Real estate investment is one of the easiest ways to make passive income. A real estate investor might buy a property and rent it out, renovate it and sell it, or lease the space to tenants. These are all examples of passive income with real estate because they require little effort once you’ve gotten started. If you’re looking for a new way to earn money while sitting on your couch watching Netflix all day, then this is probably a good place to start!
This post will show you some ways you can make passive income from real estate. If this sounds like what you want, then keep reading!
What Are the Pros of Investing In Real Estate?
Investing in real estate is one of the most profitable ways to grow your wealth. Here are some pros of investing in real estate:
- Real estate is a tangible asset that will appreciate over time, providing you with a return on your investment.
- You can diversify your risk by investing in multiple properties, which reduces your exposure to any single market or property type.
- You can leverage the equity in your home to invest in additional properties, which allows you to use the bank’s money rather than yours (and therefore take on less risk).
- You can invest in real estate without needing as much money upfront because of the lower initial costs associated with buying land versus buying existing buildings–which also means less risk! Plus, there are plenty of tax deduction opportunities – check out this Homestar Finance overview for some examples.
- Real estate tends to be less volatile than other investments like stocks or bonds because it’s less subject to market forces like inflation and interest rates (though there are exceptions!).
- The home improvement skills that come with owning a house make for a great hobby. And if you ever decide to sell down the road, those improvements will add value!
9 Ways to Make Passive Income with Real Estate
#1: Real estate investment trusts (REITs)
Real estate investment trusts (REITs) are a good way to invest in real estate without actually owning any property. REITs are companies that invest in real estates, like hotels and apartment buildings, and then trade on the stock market.
By purchasing shares of a REIT, you can gain exposure to large amounts of commercial or rental properties without having to manage them yourself.
The dividend yield of REITs tends to be higher than other stocks because they’re paying out their earnings as dividends. They also tend to pay out larger dividends than non-REIT stocks due to their higher yields compared with non-REIT companies’ dividend payments.
#2: Explore a vacation rental
You can also explore a vacation rental. This is a great option if you live in an area that gets a lot of tourists and travelers, like Cape Cod or New England, in the summertime. The idea behind this strategy is that you’ll allow visitors to stay at your home while they’re visiting your city, and you’ll charge them for it.
This strategy can be very lucrative if done right, but there are some drawbacks as well. Mainly, it’s much more complicated than just selling your own house! You’ll need to check into local laws regarding renting out homes or rooms (some cities have rent control laws on the books).
Additionally, if you’re renting out space within your home rather than an entire house (which could be preferable), then there will be even more considerations involved in terms of zoning rules. But everything should be spelled out clearly on the websites where you advertise these rentals, so don’t worry too much about it!
#3: Real estate syndications
If you’re looking at making passive money with real estate, one of the best ways to do so is through syndication. Syndication is a group of investors who pool their money together to purchase a property and then agree on how they’ll be compensated based on how much they contributed to the deal.
Syndications are beneficial because they allow individual investors who don’t have access to large sums of cash or financing options to get involved with buying properties at scale. So choose a company that has a reputation for helping with syndication and make sure you can trust them with your money.
If you also have friends you think would be interested in making passive money with real estate, you can involve them. All of you can pull resources together to get a very good property that will sell out well. Hence allowing all parties have the best share of the investment.
#4: Contract flipping and wholesaling
Contract flipping is one of the most common ways to make a profit with real estate. Contract flipping involves buying a property at its full price, then selling it quickly without making any improvements to it. You should be able to sell within 30 days or so at a 124% profit margin.
Wholesaling is similar to contract flipping, but instead of buying an existing property and selling it quickly for a profit, you buy an unfinished property (under construction).
You buy this property on contract from the builder and work with them until they finish building your new property. You can then sell this property as-is for a higher price than what you paid for it in order to make money from wholesaling!
#5: Renting out space in your home
Renting out space in your home can be a great way to make passive income with real estate. The first thing to think about is what you are going to rent out and how much you should charge for it. If possible, choose a space that does not already have furniture in it.
For example, if there isn’t already a bed or couch in the guest room, consider renting out the guest room as a hotel room or Airbnb rental.
If the rooms are already furnished with beds and couches, then they might not be as attractive as an Airbnb space. But they may still be valuable enough to attract renters on other websites such as Craigslist (or even Facebook ads).
You’ll just need to do some research into how much people are paying for similar spaces around town before setting your price point too high!
#6: Rental arbitrage
Rental arbitrage is a powerful way to make passive income with real estate. A rental arbitrage opportunity is when you can buy a property and rent it out for more than the mortgage payment.
You want to look for properties that are undervalued in your area so that you can buy them at a good price, then turn around and rent them for more than what you paid. Rental arbitrage opportunities are often found on Craigslist or through other online classified sites like Airbnb.
The amount of money you can make from rental arbitrage depends on how much your mortgage payment is, how much rent you charge, taxes and insurance costs, how long before the property becomes valuable enough to sell again, and whether or not tenants damage any parts while living there, etc.
#7: Rental Properties
Rental properties are a great way to make passive income, but they should not be the only strategy you use. Many people have purchased rental properties as an investment that will provide them with a steady source of income for years to come. While this is true, it’s important to remember that rental property investments are not without their risks.
First, you’ll need to pay attention to your tenants’ credit scores before choosing who will live at your property. Suppose any tenant has bad credit or has been foreclosed on before (or even evicted from previous rentals). In that case, you might want to reconsider renting out your home until they have proven themselves worthy of being responsible adults who pay their rent on time every month. These considerations are essential for managing your apartment building financing rates effectively.
#8: Ground lease
A ground lease is a type of lease where an owner of land grants another party the right to use that land for a specific purpose. The lessee has no interest in the land and must pay rent to the lessor. Ground leases are often used in residential developments, which can be quite lucrative.
For example: Let’s say you buy some property for $500k and build houses on it. You sell them for $1 million each, and so your total profit is $2 million. But you have no money coming in anywhere else because all your money was spent building those houses!
So what do you do? You create a ground lease structure that allows someone else to develop their own homes using your land while paying rent every month until they’ve paid back all their expenses plus some profit margin on top of that too!
#9: Real estate mutual funds
Real estate mutual funds are a great way to invest in real estate without having to buy a property. You simply invest some money, and then the fund manager will buy and sell properties for you.
The advantages of investing in real estate mutual funds are that you get better diversification. There’s no maintenance or upkeep (other than collecting rent) and your investment can grow faster because more people are involved who have access to more capital.
The disadvantages of investing in real estate mutual funds are that they’re less liquid than owning physical assets (you can’t sell them quickly). They’ll have higher fees associated with them, the returns won’t be as high as buying an actual property yourself, and it’s harder to control what type of properties the fund owns and where they’re located.
Final Note
As you can see, there are many ways to make passive income with real estate. You don’t need to know anything about fixing up houses or managing a rental property.
The experts do it all for you. If you choose this path, keep in mind that while the potential is huge, it takes time and patience before you start seeing returns on your investments. You might also want to check out our list of some other passive income ideas. You might find some other ones you would like.
