Passive income real estate investing is one of the most popular ways to invest in the real estate market. It is called passive income because it is a property which generates income for the owner without the owner having to be hands-on in the process. Passive real estate investment is a great tool for creating a steady stream of income, producing retirement funds quickly, and retiring earlier than expected. Not to mention, having passive real estate income after retirement will help you to live a fuller life, thanks to the added income.
How to Get Passive Real Estate Income
The best way to create passive real estate income is by investing in turnkey properties. Turnkey properties are homes that are, essentially, fully ready to rent. Often, these homes are purchased through a property investment company, who has already completed all of the required renovations and remodeling. Many times the company will have tenants in place, or a pool of tenants ready to move in once the property has been purchased.
In addition to having remodeled and renovated the home prior to selling the home, these property investment companies usually offer property management services. This allows the investor purchasing the home to remain hands-off through the entire ownership process.
Another way to remain hands-off, and collect a passive income from your real estate investment, is to find a property and hire contractors to do the remodeling or repairs needed, and then hire a property management company to handle the maintenance and renting of the property from there. Of course, hiring a turnkey property is a faster way to do this, as it doesn’t require you to seek out reputable contractors on your own.
How to Profit
The first step is to invest in an area with a high potential of increase in value. Then to take a low interest loan against the property. The second step is to set the rental price. Taking under consideration the following charges:
- Mortgage, taxes, insurance, maintenance and property management services fee.
- The rental should cover the charges plus your monthly profit on your investment.
Out of State, No Problem
One of the greatest things about passive real estate investment is that you don’t have to be hands-on in the process. This allows you to invest in homes in areas with high rental demand and great appreciation values without having to live in the area you are investing in. As the process is essentially hands-off, as an investor, you can begin collecting a steady revenue flow without having to be in the area more than once or twice. This opens doors to where you can decide to invest.
It is important to find locations with strong economies, higher incomes, and low employment rates. You’ll want to verify the occupancy rates in the area and double check local and state property taxes. As you can passively earn an income from anywhere, you’ll want to locate the best area to invest in to create the highest level of cash flow possible.
Do Your Research
The process to gain passive income from real estate is not fully without work. While the name may imply that the investor will just sit back and collect income, it more or less refers to the second half of owning the property. The stages leading up to the purchase, however, require some legwork. It is important to do your research before selecting any property to avoid possibly purchasing a money pit. Money pits will eat through any positive revenue you have, incurring multiple repair costs, and reducing the ability you have to generate a substantial cash flow.
Doing your research involves multiple steps. Visit the properties, in person. Review all previously documented taxes. Check out the local economy. Is it healthy? How is the local rental market? One of the most important things to ensure is that you’re not making a poor business decision. You want a property where the taxes are lower but the rental demand is high and the local economy is healthy.
One way to prevent purchasing a money pit is to utilize a real estate investment company that specializes in turnkey properties. Agencies that focus on this area of the market are aware of how to minimize risk in properties by searching for the right factors. Of course, selecting one of these companies will require some research on your part beforehand. You’ll want to speak to previous clients, check references, and see their current occupancy rates before signing any contracts. Having a great property investment team can make the process easier, but it is important to know exactly who you’re working with.
As with all successful investments, gaining passive income from real estate requires pre-planning. Having a good plan up front helps you avoid mistakes in the long run. Having a budget, a location, and an agency in mind before you make the purchase will make the entire process run smoother.
Hiring a property inspector is another step in your planning process. Research local inspectors and find one with a top-notch record. Once you have selected a property, have your chosen inspector perform a full inspection of the home. A good inspector will be able to catch anything that is not up to code, including wiring and plumbing. They will also be able to estimate the remaining lifespan of important features, such as the roof, HVAC, and hot water heater. Defects such as cracks in the foundation, unsafe structures, or dry-rot will also become apparent with a certified inspector.
The biggest key to owning passive income real estate is in the management team you select. A great property management team will keep your unit occupied, maintained, and free of hassle on your part. The better the team, the more passive your income.