Many people would love to work less and earn more. One way that they can accomplish this is through passive income. Passive income is a type of income that requires minimal involvement on your part after it has been set up and automated properly (note that the set up an automation process requires intensive upfront work).
Now, while there are many popular passive income strategies, one of them has to be real estate investing. Real estate investing involves purchasing a home or property and renting it out to generate wealth.
What does that look like in detail? Keep reading to find out everything you need to know.
What’s Real Estate Investing?
Real estate properties are assets that can be used to generate income or profitability. In general, when you acquire these types of properties, you obtain certain legal rights and duties over them. While some people primarily think of real estate properties as private homes that they themselves live in, real estate investing involves purchasing homes or properties and renting them to third parties. As a result, you generate income from the rent that the tenants pay.
Property Types
There are different types of properties that you can invest in when choosing to earn passive income through real estate. You’ll want to choose your properties based on the objective and vision you have. A few common property types that people invest in include industrial properties, such as factories; residential properties, such as gated complexes; commercial properties, such as shopping centers; and land, including farms.
You can use any of these types of properties to generate passive income. However, the exact strategy you use to do so will differ based on what type of property you purchase—for example, residential real estate.
What Makes Residential Real Estate Investment Passive Income?
When we talk about passive income in real estate, we’re generally talking about rental income. This is income that people pay you for letting them use your property. The goal with passive income in real estate is that it increases your earnings over time. While you might earn small amounts of money in the beginning due to upkeep, over time, your earnings can increase.
How to Market the Residential Properties You Invest In
The most common ways that people generate passive income through investment properties are through holiday homes, long-term rentals, and short-term rentals. Let’s take a look at each of these options in a bit more detail.
Holiday Homes
Holiday homes are one great way that you can earn passive income from your rental properties. These work especially well if the property is located in a touristy area; has the capacity for many guests; includes additional amenities like a bathtub, full kitchen, barbecue, or swimming pool; or is in an area with a high level of demand for vacation homes.
Vacation homes can be a great way to earn passive income, although income it may be irregular throughout the year. Think about whether it will be profitable for you to have this type of model for earning passive income. If you find that having the home bring in money for 4-6 months of the year makes sense, this might be a good option. However, if the costs outweigh the income, it might be better to look at other options.
Long-Term Rentals
If the vacation home option doesn’t make sense for you, you might want to stick to long-term rentals. This is where you rent out your property to individuals who will be using it as their permanent residence. This option entails more paperwork and legal requirements than some of the other options. That’s because insurance management, contracts and other documentation are required to legalize the rental.
Despite the additional legwork, this is also one of the most popular ways to use investment properties for passive income. That’s because you’ll receive a fixed amount of money on a regular basis. In addition, you can usually leave the management of the property to a real estate agency, although you will have to pay them for the privilege, thereby reducing your profits but free up your time.
Short-Term Rentals
The well-known Airbnb website is a digital market that facilitates the search for those interested in renting out apartments and vacation homes. There are many others. These digital platforms are a type of shared economy. These sites offer properties with amenities similar to that of a home and not of a hotel.
These sites can also be used for medium-term rentals. That makes these sites a great way to test the waters for those who are interested in potential long-term rentals but want to gain some experience first. If your property would work well as a long-term rental but you’re not ready to rent it out as such yet, a short-term rental site might be a nice choice.
Get Started Investing in Real Estate
Investing in real estate can be a profitable way to start earning passive income. If you’re looking to make money on the side and are interested in owning property, this might be the opportunity for you.