Generating real estate passive income is a goal that many investors strive for. After all, who wouldn’t want to own an income-generating asset that requires very little effort on their part? But as you would expect, getting there requires quite a bit of work as well as a strict adherence to an effective real estate investment strategy. So how to make passive income from real estate? And how should you go about finding the best passive income investments in the housing market? In this blog, we will answer these two questions in detail and outline a simple guide to passive real estate investing.
The 5 Steps of the Passive Income Real Estate Strategy
Buying rental property is the most effective approach to passive real estate investing. As long as you get your investment property analysis right and opt for a home that can generate positive cash flow, owning passive income real estate can be achieved within a few months. Below is a detailed guide on how to implement a passive income real estate strategy.
1- Pick a location that is suited for rental property investment
Making a passive income real estate investment starts with picking a suitable location. The key here is to invest in an area that appeals to a wider pool of potential tenants. For example, you can focus your search on areas that are close to public transit, have a lot of schools, and offer several amenities to residents. Another factor to consider when assessing different areas is recent price trends. In fact, consistent price increases are generally seen as a reliable indicator of a real estate market’s strength.
If you don’t feel like going through the hassle of manually sifting through multiple markets, you will be glad to know that there is a tool that does it for you. The real estate heatmap is a great tool that effectively combines visual cues and property data. The result is an interactive map that enables real estate investors to locate the top-performing neighborhoods in an instant. Try out Mashvisor’s now.
2- Find profitable rental properties
After deciding on a real estate market, the next step is to find positive cash flow properties. Naturally, most of your investment property search will take place online. But this does not mean you should completely neglect offline options. Make sure to check local listings and drive around to see if you can make an offer on a ‘For Sale By Owner’ (FSBO) property in your area.
But the most effective way to find top properties is without a doubt the Mashvisor Property Finder. This cutting edge search engine employs a set of machine learning algorithms as well as the latest in AI technology, a combination that allows you to identify profitable real estate investments in a matter of minutes.
3- Carry out an investment property analysis
If you want to invest in real estate for passive income, then this step should be prioritized. In fact, an investment property analysis is what allows you to assess the property’s ability to generate positive cash flow. All the variables that pertain to income and expenses are factored in this analysis. Needless to say, investment properties that are unable to generate enough income to offset the expenses should not be considered for your passive income real estate strategy. Once again, Mashvisor puts at your disposal a tool that facilitates this process. By accessing each listing’s rental property calculator, you will be able to get accurate estimates of the ROI, net income, cash on cash return, and the cap rate.
4- Get the property inspected
After analyzing every profitability metric, your focus should shift to the investment property itself. A common mistake that many novice real estate investors make is neglecting to inspect the property before finalizing the deal. A professional inspection can reveal a myriad of structural issues that could potentially impede your ability to create passive income in real estate. Here are the main aspects that your inspector will cover:
- Checking the structural integrity of the rental home.
- Identifying items that need repair or replacement.
- Recommending routine maintenance to preserve the investment property’s condition.
5- Work with a professional property manager
Hiring a property manager is integral to your passive income real estate strategy. In fact, a professional property management company can handle everything from tenant screening to rent collection. While you can definitely take on these tasks yourself, it is important to remember that some of the issues that arise from managing rental properties can be stressful and time-consuming. If your stated goal is to generate passive income through real estate, then you should strongly consider retaining the services of a property manager.
The Passive Income Real Estate Investing Pitfalls That You Should Avoid
- Not getting involved in property management: Using a passive income real estate strategy does not necessarily mean you should take a hands-off approach to property management. Even when working with a professional manager, it is essential that you stay in contact with your tenants. Establishing a good rapport with them and staying on top of their needs is crucial to your bottom line.
- Underestimating expenses: Failing to properly account for expenses is a very common mistake. Many novice real estate investors tend to be generous in their estimations. In some cases, they might not even be aware of certain recurring costs. This is why due diligence and in-depth investment property analysis are a must when making a passive income real estate investment.
The Bottom Line
The lure of passive income provides ample motivation to get into real estate investing. But like we mentioned earlier, achieving this goal can only come through a thorough planning process as well as quite a bit of hands-on work in the beginning. Once all the pieces fall into place, the cash flow will start to trickle in.