The world is vast and full of opportunities. Some may be good, and some may be bad. When it comes to real estate investing, it’s a reflection of those opportunities. You might get bad real estate investments or good ones. It’s all about studying your investment property prior to purchasing and establishing the right attitude and return on investment you seek out of it. One of the greatest things about real estate investing is passive income investments. Meaning, you receive income off of investment ventures without actively pursuing it.
What makes passive income investments a great opportunity?
For real estate investors looking to go for part-time real estate investing, it’s a great opportunity to have a steady, recurring income flowing into their pockets. Moreover, what you decide to do with that income is entirely up to you; you can choose to reinvest or spend it on a vacation. After all, you are the boss.
To get more into it, passive income investments give the investor a reliable source of income away from market fluctuations and variables. Once a property is occupied, your rental agreement protects you from all of that. Another major advantage of passive income investments is having an asset that can be liquidated in your time of need. Let’s say you have an emergency and you need a cash influx as soon as possible. You can list your property and take your initial investment out of it or get a home equity line of credit, even better.
The more known benefits of passive income investments are the tax benefits. You can make use of real estate appreciation and depreciation to cut down your property tax and income tax.
What are the most lucrative real estate investments?
Method #1: Real Estate Investment Trusts
Income generating assets are the heart and soul of Real Estate Investment Trusts (REIT). For real estate investors looking for a passive investing channel, REITs offer just that. A REIT is a company that owns, manages, and even finances income generating assets on behalf of investors.
With REITs, real estate investors can purchase company stock. By becoming a stockholder, you get a claim on the income produced by REITs through real estate investments. Additionally, what makes REITs a great form of investment venue is that they have to pay out at least 90% of their income to stockholders. Many of them even go for 100% of it.
The term REIT incorporates different types of functionality and purposes. Here are the types of REITs real estate investors can venture in their journey to passive income investments:
- Equity REITs
This makes for the majority of publicly-traded REITs. They own income generating assets and rely on revenues for dividends.
- Mortgage REITs
Mortgage REITs provide financing for income generating assets. They originate mortgages or buy mortgage-backed securities to benefit from the interest rates on them.
- Public non-listed REITs
This type does not trade in the stock exchange. You’ll have to go through personal contact to invest in them.
- Private REITs
This type of REITs is not registered with the SEC and therefore does not trade in the stock market. They consist of real estate developers and cash investors who seek this safe investment for a return on their initial cash payment. Simple but effective.
Be that as it may, the disadvantage of REITs lays in the fees. Real estate investors are to expect operating fees up to 15% of their initial investment. For more insights on REITs, make sure to read this blog post: What Is REIT and Is It a Good Real Estate Investment Strategy?
Method #2: Buy-and-hold investment properties
Nothing beats buying an asset for an investment. You can touch it, feel it, and get recurring cash from it. The buy-and-hold investment strategy gives real estate investors the biggest benefit of all: real estate appreciation of passive income investments.
As we all know, real estate appreciation is a long-term investment perk. You won’t be enjoying its impact for a long time. Understandable. Moreover, the entire concept of such investment strategies is to rely on rental income generated by the property to cover its costs and then some. The buy-and-hold investment strategy is most famous for rental property real estate investing. You can be a full-time real estate investor or a part-time one and reap the rewards of it.
How to get what you want out of a real estate investment
To be exact, real estate investors must calculate their investment moves precisely before actively pursuing any type of investment. For buying investment properties, it’s recommended to use an investment property calculator to conduct a real estate market analysis. Through this analysis, you can find out the current market value of any potential investment property and the future one as well. Specifically, you can find out the cap rate, cash on cash return, estimated Airbnb rental income and even estimated traditional rental income. To dive more deeply into it, this is made possible by analyzing real estate comps of cities and neighborhoods, and this is exactly what Mashvisor’s investment property calculator does. Click here to make use of the 14-day free trial with Mashvisor.
When you buy a property in hopes of holding it for the future, you must cover its costs until you are ready to liquidate it. How to do that? Well, renting out is the best option to go for; real estate investors use two main rental strategies to generate passive income:
- Traditional rentals: Traditional rentals are rental properties leased for the long-term. Many property investors opt for this rental strategy due to the minimal effort needed on their behalf.
- Airbnb rentals: Also known as vacation home rentals, renting out a property as a short-term rental property leaves real estate investors at a great advantage- the marked-up price. Additionally, with short-term rentals, they can also use it most of the year as most short-term rentals are leased for less than 3 months a year in total.
For more details about buy and hold real estate, check out this blog post: Mini Guide to Buy-and-Hold Investment Properties.
Method #3: Real estate crowdfunding
Real estate crowdfunding relies on pooling money together to increase the return on investment compared to investing your sum of cash on its own. In other words, instead of buying a single-family rental property with your cash, you can go for real estate crowdfunding and invest your cash in a housing development or a commercial property investment for a much greater return on investment.
Of course, with today’s technological advances, real estate crowdfunding is now fully operational online. There are multiple real estate crowdfunding channels that are truly passive income investments. The list below contains a few of the best real estate crowdfunding websites available online today:
Fundrise is among the best crowdfunding websites available today. It was developed for raising capital as a continuum to passive income investments. Not to mention that real estate investors can invest as little as $500 into the platform. This makes it easy for both accredited and non-accredited real estate investors to invest in it. With Fundrise, real estate investors enjoy an average yearly dividend of 8% on their initial investments.
HoldFolio follows Fundrise in their footsteps. However, they accept a minimum investment of $10,000. The competitive advantage that HoldFolio provides investors with is embodied in the separation of your initial investment into different investment venues. Accordingly, this makes for a reliable and safe real estate investment. Last but not least, the average yearly dividends are about 10%, making it an impressive return on investment ratio compared to other platforms.
Another online investment platform that excels in the field. Among other passive income investments, RealtyShares makes it possible to bring together investors, borrowers, and sponsors in one space. Accordingly, this creates a real estate investment network that conjoins into a real estate giant.
RealtyShares offers a variety of real estate investment strategies and choices for investors to go for. In any case, it ranges from fix-and-flips to apartment complexes.
To know more about crowdfunding, read this: Best Real Estate Crowdfunding Websites: What Are They? And Should You Use Them?
With these passive income investments, real estate investors are free to choose whichever fits with their investment needs. Whether you’re pursuing passive income investments or more active ones, you can rely on real estate investments to be lucrative and predictable.
If you have any more insights on passive income investments, don’t hesitate to share them in the comments section.