Passive income real estate is one of the best ways to gain additional source of revenue, attain financial freedom, and secure your retirement with relative ease. While not everyone who ventures into real estate investment does so with passive income in mind, it’s a strategy worth exploring and possibly pursuing. Taking on a passive vs. active role in real estate investment is a decision that could result in two very different trajectories, however, if you know your goal is to create additional revenue opportunities, ensuring your rental property creates true passive income is a must.
How to invest in passive income real estate
The great thing about real estate investment opportunities—particularly for those who have gotten a better handle on the process and have a few investments under their belt—is that they can open doors to everything from paying off debts to funding your children’s college funds to building a savings account.
For investors who play their cards right, they can create steady revenue from rental income simultaneously while making improvements to the property and building equity. However, the word ‘passive’ can feel misleading for those unfamiliar with the process. While the implication is that little work is involved with passive income properties, the opposite is true. Whether an investor scoops up a single-family fix-and-hold property that they manage themselves, or they pick up a multiplex for which they need to screen tenants or hire a property manager, there is always ongoing involvement to ensure the property is running like a well-oiled machine.
The more well-versed you are with a particular market you’re exploring and the better you understand that market’s demographics, the better the likelihood of creating a successful rental property bound to thrive. In the research phase, it’s critical to identify property listings that promise good cash flow, and once you move past the research phase to the execution stage, you will need to have a strong strategy in place in regards to managing tenants, finances, required paperwork, and a plan for the property itself.
With planning and research, you will be on the path to establishing passive income long term.
Top 4 ways to create passive income with fix-and-holds
Single-family units: The simplest start for a novice investor is to start small before jumping into the deep end of multiplex properties. Single-family properties can be purchased and rented to just one tenant, making property management (and tenant screening, as well as retention) relatively easy and far less tedious. Because of the nature of single-family units, tenants take more psychological ownership over the home, often leading to better caretaking of the property. The downside? A vacant unit means zero income, therefore the space must always be occupied to ensure you’re collecting money from it.
Duplexes, triplexes, and more: For investors who are ready to tackle something bigger than a single-family homes, two to four unit properties offer similar benefits while presenting lower requirements for intensive management when compared to apartment complexes (coming up next on the list). While a little more challenging to manage than a single-family unit, they provide a better cash flow perspective.
Apartment complexes: Apartments usually refer to properties that have at least five units and can be the most challenging of the three residential options an investor can take on. Investors can opt for commercial loans rather than residential loans and enjoy economies of scale. However, with a larger property comes greater responsibility and intensive management. If you are looking to create passive income with an apartment complex, it’s highly likely that you’ll need a property manager to take on the day-to-day chores and handle tenant requests.
Vacation Rentals: Short-term rentals, or vacation rentals, have blown up in popularity with the rise of rental sites like Airbnb or Vrbo. In markets that have a significant transient population and popular tourist attractions, or places that have ideal weather for vacationers to visit much of the year, it might make sense to transform a property into a short-term rental. Investors who take this road can make good money as they tend to charge more per night, however, there are a lot of logistical details they are responsible for on a weekly and monthly basis, including housekeeping services, ongoing scheduling and cancelations, and the fear of facing a slow season.
Doing the heavy lifting from the beginning—researching, planning, and executing—can alleviate some stresses down the road and ensure a successful rental property for years to come. If you are ready to explore your passive income options through an investment opportunity, contact us today.