The Art of Passive Income With Real Estate (not financial advise). Let’s dive into the world of mortgage lending possibilities, where the key to passive income with real estate is waiting to be discovered. Admittedly, the concept of passive income is becoming more enticing to many Americans, especially considering the rise of inflation post-pandemic.
According to Readers Digest, 20% of Americans already earn passive income. On the whole, acquiring passive income is easier than you may think. Given that passive income is any revenue generated through minimal effort, passive income through real estate is among the more lucrative investment opportunities available, hands down, primarily because many of the investment properties are managed by someone else, making it easy to see why so many investors are expanding their net worth through passive income investments.
Demystify passive income:
Close your eyes for a second and imagine a future in which cash flow is generated monthly from rental properties managed by a trusted property management company. It is no wonder so many Americans are excited to jump in, given the opportunity to capitalize on the revenue of lucrative rental income-earning properties.
Investing in residential rental property to become a landlord requires financial savvy and careful planning. Successful real estate investors know how to watch the real estate market to ensure their financial venture offers both stability and long-term rewards. Ongoing education is paramount to ensure profitable ROI and legal considerations. Gaining familiarity with local landlord-tenant laws can prevent housing issues. Additionally, performing neighborhood evaluations for job growth, local economies, and amenities will all determine the perpetual desirability of a property.
Real estate investment options yielding passive income streams:
Landlord and rent – Flipping houses Residential properties require far less maintenance in the long run than commercial buildings. Long-term investment rentals offer reliable income sources when investors prioritize due diligence and buy in optimal rental-centric neighborhoods.
Single-family homes are an ideal starting point for real estate investments.
Student Housing near universities and local campuses caters to the ever-changing lifestyle of academia. Predominately, consistent demand for housing often yields higher rental rates.
Commercial Properties, specifically in prime locations offering office rentals, warehouses, and retail, are among the top passive income-earning investments.
Vacation rentals – Short-term rentals like Airbnb offer excellent passive earning potential. Remember, there is a big difference between passive and active real estate investing. Short-term rentals require a high-risk tolerance and funds to draw from to offset vacancies. As a result, due diligence is paramount. Investors can avoid a lot of work by hiring a property manager.
Multi-family Units are another profitable option. More often than not, these properties are lower maintenance since they provide multiple revenue streams within a single dwelling. Delve into duplexes, triplexes, and apartments to tap these money-making investment gems.
Investment strategies
Investment strategy is the key to successfully navigating into passive income with real estate. For example, veteran investors can use VA loan options for no down payment requirements and purchase up to a four-plex unit. Although the veteran is required to live in one unit, the payoff is that the other three rentals will often provide real estate income to cover the entire cost of the property.
Ultimately, the four-plex provides the borrower property ownership combined with free housing. Think about the extra savings the veteran could contribute to other investments, their retirement accounts, and a better quality of life. By implementing a solid and strategic plan early on, investors save themselves the time, effort, and expense of buying the wrong property type.
Real estate crowdfunding platforms are Ideal for visionary entrepreneurs not backed by accredited investors. Since a real estate fund manages them, they have the potential to gain popularity and scale quickly. Additionally, they have a lower barrier to entry than traditional investing. Here are a couple of trending crowdfunding platforms to check out.
Fundrise Crowdfunders can build a portfolio of private assets, real estate, and venture capital.
Roofstock – Specializes in single-family rentals.
In most cases, sponsors of crowdfunded real estate deals usually charge fees to investors — typically 0.5% to 2.5% of the initial investment.
Property Management
Naturally, researching and hiring management companies can initially feel overwhelming. Simply put, passive income with real estate isn’t completely hands-off. Since many large-scale investments like apartment buildings/multifamily units, office towers, and shopping centers require property management, verifying management companies is vital. A dependable and trustworthy property manager is the holy grail of hands-off investment property ownership. Investors should approach potential managers as though they will be operating a small business.
Here are a few tips for vetting and hiring the best team.
- Interview multiple companies.
- Check out their managed properties.
- Ask to see credentials, screening processes, referrals, and insurance coverage.
- Pay attention to correspondence response times and ask about emergency procedures.
- Check their in-person and online presence. If something feels off, trust your instincts.
Are REITS worth the hype?
Real estate investment trusts (REITs) have the flexibility to hold either a single property or multiple properties, encompassing both residential and commercial properties. Since investors are not limited by or obligated to invest in an entire property, one REIT investment portfolio can contain ownership portions of multiple properties and assets, stocks, and even cash. REITs are publicly traded on the stock market with a brokerage account. Since a board of directors or trustees typically manages REITs, investors of all levels can own shares. Regarding REITs, the company, not an individual, owns, operates, or finances income-producing real estate.
In most cases, up to 90% of the income produced is distributed( typically in the form of dividends) to its shareholders. Best of all, REITs do not require hands-on, active investing. In turn, real estate investment trusts forge an ideal marketplace for investors looking for quick liquidity and the ability to cash out.
REIT Red Flags
Despite the beneficial aspects, there are some drawbacks to these types of investments. One of which is the complexity of tax requirements. Any traditional residential or commercial real estate investor will tell you their tax benefits are considerable. Meanwhile, REIT dividend tax obligations are based on the individual investor’s tax bracket, regardless of reinvestments. Additionally, most REITs acquire properties by leveraging debt and equity.
The property value of real estate investment trusts can fluctuate based on interest rates and market volatility. Likewise, this brings us to the biggest red flag: REIT investors have little to no control over the property or fees associated with the investment. Private and nonlisted REIT investment properties can bring up to 11% or more upfront costs and expenses. Moreover, the liquidity of REIT shares is subject to market conditions, and selling shares may take longer than selling other highly liquid assets like stocks. Therefore, investors may experience price fluctuations during the sale.
Are REITs and ETFs the same?
REITs and ETFs (exchange-traded funds) are similar to mutual fund investing. ETFs offer instant diversification by holding a basket of securities, providing exposure to various sectors, industries, or asset classes in a single investment. Many ETFs have lower expense ratios than traditional mutual funds, making them a cost-effective investment option.
Both options provide diversified investment opportunities, yet they also have distinct features, such as continuous trading on the stock market and specific tax considerations. ETFs are allowed to be traded intraday but often have higher trading costs. This characteristic contrasts traditional mutual funds, which are priced and sold at the end of each trading day at the net asset value (NAV).
On the other hand, REITs hold real estate-related assets and securities. The dual benefit of REITs is that they provide a combination of capital appreciation and regular income through dividends. REIT investing is enticing for beginners. Since the financial entry requirements are lower on these investments than personally financing each property, and they continue to yield ongoing earnings, REITs are an ideal starting point.
All about BRRRS.
BRRRR is the buy, rent, rehab, refinance, repeat strategy. Esteemed investors love the widely held practice of financing properties through the BRRR method. Brandon Turner, from BiggerPockets, originally coined the term. The principal idea begins by buying a property that needs rehab and a homeowner needing to free themselves from their loan. From this point, the investor secures funding, rehabilitates the property, refinances the loan, and rents the house to a new tenant.
Seeing the proper execution of the BRRR method results in full repayment of the initial investment, coupled with the added cash flow from the refurbished property, adding a BRRR property to a real estate portfolio is a win-win. Sounds easy, right? Generally speaking, once the property and pricing are set, the next step is securing a loan. Unquestionably, investors are reliant upon an alliance with a well-versed lender. Predominantly, the sticking point to any BRRRR is the refinance. To put it clearly, developing a strategic partnership with an accomplished lender is the solution for transforming passive income-earning conceptualizations into reality.
Passive real estate investing is more than just a buzzword; it is a lifestyle. When investors play their cards right, taking the initial risk pays off. It is possible to retire early, yield passive income, and undoubtedly take life to the next level. Indeed, in the end, exciting journeys and risk-taking go hand in hand. With this in mind, investors of any level and intention should consider earning passive income with real estate.
Are you ready to plunge into the exciting world of passive income with real estate?
Seize this opportunity, and consider taking the first step now. Why wait? Kick-start the adventure by connecting with a mortgage financing professional. It’s never too late to secure your financial future. Surprisingly, it’s relatively uncomplicated to get the first loan started. Do you have some crypto money burning a hole in your pocket or a few stale stock exchange shares you could reinvest? Let’s transform those reserves into income-earning real estate.
The steps are simple:
1. Schedule a Call: An experienced loan officer can discuss your lending needs and guide you through the possibilities.
2. Get Approved: We’ll help you through the mortgage application process and facilitate the steps for approval.
3. Exhale: Put your feet up and feel secure knowing you made the best decisions about your home loan.
With proper guidance, you can get your first home, accommodate your growing family, and start that renovation project—whatever goal is on the horizon. An alliance with Mortgage Insiders will give you the confidence to know that your mortgage loan is setting you up for financial success. Mortgage Insiders offers today’s latest financial news and mortgage trends. Check out their channel for current events.
