Real estate is one of the best ways to invest your money and earn. Below are the following ways on how to earn passive income with real estate:
Rental Properties
One of the ways to earn passive income is through rental properties. A secured real estate mortgage notes and finances will allow you to make your next investment successful. You can choose to buy and later on rent one of the most common types of rental properties:
● Vacation homes
● Getaway homes
● Condos/Coops
● Multi-family homes
● Luxury homes
● Single-family homes
When buying a property that you plan to rent, you should consider the following:
● Neighborhood: You'll need to assess what type of tenants you'll most likely attract whether families, students, or single and working adults. Knowing what kind of neighborhood that's around the property you plan to buy will be beneficial for you.
● Property Taxes: You have to know how much property taxes you'll need to pay. Considering what you have to pay and if it'll pay off in the long run.
● Crime Rate: Check the neighborhood's crime statistics and see if the criminal activity is increasing or declining. You should consider the safety of the location of the property.
● Job Market: You should check if the location is near the business community. Locations that have growing employment opportunities will attract more potential tenants.
● Amenities: Inspect if the neighborhood has nearby schools, parks, gyms, restaurants, public transportation links, movie theaters, and other public amenities that matter to renters. A property that's surrounded by such amenities can attract many tenants especially if you're trying to sell a family-sized house.
● Future Development: If you see a lot of ongoing construction work, it may be a sign of a good growth area. New housing can also mean you'll have competition, and the latest developments can also hurt the price of neighboring properties.
● The Number of Listings and Vacancies: Renting in an area with high vacancy rates may force you to lower rent, while a low vacancy rate will allow you to raise the rent.
● Average Rents: You need to know what's the average rent in the area. Your rental income has to cover your taxes, mortgage payment, and other recurring expenses.
● Natural Disasters: Having a rental property in an area prone to natural disasters such as earthquakes, hurricanes, or flooding will affect your insurance expenses more.
Real Estate Investment Trust (REIT) Shares
Real estate investment trusts or REITs refer to companies that own, finance, and finance income-producing real estate. Historically, REITs have secured total returns based on the steady income of high dividends and long-term capital appreciation. As they have a fairly low correlation with other assets, they're an excellent portfolio diversifier minimizing general portfolio risk.
There are five different types of REITs you can invest in:
● Retail REIT
Retail REITs invest in shopping malls and freestanding retail. Before making a retail REIT investment, think about the retail industry's longer-term outlook and financial health. For example, the COVID-19 pandemic has forced numerous businesses to close and vacate their shops. It interrupted the cash flow and delayed or defaulted the monthly rent payments, having many companies file for bankruptcy. Another long-term concern of retail REITs is that shopping is more and more shifting online. The retail REITs with the most vital anchor tenants are grocery and home improvement stores.
● Residential REITs
These REITs own and operate multi-family rental apartment buildings and mobile homes. Some of the biggest residential REITs tend to invest in large urban areas because of population and general low home-affordability. Consider investing in this REIT type since the economy is growing, demand continues to rise, and the apartment supply remains low.
● Healthcare REITs
Healthcare REITs invest and operate the real estate of hospitals, retirement homes, medical centers, and nursing facilities. Most healthcare REITs rely on rent, private pay, and Medicare and Medicaid reimbursements. Increased demand for healthcare services makes this type of healthcare a promising REIT to keep an eye on.
● Office REITs
As the name suggests, office REITS invest in office buildings. They rely on rental income from tenants who sign long-term leases. You should do your due diligence and find a REIT that invests in economic strongholds.
● Mortgage REITs
As opposed to real estate and equity, these REITs invest in mortgages. If you invest in such REIT, you can profit from the mortgages and mortgage-backed securities financing the real estate.
Real Estate Syndications
Real estate syndications allow you to buy and become an owner of real estate property together with other investors that have pooled capital to purchase the asset. The main parties involved in real estate syndication are:
● General Partner or Syndicator
The general partner or syndicator is in charge of finding a deal, coordinating the transaction, financing, and managing the investment.
● Passive Investors
Passive investors contribute capital in exchange for equity in real estate. They don't have to be actively involved in property management, tenants, and accounting issues.
Real estate syndication comes with much transparency when it comes to the level of your risk. You should know where you're investing, what real estate you're investing in, and who you're investing in. It's an intelligent choice of investment with the potential for high returns. The downside is that entry barriers are relatively high-most offerings requiring a minimum investment of $USD25,000.
An average deal for a multi-family syndication firm would look something like this:
● Hold Time: An asset is held onto for five years.
● Passive Income: Expected passive income every year is 8%-10% cash-on-cash return on the investment.
● Profit on Sale: The sale of the property should generate a 40%-60% (or more) return on investment.
The downsides to real estate syndications are that the regulations limit the marketing of such offerings to the public, so it may be challenging to find these investment opportunities. Even more so if you already don't have an established relationship with a real estate syndication company.
Conclusion
There are many reasons why you should consider investing in real estate as a way to earn passive income. A well-chosen asset will secure you not only a passive income but also various tax advantages and excellent returns. This will also diversify your portfolio. Many have also utilized the power of real estate investing in building wealth.
