Making money – potentially lots of money – without putting much effort into it is the dream of everyone, isn’t it? If that’s your dream too, then you’ve come to the right place. Here we will show you how to create positive cash flow in the short run and build wealth in the long term with real estate property investments. Welcome to the 8 best beginner strategies for passive real estate investing in 2019!
What Is Passive Real Estate Investing?
First things first. Before we start discussing specific ways to invest in real estate passively, let’s define what passive real estate investments mean for the purposes of this article.
Some real estate gurus consider only REITs and crowdfunding to be passive real estate investing. However, the truth of the matter is that there are many other options for passive income investments in real estate. These are all the strategies which allow you to make money from real estate – with or without owning an investment property – while doing only very little to no work related to your investment. In other words, if you spend only an hour or so per month on managing your real estate investment, we consider it a passive real estate investment.
Sounds like an appealing opportunity, no?
If you are a beginner investor and don’t know a lot about real estate or you simply don’t have much time to allocate to it, you should try out one of the 8 best passive real estate investing strategies outlined below.
8 Best Passive Income Investments in Real Estate for Beginners
1. Investing in Rental Properties
It probably comes as a surprise to many of you that rental properties head the list of the top passive income strategies in real estate. No matter what you might have heard from landlords and Airbnb hosts, passive rental income is feasible with both traditional rentals and Airbnb rental properties.
Becoming a real estate investor does not have to mean becoming a landlord as well. To be honest, being a landlord, managing your own rental property, marketing it, screening tenants, dealing with renters, and repairing your investment property is a lot of hard work and not always a good option, especially if you invest in real estate part time and have another 9-to-5 job. The way to turn rental properties into a source of passive rental income is to hire a professional property management company.
Most residential property managers charge between 4% and 12% of the gross monthly rental income, and others charge a flat fee which depends on the size and type of your investment property (an average of $150 for a single family home). While this may sound like a big chunk of your rental income, keep in mind that a property management company will be able to push your return on investment up by lowering the vacancy rate, increasing the occupancy rate, finding good tenants, making repairs on time before they turn into major problems, and saving on contractors. Optimizing the rental process will thus not only provide you with passive real estate income but also raise your cash on cash return and cap rate.
Furthermore, the recent advancement of must-have real estate investment tools has made the process of researching housing markets, looking for lucrative properties for sale, and analyzing their investment potential much more passive than it used to be a decade ago. Real estate investors used to dread the idea of conducting real estate market analysis and performing investment property analysis for weeks or even months in a row to find a single rental property as a result. Not to mention that beginner investors had no chance to beat the competition. Now such tools as the rental property calculator and the Property Finder allow you to find an investment property with a high return from your phone or computer in a matter of minutes.
To give you a headstart, here are the cap rates by city which you can expect in 2019.
If you are ready to start investing passively in profitable rental properties, sign up for Mashvisor to search through hundreds of thousands of properties for sale in all US real estate markets to find the one which best matches your criteria and return expectations.
2. Buy and Hold Real Estate
Another passive real estate investing strategy is buy and hold real estate. This is an excellent approach towards building wealth from real estate in the long term. As the name suggests, the idea behind buy and hold is pretty simple – you buy an investment property and keep it in your real estate investment portfolio until its value appreciates significantly, making it possible to sell the property for a lot more than what you bought it for.
The key to success with this long-term investment strategy is to buy the property in a housing market which is expected to undergo a major increase in home values in the next few years and decades. Pay attention to both the city and the neighborhood. Look for signs of major development works in public infrastructure being planned and/or big businesses moving to the area. Such developments will accelerate the rate of natural appreciation in the local real estate market and allow you to make more money with this passive real estate investing strategy.
Another tip to optimize your return on investment in the long term is to look for a property for sale by a distressed seller. Search for off market properties, foreclosures, short sales, bank owned homes, and other options to buy cheap real estate. However, before you decide on any particular property, schedule a home inspection to make sure it is in good shape and does not require an excessive amount of fixes and repairs as this will take away from the passive aspect of your long-term wealth building strategy.
Moreover, if you’d like to turn your buy and hold real estate into passive income investments, you can start renting them out through a professional property management services company, as discussed above. In this way, you will make money from real estate in both the short and the long run.
Similar to the property search for a rental, the process of finding a good buy and hold real estate property to invest in has become passive. To start looking for lucrative buy and hold real estate properties in upcoming markets, visit Mashvisor’s Property Finder tool.
3. Turnkey Real Estate Investing
Another top passive income real estate investment strategy for beginner investors is turnkey rental properties. Investing in turnkey real estate means that you buy a property which is fully ready to be rented out to tenants. Such properties are either newly constructed homes or fully renovated houses that have all the features and amenities required for renting out from day one. Some of them might even come with the tenants in place. Most of them are single family homes, but other property types are also available in the US housing market. Moreover, many companies selling turnkey rentals offer property management services which turns them into a passive investment strategy in the long term.
Turnkey properties are ideal for beginner real estate investors as they require only minimal knowledge and experience. If you have the right real estate investment tools to analyze the market and properties for sale, you are ready to make money in real estate with this strategy. Furthermore, this is a good option for out of state real estate investing as you will not need to be personally engaged in the repairing, maintaining, and fixing of the property.
4. Real Estate Investment Partnerships
If you are looking for passive income investments and would like to invest with partners, you can form a real estate partnership. Partnerships in the real estate investing business can take many different forms including a real estate limited partnership (RELP), general partnership (GP), limited liability partnership (LLP), and others. The legal form of the partnership depends on the number of partners, their roles in the investment, the right and responsibilities of each partner, and the laws of the state among other factors.
One of the advantages of investing with partners is that you can start out with little cash. Another benefit is that you can make passive income from real estate. Moreover, you get to tap into the expertise of other investors, pulling your strengths together and compensating for each other’s weaknesses.
In order for you and your partners to become successful real estate investors, it is important to decide on the precise structure of your partnership before you even start searching for lucrative rental properties to buy. Agree on who will do what and how the profit will be distributed as well as on an exit strategy. Set up mechanisms to assure all partners’ compliance and what to do in case of default. Write down everything in a contract, and have all partners sign the agreement. That’s the best way to avoid fights and problems in the future and to ensure that you all work as a team. Once you’ve done that, you can start on your passive income investments with your real estate partners.
5. Real Estate Syndication
One particular type of partnership which is ideal for passive real estate investing is syndication. A real estate syndication is headed by a sponsor, also called a syndicator, who plays the most active role in this investment strategy. The sponsor is responsible for finding an investment property or investment properties for sale, pulling the financial resources of the investors together, buying the rental property, and providing the long-term rental property management. The real estate investors, on the other hand, invest their money in order to finance the purchase of the investment property and then receive passive real estate income.
Syndications in real estate can be established as a corporation, a limited partnership, or a limited liability company (LLC). Each of these offers a different level of protection for the investors.
If you are a beginner real estate investor with some cash but not much free time, consider syndication as one of the available passive income investments.
6. Renting Out a Room in Your House
If you would like to make money in real estate but don’t have enough cash to purchase an investment property or a part of a property, you can start by renting out a room in your home. This is a viable source of passive rental income. You don’t have to go through the process of looking for profitable properties for sale, analyzing them, and buying them. Moreover, you are already managing your home, and having a renter should not increase the efforts and time you put into this significantly, as long as you are able to find a good tenant. In return, you can make a few hundred dollars a month. In addition, you can decide whether to rent your extra room on a short-term or long-term basis to maximize your return. It depends on your location, the rental demand, the regulations governing short-term rentals, and your personal preference.
The drawback of this passive income strategy is that you have to be particularly careful when screening tenants. You need to choose someone who will not only take good care of your property but who will also be pleasant to live with.
On the plus side, renting out a room in your house is an excellent way to get a taste of being a landlord and a real estate investor in order to decide if this is a good investment strategy for you. If you think investing in real estate is how you want to build wealth in the future, you can start saving the monthly rental income for a down payment on an investment property.
7. Real Estate Crowdfunding
Another one of the best passive income strategies for beginners in real estate is crowdfunding. The best feature of this real estate investing strategy is that some real estate crowdfunding platforms allow you to invest as little as $500. This makes it accessible to investors with very limited capital.
Crowdfunding is one of the newest and hottest ways to invest in real estate passively which was made possible by the rise of technology and social media. This strategy allows hundreds of real estate investors from all around the world who don’t know each other personally to pull their financial resources together to invest in real estate. This is a truly passive investment strategy as you don’t have to buy or own a property, manage a rental, deal with tenants, or any of the other aspects usually associated with being a real estate investor and a landlord. You can research real estate crowdfunding websites from your computer or smartphone. Once you’ve chosen the right one for you, you just wait for the return on investment.
So, if you are looking for a very contemporary passive real estate investing strategy, give crowdfunding a chance.
The last option for passive income investments in real estate is Real Estate Investment Trusts (REITs). Investing in a REIT is very much like investing in stocks, which makes it passive but removes the fun of being an actual real estate investor. REITs own, operate, and/or finance income-producing real estate. As an investor, you can purchase shares of REITs and start making passive real estate income. By law, a REIT has to distribute 90% of its taxable income to the shareholders on a regular basis.
Contrary to popular belief, real estate investments don’t have to require much time and efforts on behalf of the investor. Here we showed you the 8 best passive real estate investing strategies which allow even beginners to make money in real estate while working a full-time job. With these investment strategies, you can receive passive real estate income in the short term while building wealth in the long run. If you are ready to join the millions of successful real estate investors in the US, sign up for Mashvisor to find a top market for buying an investment property and to search through thousands of available properties to find the best one for you.