Being a real estate investor comes with a lot of perks. Earning money while putting in the minimum effort is nothing short of a dream come true. With a median gross rent of $1,100 and 36% of households living in rental properties, you can easily build passive income as a landlord.
Building Passive Income From Scratch: Factors To Remember
You can start building passive income by having a solid strategy in place, researching properties thoroughly, understanding market trends, and carefully choosing tenants. Certain factors such as where to buy the property and how much to buy can also determine the amount of passive income you can earn. This will also allow you to know if you can solely depend on it in the long-term.
We have outlined a few factors below to help you build a solid stream of income from rental properties.
Choosing the Right Property
There are many different real-estate investments with varying returns. You should choose the one that offers the highest income. Single-family homes can be a good choice if you have just started investing, as 70% of Americans live in single-family homes. You can also invest in multi-family homes, which include duplexes, fourplexes, and apartments. Rents and occupancy levels have increased for multi-family homes, making it an appealing investment for many homeowners.
You should also carefully choose the location of your property. This includes a neighborhood that is accessible, secure and has amenities. Future developments in the area are also essential to factor in as your goal is to make an investment that will offer you passive income in the coming years.
Checking the Financials
Once you have decided on a property, you need to thoroughly check the financials. If you are buying the house on a mortgage, you need to make sure that the rent from the property will cover it. You also need to calculate property taxes in the state you are buying and buy a landlord’s insurance to protect you from financial losses. You can only earn passive income from your property once you have carefully planned out your financials.
Building Passive Income: Best Practices
Although everyone has a different approach to building passive income from rent, some best practices can help you get started.
- Screening the tenant carefully – A good tenant is hard to come by, so make sure you do your homework when selecting one. An ideal tenant will not only pay your rent on time but will also keep your property well-maintained.
- Keeping cash – Having cash in hand is very important, especially if you are paying the mortgage. If the economy sees a downturn and demand for houses decreases, you need to make sure you have enough cash at hand for bills, mortgage, and repairs (if required).
- Managing your property actively – While the idea of earning passive income sure sounds attractive, you need to be up on your feet all the time managing your property if you plan to build sufficient passive income out of it. Many landlords rely on agents or companies to take care of their properties. Still, we advise you to take an active role in management. For example, You can ask your tenants if they are satisfied and provide repairs/renovations from time to time.
A Few Investments to Look Out For
Apart from traditional investing approaches in single-family or multi-family homes, you can expand your options to increase your chances of earning passive income. Land lots are a good option. You can buy a lot in a developing area and sell it by dividing it into smaller lots, making considerable profits in the process.
You can also explore Real Estate Investment Trusts to invest in companies that operate real-estate assets such as commercial buildings. You can earn a steady stream of income from here without managing or financing any construction yourself.
Earning Passive Income: How Much to Expect And How Soon?
As you may already have guessed, building passive income from real estate isn’t precisely ‘passive’ as you need to actively manage your properties. Researching for the ideal property is a lot of legwork, but constantly managing them can also take up a lot of your time. That being said, it totally depends on how quickly you can quit your day job and start living off your rental income. Some factors such as your debt obligations, your expenses, and the area you live in can significantly impact how quickly and how much you can earn. But here’s a little secret: it’s all worth it!
So you can indeed build passive income as a landlord and earn big bucks while doing minimal hard work. However, it is not as easy as it sounds, and you may need to invest and manage properties for years before you can rely on your passive income. However, by being smart about your investments and taking an active role in managing your property, you can start earning passive income really soon. And as they say, don’t go to bed if you can’t make money by being in it. Well, passive income from rental properties will keep the dollars flowing into your bank account even when you are sleeping like a baby on your bed.