How to Earn Passive Income Through Real Estate Investment
Many people think that investing in real-estate is time-consuming, stressful, and risky. Perhaps you’re envisioning flipping houses or single-handedly managing a portfolio of rental properties? While these options are certainly available to you, there are many ways that you can generate a passive income through real estate investment, which are far less taxing.
If done correctly and cautiously, investing in real estate is one of the most lucrative means of generating a passive income. And, when compared to more traditional financial investment strategies, you will find that there are many attractive benefits to this form of passive income generation.
Keep reading to find out how you can generate passive income by investing in real estate.
How to Earn Passive Income Through Real Estate Investment
Real Estate Investment Options Explained
There are a number of investment avenues that don’t require you to have an in-depth knowledge of real estate. While financial accessibility is a primary consideration, many people neglect to think through the accessibility of an investment in terms of information and knowledge.
That said, real estate investments are often much more financially accessible too. For example, you could invest in a real estate fund or a REIT without worrying about the financial barriers or the high-risk intricacies of property development.
We’ve outlined the most popular and lucrative channels for real estate investment that can generate a passive income. However, your choice of investment will ultimately be informed by financial limitations, desired return periods, and other personal preferences.
Invest in a Real Estate Investment Trust (REIT)
Real estate investment trusts are fast becoming one of the most popular means of generating a passive income through real estate investment. REITs are owned by companies that manage a portfolio of income-generating properties. This could include apartment blocks, shopping malls, offices or any other form of real estate leased for financial gain. However, REITS most commonly invest in commercial properties.
REITs are a good option as they make the possibility of earning a passive income through real estate accessible to those with a smaller budget. You essentially buy a share in the business and then receive your respective portion of the profit generated by the company’s properties. In other words, REITs pay out their profits as shareholder dividends on an annual basis.
REITs are legally obliged to pay out 90% of their taxable income to investors in the form of dividends. This legislative measure provides an additional layer of safety to this real estate investment. This option is minimally risky, but you must note that REITs don’t appreciate value at the same rate as some other real estate investments.
Crowdfunding Real Estate
There are many crowdfunding real estate projects that you can participate in to generate a passive income. This strategy essentially operates like any crowdfunding project–it just does so on a relatively large scale. Investors will organize and manage the pooling of resources that then get directed towards a real estate project.
Crowdfunding is another innovative strategy for accessing the financial potential of the real estate sector on a smaller budget. It will typically operate through online platforms that allows investors to access an expansive pool of potential funders. These investments will typically get deposited into a mortgage loan.
Before investing in any crowdfunding real estate project, it’s crucial to thoroughly research your options. You want to ensure that the investors running the project are knowledgeable and trustworthy. Furthermore, you need to investigate the relative risk of each project and find one which matches the level of risk you’re willing to accept for your investment.
Lastly, it’s important to see whether there are any costs and fees associated with a crowdfunding process and how the company running them is registered for tax purposes. While most projects will have some fees, many have truly exorbitant fees that will detract substantially from your total return.
Real Estate Funds
Real estate funds will sometimes include REITs—but not always. These investments operate on a long-term basis and they don’t pay out in shareholder dividends like REITs. Instead, a real estate fund generates your passive income through appreciation. Real estate funds become well suited to those seeking a more long-term investment, but many don’t pay out fast enough. When you look at how to calculate profit margin, you’ll see that if you want a monthly return to subsidize your salary, real estate funds may not be for you.
Some individuals prefer real estate funds to REITs as they typically have a more diverse portfolio, associated with slightly lower risk. Real estate funds invest in a range of properties, thus moving beyond the strictly commercial property investment strategy of many REITs. This promotes a stable and steadily increasing return on your investment.
Remote Property Ownership
This strategy for generating income through real estate becomes passive once the initial groundwork is complete. First and foremost, remote property ownership requires that you actually own a property. This means that you need a large initial investment, and you need to know how to spend it wisely.
You may want to rent out a property that you already own. However, if you’re still looking to buy a property, then there are a number of vital factors to consider. Location is chief amongst these. You want to invest in an area which is increasing in popularity in order to maximize the longevity and overall profitability of your investment.
Another important consideration is the state of the property you’re purchasing. If you’re looking to generate a passive income, then you certainly don’t want a property that requires extensive renovation or upkeep.
Once you’ve purchased your property, you will need to employ a capable and trustworthy property manager. Your property manager should fulfill the organizational duties associated with the rental process. These responsibilities include finding tenants, ensuring leases become signed, and general property upkeep. Once you have found your ideal property and property manager, you can generate a lucrative passive income.
Property investment is one of the top ways to make passive income in today’s economy. With some careful thought, you can reap the financial rewards of the prosperous property market by doing minimal work. It may sound too good to be true, but we can assure you it’s certainly possible.
How to Earn Passive Income Through Real Estate Investment
