The idea of passive income is to do the work once and then reap the benefits over and over again. Rental property really isn’t 100 percent passive income, as you’ll need to keep the property up and collect rent. There is also occasional work involved when you need to replace a renter, do background checks or perform maintenance. However, there is a way to make it into passive income, if you’re willing to hand the management over to someone else.
If you search for the term “passive income from real estate,” Google returns 2,240,000 results. However, many of these are people trying to sell information on how to make a passive income from real estate, and this really doesn’t give you the full picture of whether or not income from rental properties is passive or not.
Semi-Passive Income
If you plan to run the property yourself, then you can consider real estate investments semi-passive income. While you won’t have to do much work once you’ve updated the property and found the best tenants possible, you will still have to either do basic maintenance yourself or hire someone to do it for you, all of which takes time.
Collecting rent is another aspect, even if only to open an envelope and deposit the check. If your renter agrees to allow you to auto draft their rent payment, this process becomes even more passive.
Each year, you’ll also have to figure out costs and profits for tax purposes. If you’re a non-British investor buying real estate in Great Britain, you may also be responsible for capital gains tax. Depending on your level of involvement, rental property can be seen as semi-passive or passive income.
Passive Real Estate Investing
It is possible to become a passive real estate investor. Within the industry, the term simply means you own the property and reap the profits, but you hire others to manage everything for you. Even though this limits your involvement, there may still be decisions you have to make and a few things to take care of that require your time.
However, the goal is to limit your interaction with the investment to the most basic level possible, so your time is freed up to take care of other pursuits or invest in additional ventures. In order to achieve this, you’ll have to hire a property management company.
There are additional advantages to hiring a management company, such as reducing vacancies, better screening of tenants, and making sure your property is in compliance with laws and avoiding fines.
Indirect Investment
If you don’t want to purchase a property, you can still invest in real estate. Indirect investment is through a real estate investment trust (REIT). With a REIT, you invest in the property without buying it and you’re paid through the profit of a sell, cash flow and equity.
Some invest via crowdfunding and typically receive a set payment over time until the loan is paid back to you.
A Few Words of Caution
Before you invest in real estate, take time to get to know the area in which you plan to purchase rental property, as well as knowing what to look for. The last thing you want is to invest in a money pit and wind up losing cash instead of bringing in an income. Unless you are very handy at fixing things, it’s probably best to stay away from fixer-uppers.
Take the time to judge your risk to reward before purchasing a rental home. Is the region in the middle of a revitalization? What surrounds the area? How much are places renting for and what is the average over time? Are prices rising steadily? Take the time to really chat with other people in the area, including landlords. Why did they choose to invest in this area?
It’s better to take the time to really get to know an area instead of jumping into an investment and finding your passive income is more like a leaky faucet.
Set and Achieve Goals
If your goal is to achieve passive income, you’ll need to figure out how much you’ll earn in passive income per unit. This is after all costs, including paying a management company, upkeep and factoring in months the unit might be empty. Once you know what your monthly income is, you simply need to determine how many units will get you to the passive income level you’d like to make.
With real estate investment, you aren’t likely to start off making $5,000 per month. Instead, build your wealth slowly over time as you buy more and more investment property. The sky really is the limit, as long as you’re ready to put your name on the line to buy the properties. Over time, you’ll earn more as rent prices increase and you learn to spot the best deals out there.
Passive Rental Property Options
There are a few different ways to invest in rental property and earn passive income. The traditional model involves buying property and becoming a landlord. Don’t overlook investment options or crowdfunding as viable opportunities to bring in some profit. Passive income allows you more freedom to experience life or build even more wealth. A good passive income plan includes real estate investment.
