For many people, the subject of passive income from rental properties is controversial. Some say it is possible while others say it is total baloney.
Investing in real estate is no longer so traditional. People come up with new ideas every day or so. However, the idea of passive investments is not appealing to many. Therefore, is it really possible to make passive income with rental properties?
Well, passive real estate investments are a reality. Moreover, it is a reality concerning rental properties. Thus, it depends on your approach and the amount of involvement you are looking for. After all, the idea of passive rental income is impossible without a little effort at the very least. We’re talking about the checking reports type of involvement here. So, how have the most successful real estate investors managed to make passive income through rental properties?
Learn about one kind of passive investment in real estate: Should You Buy a Turnkey Investment Property?
Successful real estate investors buy rental properties in the right places
It all starts with the right place for a rental property investment. Many beginner real estate investors underestimate the importance of location when buying a rental property. They think that by buying a random property in a random location tenants are going to be racing to rent that property. In reality, people look for convenient locations with most of the necessary facilities around it.
One way to do it is with numbers. In other terms, performing the real estate market analysis is important. This reveals figures of appreciation rates and rental demands in certain locations.
All in all, the objective for a real estate investor must be a place with high rental demand. Areas with universities and growing job markets are the perfect choice for you. These tend to have the highest demand for rental properties compared to other areas.
One fact to keep in mind is to keep track of the rental property construction business. We know that rental property development is going down, and therefore, the rental demand is increasing rapidly. So, really, it is a matter of how you use such factors to your advantage. Such factors are great contributors to your rental income even if you’re a passive real estate investor.
Successful real estate investors buy rental properties indicating the right numbers
The right numbers come with proper investment property analysis. This process is important for measuring the return on investment. Of course, there are factors that also have an impact on whatever measure you are looking for. For example, the financing strategy you use to buy rental properties. Many investors tend to apply for a mortgage while others prefer to pay in cash. Those with the mortgage approach get higher numbers especially if they are measuring the cash on cash return. This is due to the low cash contribution they had in the first place, therefore, getting a higher CoC return rate.
On the other hand, if you are looking to calculate the cap rate, a mortgage or a cash payment won’t make a difference since you include the overall price of the property. This makes this type of measure more suitable for commercial rental properties.
But, as long as you have one goal in mind- which is making money in real estate- it is a matter of wise decisions and calculations to make a passive income from rental properties.
Successful real estate investors use the right real estate investment tools
In real estate, there is nothing better than having accurate figures that you can use as a base for your decisions. Therefore, successful real estate investors not only invest in properties but also in investing tools. The rental property calculator, for instance, is extraordinary for this matter. It is an outstanding tool for making money in real estate through accurate calculations. It combines the real estate market analysis as well as the investment property analysis and eventually saves you the time and effort of manual calculations. Also, it spares you those mini heart attacks with each mistake you make throughout the process. While we’re on the subject, make sure to check out Mashvisor’s rental property calculator!
Successful real estate investors hire professional property management
Passive investments are all about the minimum amount of involvement in the daily transactions of a rental property. Therefore, those who want to make a passive income from real estate while keeping their full-time career always turn to professional property management. These are basically companies that take care of your properties’ daily operations in your stead. All you get to do is receive a monthly check from your rental properties.
Thus, there is one thing that should be in your financial plan: the property management fees. Sure enough, property managers do not do their job for free. Some charge the first month’s rental income as well as a monthly fee afterward while others charge only a monthly fee in exchange for their services. All in all, it is up to you to decide.
However, with one rental property in your real estate portfolio, it is manageable to do it yourself. But, the need for professional property management increases throughout the process of growing your business. The more rental properties you have the more the need for a property manager increases in order to be making a passive income.
Successful real estate investors keep track of their real estate investments
This is the part where many real estate investors say that passive income from rental properties is a myth. The reality is, there is no chance for you to make a passive income with zero efforts. This means that it requires keeping track of business reports at the very least. Otherwise, how are you going to know what comes in and out of your rental income?
Moreover, make sure you keep these reports and records so that you can get back to them every time you need to evaluate your properties’ performance. As we have mentioned before, the return on investment is what you really need to keep an eye on not only when buying rental properties but also while they operate.
At this point, we hope that we helped you figure out how to make money in real estate passively. Now, it is up to you to take proper action towards your financial goals. To do so, join Mashvisor’s real estate investing family to find the best rental properties for your business!