If you’re like most people, the money you make is directly connected to the number of hours you work. Either you get a yearly salary for working a job for roughly 40 hours a week or you make an hourly wage.
But what if you could make money in your sleep? This is the beauty of passive income. Passive income is money that comes in without a regular daily time commitment.
Passive income can be through selling goods and classes on online platforms. It can be through investing in stocks. However, one great way to build passive income is through real estate investments.
Are you interested in living on passive income earned through real estate investments? Keep reading to learn more about how to make this happen for you!
Types of Passive Income Through Real Estate
The most common type of real estate investment is the purchase of a single-family home. You can rent out this property to a single tenant (and their family/roommates). Tenants for this kind of property tend to develop more of an emotional connection to their home and treat the property better.
Duplexes, triplexes, apartment buildings, and commercial buildings require more upfront investment and maintenance, but there is less risk in terms of not finding a tenant. If you have a single-family home and you cannot find a tenant, you are not making any money. If you have a triplex, and one of the units is empty, you are still making money on two units.
Vacation rentals can bring in lots of money because you can charge high prices per night. However, this takes a large amount of hands-on work and scheduling, and the money you make might not be consistent month-to-month.
There are many other types of real estate investments! From industrial complexes to mobile home parks to productive land–it all depends on your goals, your interests, and your desired time commitment.
Step 1: Location, Location, Location
One of the most important steps in real estate investment is choosing your location! Choosing a property in an emerging market or an established market is important. If you don’t do your research, you may end up purchasing a property in an area with a diminishing population and poor job opportunities.
You want to choose a place where people want to live, work, and spend their time, or you will have a hard time finding tenants! Investing in a market that has just started emerging can make you quite a bit of money in the long run.
Step 2: It’s Time to Make a Budget
If you have substantial savings, you may be looking to purchase a property outright. If not, you will most likely be using part of the rent that comes in to pay off the mortgage.
Either way, you (and a financial advisor) need to write out all of the costs of buying a property. Here are some questions to ask yourself:
- How much of a down payment can you afford?
- Do you want a fixer-upper or a turn-key property?
- What property management company will you choose, and what are their fees?
- What will the taxes be on your desired house?
- Do you have an emergency fund ready in case of a disaster?
The cost of a property is not just the sticker price. Be sure to factor in inspections, closing costs, and more into your proposed budget.
Step 3: Find Property Management
While you need to stay hands-on with your investments, the day-to-day operations are a full-time job. Finding a property management company to take care of the daily minutia will allow this income to be truly passive.
Finding management for your existing properties also frees up time for you to search for more properties to add to your portfolio!
Step 4: Invest
Once you have found the perfect location, worked out the financial details, and found a property manager, you can invest your money in a property, find a tenant, and watch the passive income come in.
It is important to understand that all investments have highs and lows. Passive income through real estate investment is a long-term game–this means that if you ride out the lows, you will be able to reap the benefits of the highs! Have patience, lay the groundwork, and see what can happen.
Mistakes to Avoid
While passive income means that your income is not directly tied to hours worked, that does not mean that passive income through real estate investment does not require any work! If you are going to be successful, the biggest mistake you can avoid is being too hands-off.
Many first-time investors hire a management company (which we recommend), and then they never check-in. Staying up to date with the management company, personally contacting and screening your tenants, and staying hands-on is a must for property investment.
Staying aware of what is happening with your investments and the people who are living there can help you to avoid most of the mistakes new investors make.
Are You Ready to Make Money in Your Sleep?
Passive income can help you pay off your debts, supplement your retirement income, or help you bulk up your savings accounts. Investing in real estate allows you to make money while investing in communities and people you care about.
Are you ready to get started with investing in real estate? Check out our property management services to see how we can help turn your dreams into a reality.