The Value of Passive Income in Real Estate

You may have heard the words “passive income” before but do not know exactly what it is and how it could apply to you. Passive Income refers to the money that you earn without having to work for it and is beneficial for real estate investors since it multiplies over time. Since it is not subject to the same volatile market situation as other assets like stocks and bonds, passive income in real estate can be a very safe investment. For investors looking to build long-term wealth and achieve financial independence, passive income in real estate should be part of your portfolio. So what does this mean for you?

Financial Freedom

Many people dream of financial freedom, but few take the steps necessary to achieve it. One of the best methods to add a second source of income, ensure retirement security, and ultimately create a plan for achieving financial freedom is through real estate. An investor can create many passive income streams and take a significant step toward financial freedom and earning money without exerting any effort. There are several ways to make passive income through real estate: such as rental properties, fix and flips, wholesaling, and more.

Renting a Property

By renting out a property that you already own or purchasing a property to rent, you can often generate enough income to cover your mortgage payments - and sometimes even turn a profit. Of course, being a landlord does come with some responsibilities, such as repairs and breakages. Usually, the result is more positive than burdensome if you choose your tenants carefully. When renters sign a contract, it guarantees that you receive their rent each month, thus contributing to your passive income. 

It may sound intimidating at first, but don’t let that stop you. We recently just bought two plots of land that we plan to develop into a single-family house and a six-unit townhouse project. It does take planning and strategizing but you can see how these projects can also turn into more streams of income - not to mention, we do love investing in our community. It also has a ripple effect; if you purchase a rental property, you can save up money from the income you generate to use as a down payment for another investment property. After you have two rental properties, you can start saving for a third, and so on. The more properties you buy, the faster and easier you can grow your investment portfolio.

Fixing & Flipping

Amongst investors, "fix and flip" properties are all the rage. The most popular way to go about it is to find a home that needs a significant amount of work, invest time and money into repairing it, and then sell it for the original purchase price plus the cost of repairs plus some extra on top. With this method, you can earn a tidy profit while also helping to improve the neighborhood. 

Wholesaling

Wholesaling is a process in which you compile a list of investors who are willing to pay a premium and seek out investment properties to buy and then resell at a higher price. For example, if you find an abandoned house, buy it for $50k, take some time to clean it up, then sell it to an investor for $100k. Wholesaling allows you to make a profit while still providing a valuable service to investors.

House Hacking

Lastly, house hacking can be a great way to reduce your housing costs and generate a positive cash flow at the same time. Renting out one or more bedrooms, “hacking” the garage into a living space, or putting a tiny home on the premises are all valid examples of house hacking. This is an option for those who don’t want to buy a multifamily property. We ventured into house hacking during our time in Nashville by converting our detached garage into a complete and independent studio apartment. This worked out well for us because we were clear in communicating the expectations of the shared space as well as the realities of our lifestyle. This is important to consider for example, if you are sharing a space with someone who travels a lot versus someone who enjoys having guests over or has pets. Being clear about these expectations will help prevent a frustrating or stressful living situation for those involved. We’ve had success with this and the house continues to serve as two separate rentals for us. The goal is to come up with a strategy that works for you and stick with it. Anyone may gain financial freedom in real estate investing with discipline and consistency.

So what does this mean for me? 

If you're considering investing in real estate, it's important to understand the concept of passive income. While there is some initial work involved in setting up a rental or investment project, once it's up and running, it will generate income with minimal effort on your part. And best of all, the value of your property is unlikely to depreciate over time. In fact, as the demand for housing increases, the value of your property is likely to go up. That makes real estate one of the smartest investments you can make. 

Of course, how much passive income you can earn will depend on the type of investment you choose and your overall strategy. For example, if you're simply buying and holding properties, you won't have to do much work after the initial purchase. However, if you're flipping properties or managing rentals, you'll need to put in more effort on an ongoing basis. But regardless of the strategy you choose, real estate investing offers the potential to earn a substantial amount of money with consistency. Investing can seem like an intimidating task, but it doesn't have to be. Yes, there is a certain amount of risk involved, but if you do your research and are 99% certain about your investment, then you can minimize that risk and it's such a popular choice for investors who are looking to build their wealth.

By owning a property, you are investing in a resource that has the potential to appreciate over time. While it may take years for your property to increase in value, real estate is a low-risk investment that can provide you with long-term success. Keep in mind that being passive does not mean that you don't have to put any effort into your investment. To ensure that you are investing in a thriving venture, you need to do your research and choose your property wisely. Consider the location, value, and appreciation potential of the property before making your purchase.

There's no question that real estate can be a great investment. After all, it's one of the most reliable ways to build wealth over time. So if you're thinking about investing in real estate, be sure to educate yourself on passive income first - it could make all the difference in your success as an investor. The key to success with this approach is to carefully select properties that will generate consistent rental income and appreciate over time. With a little bit of effort upfront, you can set yourself up to receive regular payments that will help you reach your long-term financial goals. So if you're looking for a reliable way to build wealth, passive income from real estate is worth considering. Looking for more information? Schedule a chat with us today!