Making money without exerting any effort is just about anyone’s dream, whether we’re talking about real estate investing or any other industry.
When it comes to real estate investing though, you’ll find one overwhelming opinion: passive income properties do not exist in the real estate market. A real estate investor cannot find or even create passive income properties, according to popular opinion.
While some may agree that passive income investments do exist in one form or another in real estate investing (REITs, real estate crowdfunding, etc.), most would say you cannot generate passive income from owning rental property.
Is this popular opinion actually a fact? Do passive income properties not exist in real estate investing?
The Short Answer: Passive income properties do exist. We can show you how to generate passive income from almost any rental property.
What Are Passive Income Properties?
Passive income properties are rental properties that generate passive income. As mentioned, passive income is money made without any real work. So, passive income properties would be investment properties that generate rental income while the real estate investor sits back and does nothing.
Why Is the Existence of Passive Income Properties Debated?
Why is it hard for people, including some real estate investors, to believe in the existence of passive income properties? Well, the reason comes down to all of the steps involved in real estate investing: choosing where to invest in real estate, trying to find the best investment properties, and everything related to rental property management.
Each of these steps traditionally takes a lot of work and effort if you are to succeed in real estate investing. However, this is where the other side of the argument loses its traction. It’s true that the process of investing in real estate requires effort, but there are plenty of ways and real estate investment tools to minimize this effort and still be successful with passive income properties. In the end, if you are working hard at the beginning of the venture and, as time goes on, working significantly less and less until only a few hours of work a month are required to make money, doesn’t this qualify as generating passive income?
While true that passive income properties may not exist, a real estate investor can come super close to generating passive income from a rental property and eventually enjoying financial independence. He/she just has to know how.
How to Generate Passive Income from Different Types of Rental Properties
There are actually a few different kinds of passive income properties, and you’ll find that they include most types of rental properties in real estate investing.
Turnkey Rental Properties
Turnkey rental properties are arguably one of the best passive income properties in real estate investing. These investment properties are the ones that truly require the least work, making them the ultimate passive income properties.
So, what work is required? Researching the property investment company that offers the turnkey rental properties. A real estate investor must ensure that the turnkey rental properties are ones that will make money and provide steady rental income and a good return on investment. You might go as far as performing investment property analysis and real estate market analysis on your own. This is where the right real estate investment tools will still allow turnkey rental properties (and all rental properties) to be passive income investments.
The best real estate investment tool to ensure your investment property search doesn’t hinder the possibility of passive income investments is the rental property calculator. A rental property calculator will allow you to quickly and easily perform both real estate market analysis and all of the calculations of investment property analysis. Imagine cutting down months and months of work down to 15 minutes. There is still some effort, sure, but what are 15 minutes to a real estate investor?
The ultimate rental property calculator can be found right here: Mashvisor’s rental property calculator. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Once you’ve done your work choosing a company and the right turnkey rental properties, professional property management from the same company takes over from there. Essentially, after those first 15 minutes, turnkey rental properties really are passive income properties. Sit back and receive rental income from your turnkey passive income investments!
Single Family Homes
The only way for single family homes to be passive income properties is if you choose the right one in the right location in the real estate market. This again comes down to using the rental property calculator to find investment properties that are in high demand and promise a great return on investment from rental income. Without this rental income, there is no way to generate passive income, of course.
To start looking for and analyzing the best single family homes in your city and neighborhood of choice, click here.
What about rental property management? One option is, of course, professional property management. This will have to be considered with the costs of the rental property, and for single family homes professional property management tends to cost more (10% or more of the rental income).
Related: What Are the Best Passive Income Investments in the Real Estate Market?
Luckily, there is another option: a “lease-up only” contract. This is quickly becoming a popular option among real estate investors. Instead of turning to larger professional property management companies, real estate investors are turning to smaller companies which are willing to undergo this agreement.
Under the “lease-up only” contract, the job of the professional property management starts and ends with finding great tenants and getting them set up in the investment property. Because great, reliable tenants are fundamental to passive income properties in real estate investing, this job of the professional property management is crucial. Once tenants are in place, the real estate investor takes over. Having had a professional find the best income property tenants for you, ideally, rental property management will be much easier.
Those few hours of work a month we mentioned earlier? That will be cut down even more once you find a reliable handyman at a reasonable cost!
Airbnb Investment Properties
For Airbnb investment properties to be passive income properties, there are a few extra things to do beyond just using a rental property calculator and professional property management. Automation, as well as delegation, will help Airbnb investment properties become passive income investments.
If a real estate investor chooses to opt out of using professional property management, then rental property management will have to be automated as much as possible. Certain processes involved in the rental property management of Airbnb investment properties need to be faster and more efficient in order to generate passive income. Check-ins and check-outs, as well as bookings, should be number one on your list for automation. If you don’t know where to start, check out Smartbnb. This company provides software to automate many key processes of Airbnb management.
Learn more: Can Airbnb Investment Properties Be Passive Income Investments?
Once you’ve taken care of automation, delegation is also important. Consider hiring Airbnb cleaning services as well as a handyman to take care of the major aspects of maintenance.
Multifamily Real Estate Investment Properties
Multifamily real estate investment properties might be the last of the properties you expected to see on this list for passive income properties. But that’s the entire point: almost any real estate investment can be made into passive income investments.
With multifamily homes, a rental property calculator is, again, essential. One key way, besides professional property management, in which multifamily real estate investment properties can become passive income properties is with real estate syndication. Because they can provide higher returns, multifamily real estate investment properties are more favorable for real estate syndication than other types of real estate investment.
Anything from a limited partnership through a real estate limited liability company to real estate crowdfunding can make you the proud owner of passive income properties.
Before trying to turn multifamily real estate investment properties into passive income properties, you need to read: Understanding Multifamily Investment Property Returns and Benefits.
Anyone who tries to tell you passive income properties don’t exist in real estate investing is either:
- Looking for passive income that comes from absolutely no work at all. This is difficult to come by if you want really high returns.
- Not aware of all of the (rather simple) ways of turning all kinds of rental properties into passive income properties.
Prove them wrong and start investing in real estate with passive income properties using our techniques.
Remember, there are a few common factors in achieving passive income properties in real estate investing, and Mashvisor’s rental property calculator is an important one! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.