The ultimate dream for alot of investors is to invest in real estate for a forever source of passive income.
As for us at 40PlusFinance.com, our own personal financial freedom plan has a large portion of it’s income from passive income real estate investing.
All investors hope for a day where they can sit back and relax with a drink while money flows into their bank account instead of having to work for it.
Passive real estate investing allows you to live the life you want, without having to work long hours every day.
If you want to learn more about passive real estate investing and see if it is something that makes sense for you, keep reading.
If you’re not already involved and are just watching from the outside, there are plenty of ways for you to get involved. If you’re thinking about investing in real estate, this article can help you get started. It will show you how to figure out what you want from investing, and what your best options are, including if passive real estate investing is for you.
- 1 Real Estate Investing Roadmap
- 2 What Is Passive Real Estate Investing?
- 3 Types Of Passive Real Estate Investing
- 4 The Benefits Of Passive Real Estate Investing
- 5 Tips For Generating Passive Real Estate Investment Income
Real Estate Investing Roadmap
Step 1: Get a Macro View of Where You Are
First things first. You need to take a step back and assess where you are in life and your financial journey before you decide where to invest your money in real estate. You should also consider what you hope to achieve through investing in real estate.
At what stage in your life are you? How much money do you have to invest? What are you hoping to get out of investing? Do you want to make a one-time payment or receive smaller payments over time? What is your number? The amount of money you need to be financially free and never have to worry about money again.
A good way to assess your risk tolerance, investment strategy, and expected returns from real estate investing is to get a high-level picture of your current situation. This will help you determine how much money you can comfortably invest, what types of returns you’re looking for, and how aggressive your real estate investing strategy should be.
You will need all of these elements when you are deciding how and when to get started in real estate investing.
Step 2: Determine Your Why
There are so many different opportunities in real estate that it’s easy to get caught up in the new and exciting ones. One day you’re interested in buying a fancy downtown condo for Airbnb, the next day you look into mobile home parks. This shows that you’re interested in a variety of property types and are willing to invest in different areas.
An investment in real estate is likely to result in some financial gain. Saying no to an opportunity can be difficult because it is hard to pass up something that could be beneficial. A person will share an amazing story about how much money they are making by investing in X, which will make you think that you could do the same.
Then, hopefully before you get too far down the path, you realize that the investment is not right for you.
To make money. What’s your motivation for wanting to invest in real estate? Why did you seek out this article? Do you want to find ways to make money without having to work a traditional job? Would you like to have more time to spend with your family? Do you want to make house flipping your full-time job? Are you in it for the tax benefits? Maybe you’ve been thinking about trying out house hacking?
Step 3: Decide How Hands-on You Want to Be
I’m sure you’ve seen plenty of house flipping shows on HGTV where they transform an old, run-down house into a beautiful, brand-new home, and have a big celebration to show it off.
The intruders were armed with sledgehammers, masks, and protective eye gear. They crawl through moldy spaces. They come across unexpected critters. Sometimes there’s yelling, sometimes there’s drama. The end result of their efforts is an amazing feeling of accomplishment, as they’ve taken something ugly and turned it into a beautiful work of art.
If the previous paragraph excites you, fantastic. If you want to be more active in your real estate investments, you may want to consider becoming a hands-on investor. More power to you. I know it’s gratifying work, but I also know it can be difficult.
If you felt uncomfortable reading the previous section, don’t worry! Real estate investing has a lot of options for you to choose from. Perhaps you are looking to be a more passive, hands-off investor.
You contribute money, gain skills and experience from other people, and receive benefits in return. They will keep a portion of your earnings, but it is a small price compared to not having to deal with unsanitary conditions.
The decision of whether to be more of an active or passive investor is an important one. You should take some time to step back and feel out where on the spectrum you’d like to be, given your current life situation and goals.
Step 4: Assess Your Risk Tolerance
Every activity that has a potential reward also has a corresponding level of risk. This is true for something as small as walking out your front door, all the way up to investing in stocks or real estate.
There is a balance between risk and reward when it comes to investing in real estate. The greater the risk, the greater the potential reward. The lower the risk, the lower the reward.
In real estate, because there are physical assets and paying tenants, there are often diversification and hands-on options to mitigate risk. However, there is always a small chance that you could lose everything.
If you are feeling anxious about losing money, it may be a good idea to start slowly with smaller amounts of money. This will help you learn the basics on a smaller scale. cash returns = money earned from an investment educational returns = benefits from an investment in education Your investment in education will pay off more than if you had invested your money elsewhere.
Step 5: Determine How Much You Want to Invest
Now that you understand your current situation, your motivations for investing, how involved you want to be, and how much risk you are willing to take on, you can consider how large of an investment to make.
It’s not a good idea to invest all your money in one real estate property. Start with a small amount that you would feel comfortable getting rid of if things went wrong.
Make sure you have enough money to pay for groceries next month before investing in an asset that will take a few years to produce returns.
When making an investment, always have an exit strategy in mind in case you need to get your money out sooner than originally planned.
Step 6: Decide Which Types of Real Estate Investments to Pursue
Now comes the fun part. You have considered your current situation, your goals, and how investing in real estate can help you to achieve them. After taking into account your situation and goals, you can begin to look into different types of real estate investments.
What Is Passive Real Estate Investing?
There are two main ways to make money in the real estate industry. The first is through flipping houses and actively participating in other real estate activities, and the other is through long-term rentals.
Active investors need to be willing to put in a lot of work on a regular basis. An investor buys a property with the intention of selling it for a higher price to make a profit.
With passive investing, the investor does not have to put in much effort to earn money.
Some ways to invest in real estate without being actively involved include investing in a real estate investment trust (REIT), limited partnership, or exchange-traded fund (ETF), or buying properties outright.
Types Of Passive Real Estate Investing
There are several different types of passive real estate investing, each with their own benefits.
1. Real Estate Investment Trusts (REITs)
Investing in REITs (real estate investment trusts) is a simple way to begin investing in passive real estate. Companies that invest in commercial properties are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.
Principal real estate investment trusts (REITs) are similar to mutual funds that invest in real estate. These trusts are bought and sold through investment brokerage firms such as Charles Schwab and TD Ameritrade. This means that you don’t need to pay a lot of money upfront, hire a real estate agent, or anything else like that.
You don’t have to manage tenants if you don’t want to. You can start investing by signing up for a brokerage firm and choosing an investment. Time will do the rest.
There are many types of REITs. Some investors focus on residential properties, while others invest in specific industries, such as telecommunications or healthcare.
You can select from publicly-traded REITs (which trade on the stock market and online platforms), public non-traded REITs (which do not trade on securities exchanges but can be purchased on real estate crowdfunding platforms), and private REITs (which are not listed with the SEC).
You can use platforms like CrowdStreet, Fundrise, or RealtyMogul to find and invest in commercial real estate opportunities.
When you use a crowdfunding site, you agree to the terms of service and are then able to view a selection of real estate options to invest in.
This is a major change from the past when commercial properties were not accessible to unaccredited—or everyday—investors. This change will allow more people to invest in commercial properties. Crowdfunding has made it possible for anyone to invest in commercial opportunities.
3. Buy Rental Properties Directly
You can produce passive income from real estate by investing in rental properties and hiring real estate agents and property management companies to manage them.
Rental properties may include residential, commercial, or industrial space.
This is our own chosen option and we rely mostly on Turnkey Real Estate investing to make the purchases as in the acquisition as possible.
The Benefits Of Passive Real Estate Investing
Now that you are familiar with some of the ways you can generate passive income through real estate, let’s explore why this is becoming a more popular option among investors.
Collect income during retirement.
Retirement may seem clear-cut at first. However, the truth is that it can be difficult to navigate. Living on a fixed budget is never easy, as unexpected costs can come up that can force even the most prepared people to rethink their strategies (especially medical bills).
Passive real estate income can provide a retired person with a steady cash flow, making retirement more enjoyable. It’s a great way to supplement your income from sources such as a pension, Social Security, and retirement fund distributions.
The key is to invest in real estate while you are young, so that you can put extra money into retirement accounts that are tax-advantaged, and let them grow over time. If you save money over a long period of time, you will have a large amount of money to live on when you retire.
Pay down debt.
When you’re in debt, it feels like you’ll never get out.
If you have a passive income, you can use it to pay off debt, and also invest the money you make from your other work. With this perspective, passive real estate income can help you pay off debt more quickly.
Achieve financial independence.
Financial independence is the point where you are no longer working because you have to, but rather because you want to.
Only a small percentage of people attain financial independence. However, it does not have to be that way. We are working for a future in which people can have financial independence through making smart decisions.
It won’t come easy, and it may take time. But, with the right approach, it’s definitely possible.
Tips For Generating Passive Real Estate Investment Income
You’re probably excited to start generating income from your real estate investments. However, before beginning, there are a few things to keep in mind.
Have a strategy.
This means that what may work for other investors may not be the best thing for you. Be aware of the different choices available to you and choose a plan that is suitable for your individual requirements.
A turnkey rental property is a property that is ready to be rented out. The property is usually in good condition and does not require any repairs. Or you may want more of a hands-off approach.
You are the only person who can decide what is best for your personal needs when it comes to investing.
Understand your risk tolerance.
You should assess your overall portfolio and risk tolerance before you start passive real estate investing. You should check to see if investing makes sense for you, or if you would be better off with a less risky option.
Pay down debt first.
If you’re in credit card debt or have serious student loans, you need to lower your balances before investing in real estate or passive investing. If you don’t pay off your high-interest balances, they could cancel out any returns you make from investing.
How much debt do you have and how much are you paying each month? If you can lower the number, your position will improve.
Make sure you’re ready for a property.
Owning a property can be a lot of work even if you aren’t managing it yourself.
If you’re considering purchasing a rental property to generate passive income, be certain that you are able to handle a property and that you are okay with taking on that sort of investment.