Passive income is known as one of the best ways to gain an additional source of revenue, attain security in retirement and ultimately design a roadmap to achieving financial freedom. It involves generating ongoing revenue with minimal effort or active involvement on your part. While it may require some upfront investment and work, there are several strategies you can employ to earn passive income in real estate.
Would you like to take a more active role in real estate investing or a relatively passive role? Then listen till the end of this video to learn all about passive income in real estate as we talk about the following
- What is passive income in real estate?
- Why do you need passive income?
- How to invest in real estate that will generate passive income
- Mistakes to avoid
- Different ways to create passive income in real estate
WHAT IS PASSIVE INCOME IN REAL ESTATE?
Passive income in real estate is a strategy through which an investor can create earnings without having to be actively involved. The term “passive income” is used loosely as the level of required activity and involvement varies based on the investment type. Some common examples of this real estate income include rental properties or earnings made from investment portfolios.
The concept of passive income is desirable because it provides a steady stream of cash flow without requiring your constant time and attention.
WHY DO YOU NEED PASSIVE INCOME?
Passive income is a great way to earn money without having to actively work for it. Collect passive income while you enjoy your life instead of spending your day working for someone else. Here are some ways you can put passive income to use:
- Fund your children’s college funds
- Set up and build your retirement fund
- Pay off your debts
- Achieve financial freedom
- Build your savings, this is very important
HOW TO INVEST IN REAL ESTATE THAT WILL GENERATE PASSIVE INCOME
Passive income as we already know can be a great way to supplement your current income and help you create financial streams to help secure your retirement years. One of the most popular ways to generate passive income in real estate is through rental properties. Investors who play their cards right can create a steady revenue from rental income, while they also have the option to make improvements to the property and build equity.
There is a common misperception that passive income in real estate investing requires little to no work. However those interested in creating passive income with real estate should take an active role in what should be treated like a business. Whether it be searching through properties, screening tenants, hiring a property manager or addressing repairs, owning properties require a certain level of involvement. This especially rings through for those who wish to maximize their profits.
One of the keys to building a successful real estate portfolio through passive income is by planning and creating a solid business strategy. This involves studying your target market, whether it is the same neighborhood as your primary residence or state, so that you can know local real estate trends and values. The information you gather from the real estate market will help you pick out the best possible location to get your property, as well as identify property listings that promise good cash flow. After the research phase transitions into the execution phase, you will also need to have a strategy in place on how to manage tenants, finances, paperwork and the property itself. As you can see, ‘passive’ income in real estate is quite complex and perhaps the term “passive” is a little deceiving. However with plenty of planning, research as well as knowing the right questions to ask or common mistakes to avoid, you will be well on your way to a sound strategy that can make your life much easier in the long run.
MISTAKES TO AVOID
Passive income can be a powerful wealth-building tool when created successfully. However, many investors make mistakes that can hinder their long-term passive income potential. Follow these tips to make sure you avoid mistakes when it comes to passive income:
- Not having enough cash flow: you may have heard the phrase “cash is king” and any passive income real estate professional would tell you the same. When owning a rental property, your main goal is to gain appreciation while earning steady cash flow.
- Failing to thoroughly screen tenants: one of the best ways to maximize your passive income from real estate is by leasing only to the best possible tenants. A bad tenant can turn out to be much more expensive through property damage or even a lengthy eviction process or worse a lawsuit.
- Not being ready to become a landlord: newbie investors might choose the approach of passive income in the real estate investment vehicle without realizing that being a landlord is tough business that should not be taken lightly. Be sure to understand that managing rental properties should be approached as if it were a small business.
- Not keeping an active role in management: even when going through a property management company, an owner should actively manage their property through keeping regular contact with tenants and providing regular care and maintenance of the property. Proper management of a property can help reduce tenant turnover, improve property value and prevent avoidable repair costs.
DIFFERENT TO CREATE PASSIVE INCOME IN REAL ESTATE
The many benefits of passive income may have you wondering how to create passive income through real estate investing. There are numerous paths you can take that will lead you to earning multiple streams of income. Let’s take a look at the real estate investment opportunities that have potentials:
- Single-family units: those wondering how to create passive income in real estate can start off with the most common of examples. Perhaps the simplest type of property to understand, a single home or condo can be purchased and rented to just one tenant.
- Duplexes, triplexes and more: properties with two to four units offer similar benefits to a single-family unit while offering a lower requirement for intensive management when compared to apartment complexes. Due to the increased number of tenants, these properties can be a little tougher to manage than a single-family unit yet provide a better cash flow perspective.
- Apartment buildings: this buildings classification is often applied to properties with five or more units. Investors can take out a commercial loan instead of a residential loan. However they should be prepared for more intensive management or a hire a property management professional.
- Commercial buildings: commercial properties can be leased to retail tenants with long-term leases, thus promising a more stable stream of real estate income.
- Industrial complexes: although residential properties tend to come to mind with the mention of passive income, properties geared towards the commercial sector should not be ignored. Commercial warehouse, storage or manufacturing facilities can provide steady performance while requiring minimal management.
- Land lots: investing in land itself can be a unique niche and can be used split up, to be sold as smaller lots. This strategy can be effective if the investor finds a plot of land in an up-and-coming area or soon to be developed area and sells it for a profit.
QUESTIONS TO ASK BEFORE INVESTING IN A PASSIVE INCOME PROPERTY
By knowing the right questions to ask, individuals can make as much of an informed decision as possible. Asking as many questions as possible before going into an investment deal represents a critical part of doing due diligence and is a step that should never be skipped. Critical questions can include:
- How will I find my first investment property? Alternatively you can research good real estate companies like Ehi-kings real estate, that can help you find investment properties in profitable locations that will earn you huge returns.
- What’s being built in the neighborhood? New developments can impact property value, find out about public and private infrastructural projects
- How much is the property worth?
- Is this a good rental market?
- Did I perform proper due diligence?
How much work am I willing to put into maintaining my investment property?
If you are searching for a stable method of building financial freedom over time, then perhaps real estate investing is the right strategy for you. Any investor should always head into a deal with the resolve to do their due diligence, ask the right questions and provide a level of commitment and involvement required to make the real estate investing successful.