TICS (Tenants in Common), 1031 exchanges, REITS, Real Estate Mutual Funds, LLCs, Limited Partnerships; the types and number of passive real estate investment opportunities are exploding. And as proclaimed by their sponsors, these investments can offer the benefits of diversification, professional management, access to "A" type properties, and potential high returns as a passive investor. But how does the investor determine which investments merit his attention, and which should be eliminated outright?

The first item to evaluate is the issue of fees. The investor needs to determine exactly how much of his investment is going into real estate and how much is being eaten by fees. The larger the percentage of his investment actually purchasing the asset, the greater the chance for a good return and the less the chance of taking a loss. As an extreme example, if 20% of the investment is eaten by various fees, and only 80% of the investment is actually invested in property, the investor faces a 20% loss of capital as soon as he makes the investment. Additionally, only 80% of his capital is working to earn income or appreciation. This is a huge amount to make up just to get back to break even.

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