Income without any effort? We all want to know the secret formula. Simply put, passive income is money that you earn by means of doing little effort or work. In the world of real estate, buying and managing rental properties can be a full time job which requires lots of work and follow up i.e. adhering to tenants’ requests, collecting rent, maintenance of the property, filing eviction notice etc . So if you’ve taken real estate up as a part time job, or if you want to guarantee a steady flow of income for your retirement, you’ve got to find ways to make passive income. To help you out, we’ve put together a list of five ways on how to make passive income to help you get started. Check them out below!
How to Make Passive Income: Five Ways
Hire a Property Manager
We all know being a landlord requires lots of work in terms of managing the property/ies, current tenants, and especially if you own multiple properties. And while owning multiple properties can help you diversify your investment, it can end up consuming a great deal of your time. If you have a keen interest in how to make passive income in real estate, your best best is to hire a property manager who can significantly take over your duties as a landlord. As previously mentioned, a property manager will tend to tenants’ needs, collect rent, check up on the property etc. They will technically be taking care of the management duties of being a landlord. It’s also important to note that property managers can especially help you out if you’re considering out of state investing, which is something you should definitely be considering as you advance in your real estate career.
Of course, you will have to pay the property manager a fee or commission for his or her services from the rental income you collect each month. No surprise there! So, be sure to discount this payment to arrive at your net profit. All in all, as an investor, always conduct cost and benefit analysis to any business related decision you make, and choosing to hire a property manager is no exception. The benefit is passive work, but the cost could dig a deeper hole into your finances. Be careful!
Consider Real Estate Partnerships
If you want to master the art of how to make passive income in real estate, consider the idea of real estate partnerships where responsibilities are divided between you and your partner/s. You can reach some sort of agreement with your partner/s regarding the terms of management. Partnerships aren’t solely for the reason of splitting finances; you may even take turns managing the rental property/ies. Moreover, decision making and task division become easier since the work load is split up between two or more investors as opposed to a one-man show.
Real estate partnerships also help in building your network as a real estate investor. Networking provides you with a platform to meet other investors, future partners, contractors, real estate lawyers, brokers, etc. which is really helpful especially if you’re starting out in real estate. Learning how to make passive money in real estate becomes easier overtime as you learn the ins and outs of real estate.
Real Estate Investment Trusts (REITS)
Real Estate Investment Trusts (REITS) are companies that own and/or finance income producing real estate investments. REIT investments offer numerous advantages including high yields, simple taxes, excellent liquidity, demand sensitivity, as well as helping you make passive income. REITS offer a variery of investments including commercial buildings. The diversity of investments in REITs translates into lower risk for an investor, unlike being involved in solely one type of investment. When you diversify your risk with REITS, you are well aware on how to make passive income through this mean.
If you own a property that you rent out on Airbnb, you know that dealing with short term tenants can be very hectic and time consuming – and it is by far more difficult to earn passive income from short term rental management. So here are few extra tips on how to make passive income from Airbnb rentals. First and foremost, you can charge extra fees in addition to the actual booking fee. These include cleaning fees and extra guest fees (fees that you charge per guest). Most Airbnb rental property owners learn how to make passive income by charging these kind of fees in advance.
Another way on how to make passive income for Airbnb rental properties is hiring a property manager. A property manager will be doing relatively the same work as they would for traditional properties. The only difference is that the turnover rate for Airbnb rental properties is higher, so the bulk of work done will increase on their behalf. Overall, hiring a property manager for an Airbnb rental can be very beneficial in terms of helping you make passive Airbnb income. If you are interested in renting out short term rentals, check out Mashvisor for all Airbnb listings across the country today.
Invest in Your Rental Property
If you invest in quality products, tiles/hardwood floors, wood, furniture, plumbing work, etc. in your property (traditional or Airbnb), you’ll save yourself plenty of time, effort, and money in the long run. How? Simply put, you won’t have to go replacing the kitchen cabinets between every other tenants if you’ve invested in good ones. And if you’ve done good plumbing work, tenants are less likely to call in with a problem. So when we say invest in your property, we’re essentially saying you have to be proactive and beat the problem before it occurs. This will definitely help you achieve passive income for a long time.
To Sum Up: Is there such thing as completely passive income?
While we can provide you with numerous ways on how to make passive income, we can say one thing for sure: eventually you’ve got to do work. Whether it’s checking up on your tenants every now and then, renovating your property/ies, marketing your property, etc. you’ll always have work to do. Moreover, to establish a passive income generating investment, you will need to hire other people to do the job for you but that will cost you money. Regardless, if you are building a business in real estate, you must be committed and driven to generate and materialize profit in the long run. This may require hiring a staff to do the job on your behalf to build a thriving business. How to make passive income in real estate is not about slacking off, on the contrary, you got to hustle and be involved in your business as much as possible.
Related: How passive is your rental income?