Making passive income in real estate is every investor’s dream. What could be better than receiving a paycheck at the end of the month, solely because of a smart investment? Successful investments that lead to passive rental income aren’t as hard as they may seem. You just need some strategic foresight and two primary things: a positive cash flow property and a rental property manager.
Step 1: Find the Right Rental Property
The first step to making a passive rental income is finding the right property. When passive rental income is your aim, you need to focus specifically on investment properties that will generate positive cash flow. Thankfully, finding these kinds of properties is easier than ever because of a number of premium tools.
You can try out the heatmap analysis tool offered by Mashvisor, which will allow you to quickly search neighborhoods and view a large number of investment properties based on their earning potential. When using this tool, all you need to do is select the city you’re interested in, set a filter (listing price, rental income, cash on cash return, or occupancy rate), and the heatmap analysis tool will highlight neighborhoods with top-performing investment properties based on the filter. Be wary, however, that the best investment might be a bit far from home. So you can also use this map to search throughout other cities and figure out where to invest in real estate for maximum returns.
You’ll then have an array of listings available to you, each of which will have advanced analytics to support your decision to invest. You’ll have valuable information like cash on cash return, rental income (for both traditional and Airbnb options), and other crucial information. When passive rental income is your aim, these will be crucial indicators to determine the success of your real estate investment.
Related: 5 Ways to Find an Investment Property
Step 2: Run the Right Real Estate Analytics
Once you’ve learned how to find positive cash flow properties, you need to guarantee that your selection will be a financially successful investment. For a passive income rental property, there is one major indicator you need to be certain of- cash flow. More money needs to be coming in at the end of each month than going out, to ensure you’ll be making a good income from your real estate investment. Being able to find a positive cash flow rental property is crucial in your quest for passive rental income.
One of the best real estate investment tools you can use to achieve this is an Airbnb calculator. This software allows you to input all of the ongoing expenses associated with your investment, as well as all sources of income. The net outcome will be the profit which you can expect to pocket at the end of the month. Be sure that you are meticulous in this process, since the more detailed your information, the higher your chance of success.
Related: Want to Own a Successful Real Estate Investment? Use These Tools
Rental property expenses include things such as ongoing maintenance costs, taxes, legal fees, and anything else you’ll need to pay to keep your property running. The best way to ensure passive rental income is to know exactly what expenses you’ll face.
But this begs the question: is rental income passive income? Well, unfortunately not. Managing the logistics associated with your rental property can be a very time-consuming process. You’ll be responsible for finding tenants, keeping them happy, and covering all of the behind-the-scenes operations which keep things running. It can actually be a full-time job, in many cases. If this lifestyle doesn’t sound appealing to you, or if you’re more interested in passive rental income, then you should consider hiring a rental property manager.
Step 3: Hire a Property Manager
For truly passive rental income, you’ll need to hire someone to take over the daily operations of your investment property. While many real estate investors decide to take on the management of their own property, this can be very arduous and time-consuming; taking up time that you could have otherwise spent on making more smart investments.
One of the primary things keeping people from hiring property managers is the added cost. This is certainly a worthwhile concern, since hiring additional labor can cut into your bottom line when investing in rental properties. But the opposite can often be true: an experienced property manager can have a hugely positive impact on your bottom line. Because of their specialized experience, property managers can usually boost tenancy as well as a rental income. In many cases, the increase in rental income easily justifies the cost of hiring a rental property manager.
Another major benefit of hiring a property rental manager is that your tenants will be well taken care of. By finding good tenants, you can ensure that they’ll be around for years at a time, meaning less overall work, and fewer vacancies. All of this will work to keep your passive rental income uninterrupted. Furthermore, you won’t ever need to deal with your tenants directly, since all of their concerns will be directed towards the property’s manager.
And the bigger benefit? Having a property manager taking care of your rental property will give you a true source of passive rental income. Realistically, this is the only way to receive cash at the end of the month without any work or time commitment from your end.
When calculating the feasibility of your real estate investment, the wage of your property manager should be listed as one of your rental property expenses. If you’re still making a substantial profit after their wage has been paid, then the investment will be worthwhile. Consider getting price quotes from several different professional property management companies, and have a clear idea of the added expenses before making your investment.
Related: When Should Real Estate Investors Hire Professional Property Management?
Bottom Line
Many real estate investors go a lifetime without knowing that rental property passive income is feasible. By making a handful of smart decisions, you can be on your way to passive rental income that frees you up to spend your time on other endeavors. The three major keys to passive rental income are: knowing how to find positive cash flow property, running the right analytics, and hiring the right property manager. Step 4? Enjoy your passive income from rental property ownership!
