How to Earn Passive Income From Real Estate

What Is Passive Income

Passive income is money you earn without having to work for it actively. For some forms of passive income, you'll put in the work upfront or have to do 'some work' to earn money, but not like working a 9 to 5 job, for example.

Ideally, passive income streams should pay you dividends or interest, and if it's real estate, appreciate over time without you doing much of anything. Passive real estate investments are a great way to diversify your portfolio and make more money to reach your goals, whether they be financial independence, growing retirement accounts, or just saving more money for other financial goals.

Conclusion

Learning how to earn passive income from real estate can be fun. Whether you'll earn rental income, use real estate crowdfunding, or invest in mutual funds, there are many ways to invest in real estate directly and indirectly. Think about how much money you can invest, how liquid you need the investments to be, and how much passive income you want to earn. Click here to check out Concreit's website!

Video

8. YouTube

If you enjoy making videos, you can start a YouTube channel and earn passive income once you get enough traffic coming to your channel.

Like blogging, once you create the content, the passive income begins, but getting there can take a lot of work.  It’s not easy to create a video and it takes time.  And getting traffic to your channel can be difficult.  You have to create interesting content, compelling titles, great thumbnails, and really understand how YouTube’s search algorithm works.

How to Get Started

While it can be tempting to want to pick five passive income ideas to get started with I’d really encourage you to pick one in the beginning. You need time and the ability to focus to really a grow a passive income stream. Master one thing before moving on to the other.

It’s going to take a substantial amount of time or money in the beginning but I promise earning passive income is everything it’s cracked up to be! Pick an idea, make a plan, and dedicate yourself until that income stream comes to fruition.

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The Benefits of Earning Passive Income Through Real Estate

We all need to earn a living, and as such, many of

We all need to earn a living, and as such, many of us are often looking for ways to increase our cash flow. Even if you have a 9-to-5 job you love, no one can deny the appeal of earning money while you sleep. Passive income can be used to:

  • Achieve your financial goals
  • Fund your retirement
  • Grow your emergency fund savings
  • Fund your next vacation
  • Pay for your child’s college tuition
  • Replace your income from your job
  • Pay off your debts
  • Reach financial freedom

Many hope to develop enough streams of passive income to eventually replace their active income sources so they can enjoy financial freedom. Along with financial freedom, passive income can offer a tax benefit. Three types of income are subject to income tax:

  • Ordinary income: The most common income source is from a regular job. If you receive a W-2 from your employer, your income will be taxed as ordinary income. Typically, of the three income types, this is the highest tax bracket.
  • Portfolio or investment income: Portfolio or investment income is earned through capital gains. Capital gains are earned from the sale of a property or investment for a value greater than the initial cost basis. This type of income is not taxed the same as ordinary income and is typically taxed at a lower bracket, though this may vary depending on how much you earn from either source.
  • Passive income: Passive income is taxed at the lowest bracket due to the tax advantages the IRS offers.

Further, another advantage of investing in real estate is that you can easily turn your investment into more streams of income. If you purchase a rental property, you can save up money from the income you generate to use as a down payment for another investment property. After you have two rental properties, you can start saving for a third and so on. The more properties you buy, the faster and easier you can grow your investment portfolio.

To enjoy the benefits of real estate investment, you should develop a sound business strategy. This includes assessing the market, your current savings and the different types of real estate investment options.

6. Affiliated Business Arrangements (Title Companies)

Another way in which real estate agents can genera

Another way in which real estate agents can generate passive income is by building a relationship with a title insurance company and working out an arrangement where they will pay you for clients that you send their way. 

You’ll need to disclose this relationship to your client and follow all of the rules and regulations applicable to this type of arrangement, but it’s done all the time.

It can be a great source of consistent extra income for you without a lot of work on your part. 

Word of Caution:  Although this strategy can generate a fine source of passive income, you need to make sure you comply with RESPA requirements and not be too aggressive pushing this on your clients or you could land in hot water.

Is Real Estate Crowdfunding Risky?

Compared to other forms of real estate investing, crowdfunding can be somewhat riskier. This is often because crowdfunding for real estate is relatively new. Moreover, some of the projects available may appear on crowdfunding sites because they were unable to source financing from more traditional means. Finally, many real estate crowdfunding platforms require investors' money to be locked up for a period of several years, making it somewhat illiquid. Still, the top platforms boast annualized returns of between 2% and 20%, according to Investopedia research.

How To Invest In Passive Income Real Estate

Passive income can be a great way to supplement your current income and help you create financial streams to help secure your retirement years. One of the most popular ways to generate real estate passive income is through rental properties. Investors who play their cards right can create a steady revenue from rental income, while they also have the option to make improvements to the property and build equity.

There is a common misperception that passive income real estate investing requires little to no work. However, those interested in creating passive income with real estate should take an active role in what should be treated like a business. Whether it be searching through properties, screening tenants, hiring a property manager, or addressing repairs, owning passive income properties does require a certain level of involvement. This especially rings true for those who wish to maximize their profits.

One of the keys to building a successful passive income real estate investment involves planning and creating a sound business strategy. This includes versing yourself in your target market, whether it be the same neighborhood as your primary residence or even out-of-state, so that you know local real estate trends and values. The information you glean from the real estate market will help you pick out the best possible market to hold a passive income property, as well as identify property listings that promise good cash flow. After the research phase transitions into the execution phase, you will also need to have a strategy in place on how you will manage tenants, finances, paperwork, and the property itself. As you can see, passive income real estate is quite a complex process, and perhaps the term “passive” is a little deceiving. However, with plenty of planning, research, as well as knowing the right questions to ask or common mistakes to avoid, you will be well on your way to a sound strategy that can make your life much easier in the long run.

How many income streams should you have?

There is no “one size fits all” advice when it comes to generating income streams. How many sources of income you have should depend upon where you are financially, and what your financial goals for the future are. But having at least a few is a good start.

“You’ll catch more fish with multiple lines in the water,” says Greg McBride, CFA, chief financial analyst at Bankrate. “In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream.”

Of course, you’ll want to make sure that putting in effort into a new passive income stream isn’t causing you to lose focus on your other streams. So you do want to balance your efforts and make sure you’re choosing the best opportunities for your time.

How To Invest In Passive Real Estate: Tips For Success

There are several common investment opportunities that can be a good start if you’re just getting into passive real estate investing. Most methods of passive investment fall into these categories: crowdfunding, REITs, real estate funds or remote ownership.

Crowdfunding

Real estate crowdfunding is exactly what it sounds like – with the help of other investors, you can pool your resources to invest in something larger than you might have been able to tackle on your own. This method is usually done entirely online using platforms that allow a multitude of users to pool funds and invest indirectly in mortgage loans anywhere in the country.

This can be a great way to collect passive income and is similar in some ways to online platforms that allow users to invest in partial shares of company stocks.

REITS

Real estate investment trusts, or REITs, are companies that operate as trusts. They invest in various types of real estate, typically commercial properties, and pay out their profits as shareholder dividends each year.

REITs take care of owning properties and collecting rent, or in some cases, funding mortgages and collecting interest. Investors can make money through REITs by investing in them, as they are usually publicly traded similarly to stocks. Many Americans are invested in REITs through their retirement accounts.

REITs are not especially risky to invest in, however, so they don’t grow or appreciate value as much as other investments might.

Real Estate Funds

Real estate funds are a type of mutual fund that invests in public real estate securities, sometimes including REITs. Real estate funds are more of a long-term investment than REITs and provide their value through appreciation, rather than dividends.

Unlike REITs, real estate funds tend to be more diversified and invest in many types of properties, not just commercial real estate. They’re managed by professionals, which saves investors the trouble of having to do extensive research on where they should put their money.

Remote Ownership

While still considered a passive investment, remote ownership is an option with a little more control involved, making it a good option for the investor that wants some involvement with the properties they invest in, but not necessarily the role of landlord.

With remote ownership, an investor can own an investment property but rely on and oversee an on-site property manager who will take care of upkeep. Many remote investors keep tabs on their properties digitally or over phone calls, as they are often far away or out of state.

Remote investing is useful because it allows potential investors to take advantage of areas with higher demand, even if they are far away. It can be risky, however, since you will be relying on others to manage your investment if you don’t plan on visiting often (or at all).

How Much Passive Income From Real Estate Do You Need To Replace Traditional Employment?

Many people dream of the day when their passive income streams allow them to quit their day jobs and retire. In reality, it can take years of hard work before you can cover your expenses through passive income.

The amount of passive income you’ll need to live off your investment streams depends on your financial situation, lifestyle plans and location. If you have no debt obligations and you live in a more affordable area, you’ll need less money to cover your expenses. If you live in an area where the price of living is higher, you’ll need more money coming in before you can survive off passive income. For the best chance of success, create a plan to produce multiple streams of passive income.

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Why Do You Need Passive Income?

Passive income is a great way to earn money without having to actively work for it. Collect passive income while you enjoy your life Instead of spending your day working for someone else. Here are some ways you can put you passive income to use:

  • Fund your children’s college funds
  • Set up and build your retirement fund
  • Pay off your debts
  • Achieve financial freedom
  • Build your savings

[ Do you control your finances or are your finances controlling you? Register to attend our FREE online real estate class and find out how real estate investing can put you on the path toward financial independence. ]

Growing my real estate portfolio

By 2016, I was the owner of three houses. I financed my second purchase through a traditional bank loan, and I bought the third with a $250,000 loan from a family member at a 4%, 30-year fixed rate.

I made $51,404 that year in gross rental income from all three properties, and while most of that money went towards covering mortgage, maintenance and property management costs, I was also able to take home around $1,800 per month.

In 2017, I decided to ramp up my savings to purchase additional real estate. I found an even cheaper apartment to share with roommates, and invested those savings plus the money I was making off real estate into the stock market and my investment accounts.

When I learned about how much further each dollar could go in opportune markets — where cash flow was high and buying prices were low — I started looking outside of California. I bought the cheapest multi-unit properties I could find in the Midwest, mainly Ohio and Kentucky, and fixed them up.

To do this from afar, I built relationships with agents and property management professionals in those markets, so I knew I'd have a team on the ground to identify the best properties and take care of my tenants.

I work with small family-owned management businesses, whose fees cost an average of 7% of my gross rent per property but can reach up to 20%.

The Bottom Line: Real Estate Generates A Variety Of Passive Income Opportunities For Investors

Real estate investment offers opportunities over a wide range of commitment levels  – from the passive-in-name-only to the completely passive. Learn more about investing in your first rental property in our Learning Center.

Why Should I Add Real Estate to My Portfolio?

Real estate is a distinct asset class that many experts agree should be a part of a well-diversified portfolio. This is because real estate does not usually closely correlate with stocks, bonds, or commodities. Real estate investments can also produce income from rents or mortgage payments in addition to the potential for capital gains.

Passive income is not

  • Your job. Generally, passive income is not income that comes from something you’ve been materially involved in such as the wages you earn from a job.
  • A second job. Getting a second job isn’t going to qualify as a passive income stream because you’ll still need to show up and do the work to get paid. Passive income is about creating a consistent stream of income without you having to do a lot of work to get it.
  • Non-income producing assets. Investing can be a great way to generate passive income, but only if the assets you own pay dividends or interest. Non-dividend paying stocks or assets like cryptocurrencies may be exciting, but they won’t earn you passive income.

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Get Help From a Professional

If you’re still wondering if a rental investment is right for you and you’re not sure where to invest, then you need the help of a good real estate agent to guide you.

This is too big of a decision to make alone, and these guys are pros when it comes to the local market and all the details of buying and selling.

That’s why it’s a good idea to get connected with an Endorsed Local Provider (ELP) in your area who you can trust. Find a real estate agent today!

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