Real estate has created more wealth than almost any other asset class. But for many people, the reality of landlording—tenant drama, 3 AM repair calls, vacancy stress, eviction court—makes it feel like a second job. What if you could stay invested in real estate without any of the headaches? Here's every way to do it.
The Landlord Dilemma
If you own rental property and you're exhausted, your options seem limited:
Option A: Keep Suffering
Hold onto the property and continue dealing with tenants, maintenance, and stress. Keep building equity but sacrifice your quality of life.
Option B: Sell and Pay 30%+ in Taxes
Sell the property, pay capital gains + depreciation recapture + state taxes (often 30-40% of your gain), and lose the benefits of real estate entirely.
Option C: Stay in Real Estate Without Being a Landlord
Convert your active real estate investment into passive real estate investment—keeping the returns without the work.
All Your Passive Real Estate Options
There are five main ways to own real estate passively. Each has different characteristics for control, liquidity, returns, and tax treatment.
| Option | Typical Return | Liquidity | 1031 Eligible | Your Work |
|---|---|---|---|---|
| Property Manager | 6-10% | Anytime | N/A (keep property) | Minimal oversight |
| REITs | 4-8% | Daily (public) | No | Zero |
| NNN Lease Property | 5-7% | Months to sell | Yes | Near-zero |
| Real Estate Crowdfunding | 6-12% | Often locked | Usually no | Zero |
| DSTs | 4-6% | 5-10 year hold | Yes | Zero |
Option Deep Dives
1. Hire a Property Manager
Keep your property but hand off the day-to-day work. Property managers typically charge 8-12% of collected rent plus fees for tenant placement (50-100% of first month's rent) and maintenance coordination.
Pros
- • Keep full ownership and control
- • Keep 100% of appreciation
- • Can sell anytime (full liquidity)
- • No tax event to make the switch
Cons
- • Fees reduce your returns (8-12%+ of rent)
- • Still own the property—still bear ultimate responsibility
- • Must manage the manager
- • Quality varies widely
Best for: Landlords who like their property but hate the work, and who want to keep full control and liquidity.
2. Public REITs (Real Estate Investment Trusts)
REITs are companies that own and operate real estate, traded on stock exchanges like regular stocks. You can buy shares of apartment REITs, industrial REITs, retail REITs, etc., with a brokerage account.
Pros
- • Completely liquid (sell any day)
- • Very low minimums ($100 or less)
- • Professional management
- • Diversification across many properties
Cons
- • NOT eligible for 1031 exchange
- • Dividends taxed as ordinary income
- • Correlates more with stock market
- • Less tax-advantaged than direct ownership
Important: If you sell rental property to buy REITs, you'll pay full capital gains taxes. REITs are NOT "like-kind" property under Section 1031. However, if you don't have a property to exchange (or have modest gains), REITs offer the easiest path to passive real estate.
Best for: People without existing real estate, or those with minimal capital gains who prioritize liquidity.
3. Triple-Net (NNN) Lease Properties
A triple-net lease means the tenant pays property taxes, insurance, AND maintenance—in addition to rent. You own a building (like a CVS, Starbucks, or medical clinic) and collect rent. The tenant handles everything else.
Pros
- • Truly passive (tenant handles everything)
- • Qualifies for 1031 exchange
- • Direct ownership (full depreciation)
- • Long-term leases (10-20 years)
Cons
- • Single-tenant concentration risk
- • Lower cap rates (4-6% typical)
- • High minimum ($1M+ for quality properties)
- • Still own the building if tenant leaves
Best for: Investors with significant capital who want truly passive ownership with 1031 eligibility, and who are comfortable with single-tenant risk.
4. Real Estate Crowdfunding
Platforms like Fundrise, CrowdStreet, and RealtyMogul let you invest in real estate projects or portfolios online. Minimums range from $500 to $25,000+ depending on the platform and offering.
Pros
- • Low minimums for some platforms
- • Diversification across projects
- • Access to commercial projects
- • Completely passive
Cons
- • Usually NOT 1031 eligible
- • Limited or no liquidity
- • Platform risk (what if they fail?)
- • Returns vary widely by project
Best for: Investors without existing real estate who want to start small, or as a complement to other investments. Not ideal for 1031 exchangers.
5. Delaware Statutory Trusts (DSTs)
DSTs hold institutional real estate (apartments, warehouses, medical offices) and let you own fractional interests. Critically, they qualify for 1031 exchanges—letting you convert rental property into passive ownership without paying taxes.
Pros
- • Qualifies for 1031 exchange (tax deferral)
- • Zero management (completely passive)
- • Monthly distributions (4-6% typical)
- • Professional institutional management
Cons
- • Illiquid (5-10 year hold)
- • No control over property decisions
- • Accredited investors only
- • Significant upfront fees (8-12%)
Best for: Landlords with appreciated property who want to defer taxes AND eliminate landlord duties permanently.
How to Choose Your Path
The right choice depends on your situation. Ask yourself:
Do you currently own appreciated rental property?
Yes → DSTs or NNN properties let you defer taxes via 1031
No → REITs, crowdfunding, or buying NNN directly are all options
How much do you have to invest?
Under $100k → REITs or crowdfunding (lowest minimums)
$100k-$500k → DSTs, crowdfunding, or small NNN
Over $500k → All options available including quality NNN
How important is liquidity?
Need access anytime → REITs or keep property with manager
Can lock up 5-10 years → DSTs offer best tax treatment
Do you meet accredited investor requirements?
Yes ($200k+ income or $1M+ net worth) → All options available
No → Public REITs, some crowdfunding, or property manager
Key Takeaways
- 1.You don't have to choose between being a landlord and exiting real estate. Passive options exist.
- 2.If you own appreciated property, DSTs and NNN properties let you stay passive AND defer taxes via 1031 exchange.
- 3.REITs offer the best liquidity but don't qualify for 1031 exchanges—you'll pay taxes when you sell your rental.
- 4.Every passive option trades control for convenience. Decide what matters more to you.
- 5.Property managers let you keep your property while reducing work—but you still bear ultimate responsibility.
This article is for educational purposes only and does not constitute investment, tax, or legal advice. All investments involve risk including loss of principal. Consult qualified professionals before making investment decisions.