Real estate investing is a common choice for individuals seeking passive income, but there is more than one way to achieve such a goal. What strategy and level of passive income real estate investing is right for you?
Real Estate Investing & Passive Income
Passive income is one of the biggest draws that attracts thousands to the real estate landscape. However, there can be substantial differences in how passive that income really is. Each investor may have slightly different aspirations, goals, and capacity. Some are just happy for a little extra leverage and help in speeding up wealth building. Others simply desire to have their money working for good returns. Then there are those seeking financial freedom and craving truly 100% passive income that can empower them to retire.
All types of real estate investing, more or less, offers some form of ‘passive income’. Owning a real estate business, buying and holding properties, and private lending can all offer the ability to leverage others. That includes other people’s money, other people’s time, and the forces of the market. But when most talk about passive income investing in real estate, they are referring to buying and operating rental properties.
Becoming a Landlord
The first stop on this train for many is becoming a DIY landlord. This puts the power of appreciation on their side, while tenants pay off their properties and put cash in their pockets every month. How passive this income really is will depend on how you set up property management and the business side of acquiring and trading up properties. In reality, being a DIY property manager and landlord can be a lot of work. It can mean constantly being on call, out in the field fixing units, and knocking on doors for rent. If you work smart, you may land tenants that pay 6 months of rent or more in advance and never bother you. Well screened tenants may pay their rent online and go out of their way to preserve your investment properties. But you really never know 100% what you will get.
Rentals with Professional Property Management
Those landlords that enroll the help of professional third party property managers can take their investing and passive income up to a new level. Often times, good property management companies will more than pay for themselves too. By having a management company handling all the day to day tasks, investors can simply kick back and collect their income, or focus on finding new income properties to buy. Sooner or later, all rental property owners will want to graduate to this level.
Private lending is another alternative to generating passive income from real estate, at least for those that have capital. This can be as intensive or hands free as investors like. The down side is not directly owning the property.
Real Estate Stocks
Real estate stocks, REITs, and crowdfunding campaigns are another option. They may not offer investors the security of direct investment in bricks and mortar, diversification from other assets, or the ability to control the value of their assets, but it can be a potential passive income vehicle.
Own a Real Estate Business
Perhaps you aren’t a big fan of buying and holding rentals. Maybe flipping houses, wholesaling, or another niche stands out to you more. Owning a real estate business which engages in these activities may be an alternative solution. Some of the most famous billionaire real estate investors are owners of real estate companies; such as Sam Zell, Donald Trump, and Warren Buffett. The money may not be passive at first, but with time you could build a dynasty that pays off for generations.
There are many different ways to engage in real estate investing for individuals seeking passive income. For some, it is about personal preference. For others, it is graduating and climbing up the ladder as they build on their successes. Which is right for you?