The passive income from real estate investment has been touted by many as the holy grail of investing and personal finance. Have you ever heard of passive streams of income? The idea that you could invest in a property or business and enjoy income from that investment without the need to manage it constantly is something many aspiring entrepreneurs dream about. The promise of such freedom has led investors to build portfolios consisting of both income-producing properties and businesses.
Why would anyone want more than one source of income? Isn’t one enough? Of course, it is. But multiple streams of income can help you have a more stable and robust financial future. Here are 7 passive streams of income from real estate that are making money while you sleep or work on other ventures.
Long-Term Rental Properties
These long-term rental properties can be a great passive income stream. You can find rental properties in different parts of the country and make money from them even if you don’t live in the same city or state where the property is located. The key to success with these properties is finding a good location for a reasonable price, based on local comparable sales
Pros:
- A leveraged investment requires a small outlay of cash relative to the total value of the asset purchased (although some lenders will require 20 percent down).
- Depending on the property, you may be able to achieve positive cash flow from rents after paying all expenses.
- Appreciation: Over time, real estate tends to appreciate in value as demand for housing continues to rise and supply remains relatively fixed. This makes it a potentially profitable investment over time if you buy it at an attractive price point.
Cons:
- Management hassle: Dealing with tenants can be a headache, particularly if you have a delinquent one who stops paying rent or damages your property. However, you can minimize this problem by hiring a property management company to take care of your rentals for you.
Short-Term Vacation Rentals
Short-term vacation rentals are a great way to generate passive income. You can rent a room in your house to a single guest or the whole house to a family or group of travelers.
It’s important to note that short-term vacation rentals can vary by city or state. You may want to check with your local government before investing in this type of rental.
Here are the steps to take if you want to start a short-term vacation rental business:
1. Decide where your property will be located.
2. Choose property type & size.
3. Purchase the property and furnish it if needed.
4. Manage your short-term vacation rental yourself or hire a management company.
Mid-Term Corporate Rentals
Mid-term corporate rentals are like short-term rentals, but they’re rented out for longer periods of time and are generally more expensive. You can find tenants through companies that specialize in this niche or advertise on your own.
The main advantage with these is that you can negotiate a flat monthly rate, so you don’t have to worry about fluctuating income. The downside is that the tenant may be able to break the lease at any time, which can throw off your budgeting.
Rent Out Parking Spaces
Renting out parking spaces is a great way to generate passive income and take advantage of your real estate.
If you live in a city, chances are you’ve thought about renting out your parking space to make some extra money.
The steps to follow:
- Figure out how much space you have available.
- Find out if you can rent it out legally.
- Research the going rate per day or month to rent a space near your home.
- Sign a contract with your tenant and make a deposit.
Mobile Home Parks
Mobile home parks have produced more wealth than any other investment since the advent of the automobile. They are a form of “renewable real estate” because they produce a product (the mobile home) that needs to be replaced every 30 years. This makes them similar to apartment buildings and self-storage facilities, but without the same capital requirements, maintenance issues, and tenant turnover.
Investing in mobile home parks has produced millions of dollars for savvy investors. Warren Buffet’s first real estate investment was in a mobile home park. He purchased the park for $42,000 and sold it 17 years later for over $1 million. That is an ROI of over 2,400%.
Mobile Home Park Investing can be broken down into the following categories:
Investing in MHPs with existing homes
Rent to own homes
Buying empty lots
Undeveloped Land
There are many different types of land, including residential, recreational, commercial, agricultural, and industrial.
Investing in undeveloped land can be profitable, but it’s not for everyone. It requires a significant amount of capital, to begin with, and you have to have the money to maintain the property until you can sell it or develop it.
Land investment is the process of purchasing undeveloped land for the purposes of reselling it for a profit or developing it. Buying undeveloped land can be a great way to invest in real estate because it allows you to hold onto the property and improve its value by making improvements before selling it.
Buy land in an area that’s growing rapidly. If you’re buying undeveloped residential land, look for an area where new homes are being built and there’s high demand for housing. Buy agricultural or industrial land in an area where there are plans for the construction of new roads or highways because this will make your investment more valuable in the future.
Self-Storage Facilities
Self-storage facilities are commercial real estate properties that provide storage space for residential and commercial customers. The tenants rent the storage space on a short-term basis, paying monthly rent to the property operator.
When choosing a facility to rent space in, make sure it is clean and well maintained. The facility should be secure with a good security system that includes video surveillance of the property, as well as limited access to the storage units by customers. Look for a facility that offers climate-controlled units so your items will not be damaged by temperature changes or extreme weather conditions. Most facilities offer differently sized units so you can rent only as much space as you need.
Many people who use storage facilities are concerned about the cost of having their items stored off-site. This is an area where it pays to shop around and compare prices before choosing a facility to use. Many storage facilities offer special pricing for new clients and some companies offer discounts for paying for an entire year’s storage in advance or if you pay for several months at one time.
Commercial Real Estate
In general, the term “commercial” refers to any property that is not used for residential purposes. Commercial properties are typically leased out to tenants in exchange for monthly rent payments.
Commercial real estate is categorized as either commercial or industrial according to how it will be used. Commercial buildings include office towers, hotels, restaurants, and retail stores. Industrial buildings include manufacturing factories and warehouses.
In order to start investing in commercial real estate, you must have enough capital to make the purchase. Also, you need to have good credit and strong financial statements in order to apply for the loan. Commercial loans typically have shorter terms and higher interest rates. This is because banks consider them riskier investments than residential homes. As with any type of investment, there are pros and cons to purchasing commercial real estate. This article will go over both sides of this investment form so you can make an informed decision on whether or not it is right.
Commercial real estate is typically valued by the income that the property is expected to generate. The price paid by investors per square foot on commercial properties is typically higher than on residential properties as they are often judged based on their profitability potential.
Conclusion
Each model has its benefits, as well as its setbacks. Before you begin your venture into real estate investment make sure that you are prepared and know what to expect. Investing can be a successful way to diversify your income and grow wealth, so long as you have the right plan.\