Real estate is undoubtedly one of the most popular investments out there for investors of all scales. That's why there are over 20 million rental properties in the US, and nearly 50 million rental units owned by individual investors.
If you're thinking about investing in real estate, you're on the right track. It's a relatively safe, tangible, and profitable investment. Let's talk about the key benefits of passive real estate investing!
What Is Passive Real Estate Investing?
Passive real estate investing is any type of real estate investment that generates passive income. Passive income is income you don't have to work for. That's the difference between active vs passive investing.
Moreover, there are two primary methods to generate passive real estate income. Let's talk a little about the pros and cons of each.
REIT
Real estate investment trusts, or REITs, are a great way to get started investing in real estate and earning passive income. Like stocks, these are publicly-traded shares of trusts that invest in real estate. To qualify as an REIT, they legally have to pay at least 90% of their profits to shareholders in the form of dividends.
Essentially, you're one step removed from the management, and you can simply yield dividends over time.
However, there is a limit to how much you can earn. Typically, an REI will yield between 2% and 4% annual dividends, with some going as high as 6% to 8%. Of course, this isn't guaranteed, but a well-performing REIT can yield fairly high returns.
Also, you relinquish control to the managers of the REIT. As a result, you can only hope they make wise financial decisions that benefit you as an investor.
Rental Property
If you want to earn more from your investment, purchasing a rental property will offer the highest potential ROI. This way, you can earn monthly returns in the form of rent and still have the asset to resell later on, potentially for a profit.
We know what you're thinking; "that isn't passive income". Yes, if you manage the property yourself, then you are working for your money to an extent. However, you can generate passive income with a rental property.
When you hire a property manager, you remove yourself from the responsibilities of being a landlord. A property manager can take on all of the work of a landlord, and only for a small percentage of your rental income. From there, you can just sit back and watch the checks roll in!
Benefits of Passive Real Estate Investing
The first major benefit of passive real estate investing is obvious: passive income. Generating passive income is the goal for just about everyone, as you don't have to take on extra work, but you still have revenue flowing in.
However, there are plenty of benefits to choosing a rental property with the right property management team. Here are just a few!
You Own the Building
When you invest in a physical property, as opposed to an REIT, you own the building. This means you have total control over what goes on, what policies you set, and more.
Even if you have a property manager, you can communicate your preferences to them. Remember, you hire them.
Therefore, you can choose to set the right rent prices, pet policies, or whatever concerns you most. Having this level of control over your investment is one of the reasons why real estate is such a popular investment. No other investment allows you to put 15% to 25% down and immediately gain near-total control over how the enterprise operates.
Flexibility
Landlords don't have a lot of freedom. If you want to travel, work a full-time job, or retire peacefully, passive real estate investing is a great option.
You may have thought about investing in real estate before, but there are a lot of downsides if you manage the property yourself. You'll be the one responsible for answering 3 am phone calls when something goes wrong. From there, it's on you to either fix it or send someone in who will.
Consequently, having a property manager takes all of these responsibilities off of your back. This turns your investment from semi-passive to fully passive income.
Expert Assistance
When you hire the right property management services, you hire a team of real estate experts. They will have a great list of contacts, the necessary skills and experience, and they can act as an advisor for your property.
As a result, anybody can invest in real estate. If you have access to dedicated professionals, you'll know the right rent prices to set, which policies can protect your investment, and so much more.
High Returns
There's a reason millionaires agree that real estate is the best investment available. When you invest in a rental property, you generate a monthly cash flow that could be as high as 2% of your total investment. That's 24% per year!
Of course, you will have expenses, but that offers a lot of room to maintain the profitability of your investment property.
Also, while you continue to deduct the "depreciation" of your property on your taxes for up to 27 years, the house may still increase in value. Either way, you still have the property to resell whenever you want.
Think about that. You can earn monthly checks for as long as you want and then cash out and liquidate your assets whenever. Moreover, if you continue putting upgrades into the property, you can charge more for rent and increase the resale value at the same time! Use a rental property calculator to see just how much you can earn!
How to Get Started
Now that you see why real estate is one of the best passive income streams, you may want to know how to get started. Here are some tips for first-time investors.
Choose the Right Location
Remember, if you're hiring a property manager, you don't necessarily have to live nearby. Take a look at your budget and find the right market for your needs. If you know one thing about real estate, you know it's all about location.
However, the general market is only one component. Don't forget to look at the neighborhood. Proximity to certain amenities can be a major selling point, allowing you to charge higher rent prices.
For example, access to public transportation, parks, or schools can make a world of difference. Just make sure these are permanent fixtures, as businesses can come and go.
Choose the Right Property
Even more importantly, choosing the right building will impact your return on investment, affect your liability, and more. Make sure you do your research on a property, have it thoroughly inspected, and get a good deal. You only get one chance to make the investment, so make sure it's the right one.
Purchase a property that's up to your repair standards, offers the features you need, and fits your budget. Depending on your financial situation, different properties will make more sense.
Most importantly, you'll need to choose between a turnkey investment property or a fixer-upper. Fixer-uppers will require some work, but you may find a good deal on them if you're willing to wait before you start renting.
Conversely, turnkey properties are ready to go, and they often have existing tenants living in them. From there, you can start earning almost immediately after purchasing the property.
Choose the Right Team
Finally, make sure that you choose the right property management team for your needs. Some may offer lower prices than others, but you'll need to make sure that the services they offer align with your goals. Ideally, a property manager will cover everything, including:
- Rent collection
- Marketing
- Tenant screening
- Maintenance
- Outsourcing repairs (as needed)
- Accounting and/or financial reporting
The list goes on. Don't hire a manager to do half of the job for you. Make sure you find a team that can make your investment fully passive and offers the expertise you need!
Choose the Right Investment Today
Now that you know the benefits of passive real estate investing and how to get started, why wait? Real estate is one of the best investments you can make, assuming you do your diligence, choose the right property, and choose the right team to manage your investment. If you can do that, then you can see long-term passive income to build your wealth, secure your retirement, or travel the world!
Stay up to date with our latest tips for investors, and don't hesitate to contact us with any questions or for help managing your property!
