Author: Sophie Kihm
There are several ways to earn passive income in real estate. There are various ways to generate revenue from real estate investing, from low-cost passive investing to more active strategies. Many low-maintenance, long-term passive income opportunities exist in today's real estate market.
The Best Real Estate Investing Strategies for Passive Income
Below are some best strategies for providing a great passive income stream.
1. REITs
REITs have historically been the most accessible and affordable way to invest in passive income real estate. To maintain tax-exempt status, REITs must return 90% of their taxable net income to shareholders as dividends. Because of this, they are an excellent way to make money.
Most REIT stocks trade below $100, making them a relatively cheap investment option. You can only take action to protect these assets after careful investigation and monitoring. Shares in public REITs are highly liquid because they can be bought and sold through brokerage accounts on any trading day.
There are more than 200 real estate investment trusts (REITs). Many specialize in specific markets (such as the Sunbelt or West Coast) or property types (industrial, commercial, retail, or residential). This provides them with multiple opportunities to generate passive income.
2. Institutional REITs
(REIT) is an over-the-counter way of putting money into the real estate market, similar to a mutual fund. Commercial and residential real estate investment trusts (REITs) invest primarily in high-quality real estate and can experience the same market volatility as the broader stock market.
3. Hacking Private REITs
Untraded REITs are not listed on any stock exchange. Today, most investors buy stocks through direct-to-consumer online platforms like Fundraise or Realty Mogul or through financial advisors. Lower volatility and better return on investment are two reasons private real estate investing is better than public real estate investment trusts (REITs).
On the other hand, private REITs typically require an investment of $2,500 or more and a financial advisor's involvement. Non-tradable assets (REITs) are illiquid investments because their shares are not publicly traded. Sponsors of many unlisted REITs limit redemptions to quarterly.
4. Temporary accommodation rental
The trend of making short-term real estate rentals profitable continues unabated. You can make money by buying a house or apartment in a popular tourist area and renting it to vacationers. Sites like Airbnb (ABNB -1.76%) on the internet make it easier to advertise rental properties and find tenants.
Profitability can be increased by taking advantage of the fact that short-term leases often command better rents than long-term leases. Also, you can live in a vacation home as long as it is not rented.
Maintaining short-term rentals takes a lot of effort, so investing is more active. A vacation rental operates less like a traditional real estate investment and more like a hotel. You can hire a property manager for a more passive investment, but they will lose a significant portion of your rental income.
5. Property Leasing
Owning a property rather than a building can help you earn passive income through ground rent. You lease the land under construction that you own outright. Leasing is a low-risk investment that generates steady passive rental income. Leaseholds offer lower opportunities for profit but a much lower risk of loss. They also require a substantial initial investment due to land prices.
6. Single-family homes
Start with the basics if you're wondering how to make passive income from real estate. Single-family homes and condos owned and rented out to a single tenant are the most readily available rental properties. Tenants of single-family homes are known to take better care of properties because they have a greater sense of emotional investment. However, the team will only generate income if a unit is occupied.
7. Apartment complex
Properties with five or more dwelling units typically fall under this construction category. Investors can benefit from economies of scale by switching to business loans instead of home loans. However, you should be ready for more centralized management or to hire a property management specialist.
8. Loans between individuals
If you have the cash but want to avoid the practicalities of becoming a landlord or selling real estate, consider peer-to-peer (P2P) lending.
You can borrow money from other real estate investors using peer-to-peer (P2P) lending services. This allows them to use your money to improve or profit from their property. You'll earn passive income from loan repayments and interest for a short period.
9. Investment real estate
Depending on your budget, you can invest in residential/commercial properties (mixed-use), industrial parks, or commercial properties. The initial costs of this are usually significantly higher than owning your own home. As such, they may be more suitable for investors with access to partners or large amounts of capital.
With reliable long-term tenants, commercial real estate can provide passive income. However, more extended vacancies and high switching costs must be considered.
10. Villas for short breaks
Properties in areas with large tourist or transit populations may be suitable for short-term or vacation rentals. Vacation rental hosts typically charge more per night than long-term renters. With vacation rentals, scheduling appointments can be difficult, as can dealing with cancellations, paying for cleaning services, and worrying about off-seasons.
Final verdict
Passive income can be earned through real estate investing, which provides multiple entry points into the industry and allows anyone to start earning passive income immediately. Investing in real estate to generate passive income does not guarantee success, but investors can reduce the risk by avoiding common pitfalls.