Ever wonder how to make money in real estate passively? Passive income, as many imagine, through real estate is when you make income without any work. This alluring concept is definitely one many would like to pursue, especially as retirement moves closer. We hate to tell you, though, purely ‘passive’ income is a pipedream. It still requires some kind of work. But fear not, dapper investor, passive income still decreases the load of work you must perform.
Two common ways of earning passive income are through real estate investment (as already mentioned) and stock market investment. The main differences between the two are that it’s easier to buy stocks but they require more extensive research and that it’s harder to purchase real estate but it normally produces much higher cash on cash returns (which you can calculate using Mashvisor). Here are some strategies on how to make money in real estate passively.
- Invest in traditional real estate properties and get the help of a property manager
Sometimes you really don’t need something too special to make money in real estate passively. Simply put, if a property generates positive cash flow, that is, after you pay off taxes, maintenance, and insurance with the collected rent and you still have a solid amount left, you have made a good investment. Now, to make such an ordinary yet lucrative investment passive, hire a property manager. The property manager will check up on the property regularly, collect rent, and deal with tenants. The obvious con for the investor is that the property manager will be paid from the rental income, usually between 8–12 percent of it. Another possible con of using traditional investments as passive income deals with entering the purchase. You will have to pay a considerable amount on the down payment as you would expect (this isn’t the case for other kinds of investments, as you will see later in the blog).
This scenario may not the best and easiest to generate passive income, but it is possible if you have a profitable property (or properties). You can locate different rental properties using Mashvisor.
Related: 7 Steps to Buying a Rental Property
- Consider out-of-state investing
Because a property manager or company will take care maintenance and tenant interaction, you can invest in a property nationwide and not just in your vicinity. This can be a huge plus, since you can select from a variety of properties and markets to invest in. The best areas to invest have low unemployment rates, strong local economies, and rental markets with high occupancy rates.
- Invest with partners
Another answer to how to make money in real estate passively? Don’t do it alone. Brainstorming with partners can provide you a different perspective and plan, as well as their experience. They can help decide whether or not you should invest in a certain market. Also, having a form of partnership can make it easier to purchase a specific property, since the cost will be spilt one way or another. Having a partner will also share the risks and responsibility of the investment. Since both parties will be focusing on different aspects on the investment, each party does less work as a result. If all goes according to plan, you and your partner will receive good returns.
- Invest in turn-key rental properties
This is a great answer to the grand question of how to make money in real estate passively. Turn-key properties are ones that you can purchase and rent out right away. A property management company will take care of the rent collection, damage investigation and repair, and management once purchased. This is also a good way to build equity on the property. To get into this, all you have to do is comprehensively research the property you are interested in to make sure it is in a suitable condition and neighborhood, repair with a contractor, and contact the property company you desire. This goes without saying, but make sure you research the company you would like to work with.
- Invest in Real Estate Investment Trusts
Many wonder about how to make money in real estate through large investments like multiple homes, skyscrapers, malls, among others. The answer is real estate investment trusts, or REITs. REITs are companies that purchase large real estate investments such as the ones just mentioned. What’s great about REITs is that they are legally required to allocate 90% of its dividends to the linked investors every year. On the flipside, however, these dividends are taxed as ordinary income, which can be an issue if you are in a higher bracket.
- Invest in real estate crowdfunding
If you are an accredited investor, you can invest in real estate crowdfunding. Real estate crowdfunding is the middle ground of active and passive real estate investment. It is active in the sense that the investors decide on the property they invest in, rather than having a company dictate the property. But other than that, it is passive in many respects. For instance, an investor can invest small amounts, say, $5,000, and still high returns. Also, the investor is not in charge of management and rent collection. Another advantage of real estate crowdfunding is that the investor receives tax advantages because of property ownership, unlike in REITs. Crowdfunding provide a great and creative way on how to make money in real estate passively.
- Invest in multiple properties
Investing in multiple properties while performing less labor on each property will help generate high returns. This can be applied to every previously mentioned way on how to make money in real estate passively.
How to make money in real estate passively is question many ponder over. We have provided you with the answers. However, as with any kind of investment, there will be risks. Nonetheless, passive earnings from real estate can be an extraordinary way to generate income, prepare for retirement, and pay off debt. Consult a financial advisor for help planning such investments and be sure to use Mashvisor to find out how to make money in real estate.