Real estate has traditionally been a cornerstone of wealth-building strategies; however, it was also typically limited to those with a deep understanding of market dynamics and the skills to manage properties, as well as the funds to purchase properties directly. Today, passive real estate investing offers a compelling alternative for investors who want to gain the benefits of real estate exposure, without the time commitment, effort, and expertise.
Andrew McGillivray of McGillivray Capital Partners (MCP) outlines the ways that real estate investors can build wealth passively and easily, and how MCP may be able to help them achieve their investment goals.
The Passive Real Estate Investment Model
Instead of buying and managing rental properties personally, individuals can invest capital in vehicles managed by others, such as REITs or private development funds, which allows them to benefit from the financial growth of property without having to actively manage it. By choosing this approach, investors can diversify their portfolios while avoiding the effort that comes with owning real estate directly.
Passive vs. Active Investing
Traditional, active real estate investing often involves a hands-on approach: sourcing properties, securing financing, managing tenants, and navigating regulatory challenges. This active model can be both time-consuming and stressful.
In contrast, passive real estate investing allows investors to leverage the expertise of seasoned professionals who handle every aspect of property management and investment strategy. By purchasing shares in real estate investment funds or partnering with private equity firms, investors gain exposure to a diversified portfolio of properties and development projects, without the responsibilities of direct property ownership.
With passive real estate investing, it is still advisable to have a working knowledge of markets, as well as the potential risks and rewards. However, for those who lack the time or wish to avoid managing properties actively, passive investing can offer a solution.
Advantages of Passive Real Estate Investing
By focusing on projects in high-demand areas (for example, near transit or in planned urban renewal zones), development funds can align with broader growth trends. This strategic approach can enhance risk-adjusted returns. As MCP has found, “Transit-oriented developments increase connectivity and promote sustainable, high-density living,” and they can “boost property values, thereby enhancing potential investor returns”.
Reduced Management Hassles
One of the primary draws of passive real estate investing is the significant reduction in personal involvement. Instead of managing properties directly, investors entrust their capital to experts who oversee operations, tenant relations, and ongoing maintenance. This approach not only mitigates risk but also liberates investors to concentrate on strategic decision-making rather than daily operations.
For example, MCP “handles everything — from acquisition and development to the final sale — ensuring [investors] have the best chance of receiving optimized returns when the project is completed”.
Diversification and Risk Mitigation
Global economic shifts, including changing interest rate environments and evolving consumer preferences, have underscored the importance of diversified investment strategies. Passive real estate investing offers exposure to a resilient asset class that tends to perform well over the long term, particularly when paired with a diversified portfolio. Furthermore, passive real estate funds allow investors to enjoy exposure to more properties and projects than they would likely be able to invest in directly.
Attractive Returns Through Professional Management
When managed by experienced professionals, passive real estate investments can yield impressive returns. Some funds, like McGillivray Capital Partners’ offerings, have reported target returns of up to 20%, driven by strategic asset selection, operational efficiencies, and market timing. These returns are achieved by identifying undervalued assets, capitalizing on macroeconomic trends, and leveraging advanced market analytics to drive decision-making. These results are achievable, even without the notable time and effort typically required in real estate investment.
Leveraging Institutional Expertise
Passive real estate funds may collaborate with quality developers who have deep market knowledge and extensive project pipelines. This institutional expertise is a critical factor in identifying, evaluating, and executing promising projects that align with broader economic and demographic trends. For sophisticated investors, such collaborations provide assurance that their capital is being deployed in projects with strong potential for long-term growth.
The Growing Demand for Passive Investing in Today’s Market
Time Constraints and Investment Sophistication
Even the most knowledgeable investors face time constraints that can hinder active management of real estate portfolios. Passive investing provides an ideal solution for those who lack the time to research and manage properties, even if they have the knowledge and experience to do so.
Market Dynamics and Economic Shifts
Recent shifts in global economic trends have only amplified the appeal of passive investing. The ability to adapt quickly is paramount. Passive real estate investment funds are uniquely positioned to respond to these dynamics, as they are managed by teams that continuously monitor market conditions, reassess risk profiles, and adjust strategies accordingly.
Sustainable and Community-Oriented Developments
Many investors are not just seeking financial returns; they are also increasingly interested in sustainable investments that contribute to community development. Passive real estate funds can help them target the ethical investing they are seeking. For example, MCP focuses on transit-oriented developments and mid to high-rise urban projects, at the forefront of this trend. These projects often integrate sustainable practices, promote community engagement, and contribute to the economic vitality of urban centers, making them attractive not only from a financial perspective but also from a social responsibility standpoint.
Popular Passive Real Estate Investment Vehicles
While some may be more familiar with real estate investment trusts (REITs) as an option for passive real estate investments, there are others that investors should be aware of.
REITs pool investor capital to own or finance income-producing properties. By law, REITs distribute at least 90% of taxable income to shareholders, typically in monthly or quarterly dividends. Publicly traded REITs offer liquidity through stock exchanges, making them attractive for investors seeking regular cash flow and diversification. However, their focus on stabilized assets and mandatory income pass-through generally caps annual returns. REITs typically yield in the 8% to 10% range, reflecting modest capital growth alongside steady income streams.
Private real estate funds are a key alternative to REITs; these funds raise capital to acquire, develop or reposition specific properties. Unlike REITs, these vehicles reinvest rental or presale proceeds and defer distributions until project exit, concentrating on capital appreciation. Development funds, for instance, may target equity IRRs of 10% to 20%, with the upper end of 20%, a target that MCP uses, reflecting the full upside capture on a successful project.
Other options include real estate mutual funds and ETFs, which provide diversified exposure to publicly traded real estate securities. Crowdfunding platforms allow investors to underwrite individual property projects directly.
Benefits of Real Estate Development Funds for Passive Real Estate Investing
While REITs are the most common type of vehicle for passive real estate investing, development funds can offer notable advantages. REIT investors receive regular distributions from rental income and benefit from share-price appreciation. These payouts tend to be predictable, subject to occupancy and rent trends. Development funds, by contrast, generate no interim cash flow; all returns accrue through capital appreciation upon project completion or sale. This “all-at-exit” model aligns investor interests with the sponsor’s value-creation milestones and rewards those willing to lock up capital for the duration of construction and stabilization.
Upside Potential of Development Funds
By investing at the ground floor, securing land, entitlements and construction financing at early stages, development funds capture value at multiple inflection points. As projects advance, neighbourhood infrastructure improves and market demand solidifies, property values can rise significantly above development cost. This structure enables target internal rates of return that frequently exceed typical REIT dividend yields. When funds focus on premium corridors, such as transit-oriented sites or urban renewal zones, these benefits can be particularly pronounced. This is a key reason why MCP focuses on such areas in its funds.
Expertise and Active Value Creation
Unlike passive REIT management, development sponsors undertake entitlement strategies, design optimization and cost-management initiatives. Their active role can enhance risk-adjusted returns, particularly when they leverage proven construction networks and in-house market research. Investors gain the advantage of professional oversight without operational responsibilities.
Strategic Fit for Investors
Passive REITs suit those prioritizing regular income and liquidity. Development funds, however, offer an attractive alternative for sophisticated investors seeking superior capital gains through early-stage real estate innovation. By focusing on high-growth, municipally supported projects, these funds deliver both compelling return potential and the opportunity to contribute to sustainable urban development.
McGillivray Capital Partners’ Real Estate Development Funds
Passive investment strategies offer a seamless blend of professional management, diversified exposure, and the potential for high returns, even reaching 20% in carefully managed funds, as MCP has targeted. For investors seeking the distinct advantages of real estate exposure, such as asset appreciation and inflation hedging, but who lack the expertise, connections, or time to manage properties directly, passive real estate investing offers a practical and potentially profitable alternative.
McGillivray Capital Partners specializes in developing mid to high-rise, transit-oriented projects in Canada’s fastest-growing urban corridors, including Toronto and Hamilton, benefiting from the high potential that projects in these areas can offer. The fully managed structure of their funds allows investors to benefit from real estate investments, by receiving their portion from the sales of units in developments within the fund’s portfolio, without the hassle of conducting market research, property acquisitions, construction oversight, zoning and permitting, and other critical jobs related to successful real estate investment.
Leveraging deep market intelligence and a disciplined value-add approach, McGillivray Capital Partners enters each project as an equity partner. This structure grants investors direct exposure to professionally managed developments without the burden of day-to-day operations. Target returns hover around 20%, reflecting rigorous underwriting and cost-optimization measures.
For investors who value a hands-off approach to high-growth real estate, McGillivray Capital Partners offers a compelling option. By combining strategic private-equity partnerships with innovative urban planning, the firm targets compelling risk-adjusted returns while contributing to vibrant, connected, and sustainable communities. Their innovative approach to real estate development and strategic private equity partnerships has the potential to help you build lasting wealth, without the stress or time commitment of traditional property management.