Let's talk passive income! One amazing thing about investing in real estate is the potential for you to earn money without doing much work. The world of passive income is almost like a secret opportunity, but once you open your eyes to it, you unlock the potential of earning money without putting a lot of effort in. Passive income can be earned from stocks or bonds, investments, and many other things. It’s great to have because you can use it to flood your retirement savings, pay off any debts, retire early, or simply save up
So, how do you generate passive income from real estate?
It’s simple, you own a property and rent it out. The only caveat is that it’s going to take some effort to get the property up and running, so it isn’t passive from the very beginning unless you already own a space that you are willing to rent out. Once that is out of the way though, it will provide a consistent stream of income without you doing much work. You do have to be willing to put effort and mindfulness into this project in the beginning to ensure the rest of the process runs smoothly.
Let’s go over some tips about how to go about earning that passive income.
Educate and Strategize
You don’t want to just jump right in without doing some research and a lot of thinking first. Real estate is complicated, and there are many ways to go about earning some passive income. Think about what kind of property you want to start with. You could purchase an apartment building, a multifamily home, or even just a single family home, and that’s only on the residential side of things. You may be more interested in owning an office or retail property with tenants.
Your decision here will depend on a couple of different factors. Think about these questions to get a better idea:
How much do I want to spend upfront?
If this is the first property you are purchasing to rent, use this as a trial run. Don’t start huge. Start with something modest and affordable so you can get the hang of things. You want to make money off this investment, and if you start small, you will prevent yourself from getting in too deep and making a mistake.
How involved do I want to be in the rent-collection and maintenance processes?
Do you mind doing the work and dealing with your tenants? If not, then handle it. If you have time and energy to spare, that is always an option. The other option available to you is hiring a property management company and handing these duties off to them.
What kind of property do I want to purchase?
Think about your portfolio and your goals here. A big tip is that you always want diversification in your portfolio. You want a mix of property types, tenants, and even locations to increase your stability over time. Markets change, so the more diverse your portfolio, the higher the odds that setbacks won’t set you back very far.
If you have extra income, investing in multiple types of rental properties is a good option for this reason. Think a mix of commercial and residential, and then across a wide geographic zone.
Consider your timeline. Do you want to hold onto a property for only a few years and then sell it for profit? Or do you want regular money coming in for a long time?
Where do I want to buy property?
Now this will depend on many things, including what type of property you are interested in. If you are going residential, think about the things that are important for families. The ideal location will be an area with good schools and a positive reputation. You also should consider transportation, people prefer locations near major highways or public transportation because they are more accessible. Consider the market and pick a place where real estate prices have been increasing.
If it’s your first rental property, maybe consider choosing local. That way you can be close enough to keep an eye on your property and ensure things are running smoothly and the condition is staying in top notch.
On the commercial side of things, choosing a location should depend on what your interests and expertise are. What industry are you interested in? If you have a knack for the industrial, look at locations that are known for that. Maybe you are really interested in the tech world because you work in that field and know a lot about it. If that’s the case, pick a technological hotspot where you can expect business will continue to grow and money will always be available.
Further to that growth in population, income, employment are some of the key factors you should pay attention to while choosing the location of your real estate investment.
Other ways to earn passive income besides rental properties
Though rental properties are the most popular way to earn passive income from real estate, there are other ways to do it as well. Say you don’t want to go through the work of picking a property, finding tenants, and upkeep. Here are some other options:
1. Purchase stock in real estate businesses
Businesses that are publicly traded allow you to purchase stock. This is an alternative that can allow you to make some income with even less work.
2. Invest in Real Estate Investment Trusts
Real estate investment trusts, or REITs, are companies which pool capital from investors to invest in larger real estate deals. They rely on the investors to help support their endeavors, and in turn, you can make some money when they do.
Another way you can make money is with some real estate crowdfunding. This allows you to make investments in individual real estate deals by pooling with other investors. This route allows you to find deals like debt-based investments where you pay a fixed amount over a decided amount of time.
There are also options that give you an equity stake in the deal where you participate in the ultimate profit of a property and gather the rewards when income is distributed.
If you are interested in crowdfunding, REITs, and real estate stocks, do some research before you sign away your credit card numbers. You can research publicly traded companies to get an idea of any trends. You can do the same research with public REITs.
What are the risks associated with passive income investing?
Investing always comes with potential risk, of course. When it comes to stocks or REIT investing, you can lose your principal if the value of the investment drops. This can happen due to issues with the underlying asset or a change in the market. The value of your asset is at risk of decreasing.
As for rental properties, the risk can lie in your tenants and local markets. If you have unreliable tenants, you may see damage to your property or late/undelivered payments. You can also be at risk if the local market suffers, and tenants have to vacate the premises.
These are all things to be aware of and consider as you think about investing in real estate. Don’t let it stop you though! No investment can guarantee a return, but you have access to a world of information on the internet. Do your research to find the safest investments and that will provide you the confidence needed to dive right in.
Finally, feel free to reach out to us with your questions. We would glad to help you locate those investment alternatives and analyze their investment worthiness for you.