIS IS A SOLICITATION OR OFFER OF SOLICITATION. ALL INVESTMENTS IN ANY DLP CAPITAL SPONSORED FUND ARE TO BE MADE AFTER A REVIEW OF THE PPM, OA, AND SUBSCRIPTION AGREEMENT. DLP CAPITAL IS NOT PROVIDING TAX ADVICE. CONSULT YOUR TAX AND LEGAL PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISIONS.
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