You’re looking for ways to make passive income. You’ve recently stumbled upon the idea of investing in real estate. But you’re wondering: is real estate good for passive income?
The answer is yes! The key is to find the right real estate. We’re going to show you how to do that below.
Types of Real Estate to Consider
When investing in real estate for passive income purposes, there are a number of different types of real estate to consider. They include the following.
A good way to start in real estate investment is to buy a single-family home. These are the cheapest option available and therefore have the lowest barrier to entry.
Those who rent out single-family homes generally intend to stay for a while. As such, they tend to treat the properties nicely and don’t leave as much wear and tear.
If you have the extra dough, you could opt to invest in a duplex. This gives you two units but for the cost of around 1 1/2. As such, it stands to turn a relatively big profit over time.
You might also consider purchasing a full complex. This is an apartment building with, say, 6 to 12 individual units.
Complexes are generally fairly expensive to purchase. However, because they consist of so many units overall, they allow you to make substantial amounts of money in the long run.
Another option is commercial realty investments. These are properties that are rented by businesses.
If you buy such a property in a popular area, you’ll almost always have a tenant. And because commercial properties are usually more expensive than residential properties, they stand to turn a bigger profit over time.
Tips for Investing in Real Estate
Real estate investment is not something that should be approached lightly. These are big investments, ones that can have a huge effect on your financial future. As such, you’ve got to get them right.
To ensure that you do, follow these tips.
Get the Location Right
When it comes to real estate investment, few things matter more than the location of the property. If a property is in a popular area, people are going to want to live in it. It doesn’t even have to be a nice property; the location alone attracts interest.
This is why a shoebox condo in New York City costs more than a 3-story house in rural Oklahoma. New York City is a more desirable location.
So, when scoping out properties, try to find ones that are in, at least, decently desirable areas. They may be more expensive than some of the other properties but that means they stand to earn you much more money over time.
Find the Right Loan
As a new investor, you might not have the cash necessary to purchase properties outright. As such, you’ll need to utilize home loans.
There are a number of options out there, from FHA loans to conventional loans to home rehabilitation loans and more. The type you choose is dependent on your circumstances.
With an FHA loan, you can buy a complex consisting of 4 or more units. Note, though, that in order to use the loan, you must reside in one of these units yourself.
With a conventional loan, you can purchase essentially any property in existence. Note, though, that your credit score and income must be reasonably high.
Rehabilitation loans are for fixer-upper homes. So, if you’re looking to buy a run-down property and return it to its former glory, you should scope one of these out.
For more information on investment loans, talk to a mortgage broker or real estate agent.
Do Your Math
Finally, you must do your math. You’re not just paying the price for the home. You’re also paying property taxes on the home, insurance for the home, and so on.
In the months in which you’re not renting out the home, you’ll need to pay the utility bills. You’ll also need to pay for things like HVAC replacements, roofing replacements, landscaping, and the like.
There are a lot of costs that go into running a rental property. So, while these properties can be extremely rewarding over time, they can hurt you quite a bit financially in the short term.
As such, before you start investing, you need to have a plan for covering these costs. Will you be taking out loans? If so, just know that the interest rates can set you back years.
Ideally, you’ll have a nest egg available to help cover these operating costs. But if you want to get started without one, be wary. These additional costs will come and they will hurt your return on investment.
How Do You Make a Rental Property Passive?
After reading all of this, you’re probably seeing how much work a rental property requires. If you have to work all of the time, then you aren’t making passive income, are you? Of course not.
That’s why you have to hire a property manager. This is a person who will overlook your property and ensure that it’s always in working order.
Yes, paying a property manager is another expense that you have to account for. However, it’s the expense that makes this endeavour passive. So, if passive income is your goal, it’s a necessity. Click here for more information!
Investing in Real Estate Can Make You Tons of Passive Income
As you can see, investing in real estate can make you tons of passive income. You might not reap the benefits immediately but once you get going, the rewards should be substantial. So, use the tips above and invest in a favourable property near you.
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