Have you ever wondered how a person can start making passive income? Passive income does not mean you have to do something physical, and all it means is that your money keeps working for you instead of the other way around.
Real estate is one of the best industries to invest in passive income, and there are literally hundreds if not thousands of ways to generate passive income from real estate. As an investor, you might have heard of the benefits of active and/or passive real estate investments, but not much more.
If you are wondering how you can accumulate the best real estate deals for passive income, read more in this real estate investing coaching guide on creating passive income in real estate.
What is passive real estate investment?
Passive real estate investment is a way of making money off of real estate without actually having to go out and flip homes or be a landlord. This can be through a “buy and hold” approach or through a more passive rental situation.
Passive real estate is all about making cash flow, buying a rental property, and using the rent you collect to make money without having to spend much time or effort at all. Of course, there is some time and effort involved, but you can basically choose how passive or active you want it to be.
Passive versus active investing
There are two basic types of real estate investors – active investors and passive investors.
An active investor spends countless hours each week rehabbing homes, showing vacant homes, meeting with contractors, and making decisions. Active investors are usually investors trying to build a business around real estate investing.
Active investing is perfect for people who love what they do and are willing to spend all their time working on it, but it can be too much for many people.
On the other hand, the passive investor spends a few hours a week managing their properties, showing vacancies, or looking for value-added opportunities. They are usually investors with full-time jobs who are trying to build their wealth.
Passive investing is perfect for people who have little time or money to invest in real estate.
What are the benefits of a passive income rental property?
According to The College Investor, over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate. A passive income rental property will provide you with the steady income and capital appreciation you need to join these ranks.
The best thing about this option is that you don’t need a ton of real estate or home renovation experience. You can be a total rookie and still earn passive income in real estate. All you need to do is find a home to buy, have a spot to rent it out, and then sit back and watch the cash flow in.
Is a real estate passive income right for me?
A passive income property is definitely right for you if you find yourself identifying with the following benefits:
You want to generate wealth
The best part about real estate is that it’s one of the best ways to build wealth fast. On top of this, it is also one of the most secure forms of wealth around. With a passive income rental, you can sit back and watch your cash flow month after month after month.
You want to have multiple streams of income
The more businesses you have, the better off you are. The trick to having an income portfolio is getting streams of passive income sources that generate cash day after day, week after week, and month after month. Once this happens, generating wealth fast becomes much easier as your income compounds on itself over time.
This also means that passive real estate is a good income stream to add to your portfolio. While you sit back and watch the money flow, you can do the same for other passive investments, and spend your time on other endeavors that require more work like another business.
You are of any age, race, gender, or background
Anyone can buy a passive income property, as long as you have the money and credit to qualify for a loan. It doesn’t matter if you are a man, a woman, young, old, or if you have never purchased a home in your life. If you are willing to get out there and start looking for the opportunities, you can begin making money in real estate right away.
You don’t even need an abundant supply of cash to invest in real estate, and you aren’t required to put up much money upfront to get started either. This gives anyone the chance to become wealthy over time.
You want to gain new knowledge and skills
The world of real estate passive investment offers a lot of knowledge and skills for you to learn. Even if you are already an experienced real estate investor, it’s still a good idea to learn about passive income properties, because there are always new techniques to try out.
This is especially true when you use real estate coaching services. Real estate coaches can give you a one on one experience that can enrich your finances, knowledge, and personal fulfillment.
What are the risks?
Like with any investment, passive real estate investing comes with its own unique set of risks. Many people think that they can just jump right into investing in real estate, but it’s essential to be aware of the following risks before making your first move.
Real estate can be unpredictable
There are plenty of factors that can derail plans and affect the value of your home. If you don’t keep your finger on the pulse of what’s going on in your area, you could miss out on some opportunities. However, with adequate coaching and real estate market training, this risk can be avoided!
You don’t have as much control
Not only do you lack control when it comes to the markets, but also when it comes to your income stream. While you sit and allow the money to flow in, someone else is out there managing your property and running your income stream. This issue can be solved though by consulting with experts and researching well.
Be aware of the risks, and take precautions to ensure that you are adequately covered heading into your passive income journey. If you work with real estate advisors, then you won’t have anything to worry about!
How to invest in real estate for passive income
This is the big question. Where do you start? What do you need? Who can you trust?
Before you can find the answer to any of these, you need to focus on a couple of more critical foundational questions:
1) What are your goals?
Do you want to be a landlord? Do you want to flip homes for a living? Do you want to have a steady income coming in each month, or do you want to sit back and let it grow for your retirement? Ask yourself questions like these, and figure out what your goal is.
2) What is your budget?
There is a big difference between being a landlord on a modest budget and an investor who can afford exclusive properties on the beach. The more cash you can put out, the more buying power you have. This is not always the case, but it’s a safe rule of thumb to have in mind.
3) What else are you invested in?
You don’t want to put all your eggs into the real estate passive income basket. Make sure that you are invested in a few different things to diversify your risk and grow your passive income. This is called risk diversification – which is a fancy way of saying that you’re building passive income streams on more than one platform. This ensures that you aren’t too exposed to any one market or investment.
4) How much time do you have?
You should ask yourself how much time you have and how much time you are willing to spend on this. Real estate can be as hands-on or as hands-off as you want it to be, but you do have to pick. If you have somewhat of an interest in real estate, you might consider putting in a little more and making it less passive, but if not, everything can be taken care of for you.
So, let’s talk about how to passively invest in real estate
When it comes to the actual “how,” there are two main methods of generating passive income through real estate. These are the “direct” and the “indirect” methods.
Direct real estate investing
Direct real estate investing is what most people think of when they hear “real estate investing.” It’s the old-fashioned way to make money, and it’s how many of the original “millionaires next door” started.
Direct real estate investing is basically just that – you buy a property, improve it, and sell it for a profit. It’s pretty simple, but of course, there are two different ways of doing this.
First, you can work with another real estate investor who wants to take on a more active approach. This means that they will handle the management portions while you handle the buying and selling.
Second, you can purchase a property alone but hire a property management company to handle the things you don’t want to.
Indirect real estate investing
Indirect passive real estate investing is an alternative that can be an easier way to start, especially if you have very little to no experience with real estate. In this approach, you (surprise, surprise) do not buy the property but instead, invest in something tied to real estate.
You also have two choices when it comes to indirect real estate investing: REITs or crowdfunding.
REITs, or Real Estate Investment Trusts, are a way for investors to pool their money together and buy up many different properties using that money. The trust then pays out a dividend to those investors, and as long as that trust performs well, you will continue to see dividends. REITs are a very safe option, but the downside is that they can take a long time to start generating dividends.
Crowdfunding is a relatively new approach for real estate investing and making money, but it’s growing in popularity. You can purchase a stake in a crowdfunding project where you will own a percentage of the property and any future profits that come along with it. You can typically sell your stake at any point you want to.
Both direct and indirect real estate investing have their merits. Still, for most people, indirect real estate investing is a better option because it’s easier and the risk factor is lower.
To recap, let’s run through the pros and cons of passive real estate one more time.
Pros of passive real estate investing
- You get to make money without any work on your part
- Real estate provides an excellent opportunity to create wealth
- One of the best ways to build passive income
- Builds the number of income streams you have
- Good risk diversification
- Tangible assets
Cons of passive real estate investing
- The real estate market is unpredictable and can be unstable
- Success in the real estate market takes time and perseverance
- Real estate is not very liquid
Real estate is a smart way to make money because it’s tangible and can be very profitable. If you want to start earning passive income through real estate, you need to do a bit of research into which method is right for you.
In this article, we have shown how people can passively invest in real estate and earn a passive income. We have also demonstrated the risks of passive real estate investing to give you a more balanced view of the situation.
If you are seriously considering real estate investing and want more help, contact Real Estate Investing Women now. We offer real estate investing coaching, training, and community. Connect with us to learn how we can help you become a successful investor.