Best Passive Income Strategies Through Real Estate

Generating passive income from your properties is one of the best ways to gain financial security and a long-term source of revenue until your retirement. Investing your money in real estate is always a winning decision because land value doesn’t depreciate. There are many things you can do to your properties to earn you regular or long-term profits. Below you will read about some of the best ways to create passive income from real estate investing.

What is passive income in real estate?

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Passive income is your additional earning from an alternative source aside from your main job or business. Passive income means that you don’t need to put in a lot of your time and effort to earn, unlike regular jobs that require your total commitment. Different passive income sources include stocks and bonds, but many agree that real estate is a less risky investment option.

Real estate can be a great source of your passive income. Simply owning a piece of land or property means that you have already invested in an asset that could potentially earn you money through appreciation (the increase in your property’s value). Waiting for a property to increase value can take years, but it is a low-risk investment that can ensure profit in the long term.

Passive doesn’t necessarily mean that you don’t need to put in any effort. Investing requires learning and research to make sure you are putting your money into a profitable investment. You need to consider property location, valuation, the reason for the acquisition, and the computation of possible appreciation value.

How to start real estate investing?

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Do you own a land, house, condo unit, or any structure just sitting idly? Are you simply waiting for the property value to appreciate and resell it in the future? While this is a safe and viable way to profit from properties, other options exist to create passive income from your assets and gain revenue faster. In real estate, there are numerous income possibilities, and you just need to explore each one.

If you are a new investor or buying your first property, it is wise to get the assistance of a realtor to get proper guidance. They can help you find your first investment property, walk you through the income possibilities, customize investment plans, and help set up your marketing campaign. You can also search for investment groups to help you find profitable markets.

If you already own several properties and just looking into turning a profit out of them, you have options for reselling or rentals. But if you don’t have any experience in doing those, it is a good idea to get in touch with a realtor to help you get the most value out of your property.

Realtors can help you in several aspects, including assessing the actual property value or looking for a viable rental market. They can also tell you when is the best time of the year to buy and sell properties to maximize profits. There are many details to consider when buying and selling properties, and realtors know enough of the real estate market to give you the best tips and strategies.

Best passive income investments from real estate

It is possible to make a living out of property investments. In real estate, there are two common ways to earn—buying and holding or flipping properties.

Buying and holding is a long-term passive investment that means purchasing land lots or houses and waiting for them to appreciate before selling. Instead of being idle for a few years, the owner may have it leased or rented out.

If you want to be more aggressive in taking advantage of the potentials of your real estate investments, you can explore flipping properties. This earning strategy generates income by buying properties at a low price, fixing them, and selling them higher.

Flipping properties, however, are technically not considered passive but an active source of income because of the time and effort invested in the flip, so properties sell faster. Flipping properties also come with a higher risk compared to buying and holding.

Below are some of the best real estate investment options to generate passive income.

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Rental properties

Owning rental properties is one of the most popular ways to earn passive income from real estate. It requires a lot of work and investment in the beginning as you renovate and market the space, but once you get the place up and running, you can enjoy collecting monthly rent or annual leases in a long-term setup. Having rental properties still entails periodic work and expenses, including interior and exterior maintenance, garbage collection fees, and homeowners’ fees.

Examples of rental properties include single-family homes, apartment complexes, vacation homes, room rentals, dormitories, getaway homes, condominiums, and storage facilities. When buying rental properties, a good location would be near a school, mall, market, and hospitals with near access to public transportation.

Risks: Rental property investors need to be smart about maintenance expenses to avoid loss and property depreciation. While the land and property value does not depreciate, your loss can come from high property maintenance fees. If the overall cost of the property maintenance goes beyond the cost of income from rentals, you must rethink your rental strategy.

Landholding

Landholding simply means owning a piece of land under your name. The great thing about land lots is that the value does not depreciate. Vacant lands are low maintenance, and there are different things you can do to make money out of them.

You can turn vacant lands into farms, camping grounds, leased as a storage facility, rented venue for events, parking lots, or lease for cellphone towers. You can also sell it for a profit after a few years.

Risks: If you build a house on your empty lot and try to sell it, you would need to add the cost of the house to the total sale price. However, if the house turns out to be high in maintenance cost, that could be a loss on your part. If you’re planning to buy and sell land, it is better to resell the land itself without building any structure on it to lower the risk of depreciation.

Real estate syndication

Real estate syndication is not a new concept, and many experienced investors have been doing this for a long time. The term may sound intimidating, but real estate syndication is simply a type of crowdfunding.

Real estate syndication is a partnership of several investors combining their resources to purchase a property and profit from it. When there is an opportunity to profit from real estate, but one person cannot cover the considerable cost of buying the property, syndication allows investors to pool their resources together to acquire it.

In syndication, there is always the “syndicator” who handles the acquisition and maintenance of the property. They also handle the disbursement of the dividends. Syndicators can be one individual or an investment company.

Syndication is a great alternative when other financing options are not available. In syndication, all investors share the risks and revenues gained from the transaction.

Risks: There is always the risk that investors won’t get their returns, but that is probably the worst that could happen. They can still resell the property and get back their investment money.

Real Estate Investment Trust (REIT)

Real Estate Investment Trust (REIT) is a company that owns, finances, or operates income-generating high-end or commercial properties. They pool funds from different investors and use them on capital appreciation. Inventors get high-yield dividend income, making REITs a great source of passive income.

Investing in REITs gives you diversification in your investments. Since REITs own several real estate assets, you can easily be a part of several different property investments, even if you don’t have millions of money to invest.

REITs are liquid, which means it trades like a stock. You can buy when the market opens and sell upon closing. It is very different from direct property investment, which is illiquid and risky in a weak market.

Risks: Investment in REITs usually promise high dividends, but there are also underperforming companies that could put your money at risk. Before investing, research  REITs with a strong management team, a solid portfolio, and publicly traded, which means you can see their disclosure filings and annual reports.

Takeaway

Real estate investing can be very profitable, but it may seem like an overwhelming investment for some people, especially if they do not have sufficient money to purchase the property outright. Many people do not know that even if you have insufficient funds for an outright purchase, there are still ways to invest in properties, such as through partnerships or seller financing.

Real estate is an ideal source of passive income because even if you don’t fully follow all the real estate market trends, you can always trust the “sponsor” of the syndication or the investment company to ensure capital growth. There is no perfect investment, but real estate is the least risky.