Out of the different investments that generate passive income in the 21st century,
real estate has proven over and over again to be one of the most effective investments to generate passive income for investors who truly put efforts and commitment into understanding this field and using the best strategies available in the market.
All investors, from starters to seasoned, have one ultimate goal when investing in real estate, which is to get to a point where they are able to generate passive income. Passive income is simply an income you receive on regular basis withoutputting too much efforts from your side. Frankly speaking, very few investments offer absolute passive income, if there is any, as you have to work hard to make your investments capable of generating passive income. However, we will guide you through the best passive income investments available that you can utilize.
Traditional Real Estate Ownership
Direct ownership of real estate properties is the most common way to generate passive incomewhen done properly. Traditional real estate ownership includes owning residential or commercial real estate rentals, including traditional long-term rentals and short-term rentals like Airbnb, a farm land or any other type of real estate that you can rent out to generate positive cash flow.
However, you might think that traditional real estate ownership has nothing to do with generating passive income as it needs efforts and is time consuming. Tenants will constantly have inquiries about the properties, which actually requires constant communication, preparing contracts, keeping up with regular and unexpected maintenance and repairs, collecting rent checks, and working hard on marketing your investments. This looks far from generating passive income unless you choose to hire aprofessional management company which will do the work for you.
Professional management companies are available all over the US, and you should do comprehensive research to find the one that aligns with you needs, goals, and budget. These companies will keep you in check in regard to everything related to your investments including tenants, maintenance, and marketing, which will save your efforts and turn your owned real estate investments into investments that generate passive income.
Bear in mind that professional management companies charge a fee to manage and take care of your real estate property, so before deciding on turning your investment to a passive income one, you should break down your budget and examine your ability to deal with them before taking any actions.
Note: Mashvisor is a great tool you can use to discover hidden investment opportunities that gives you tips on property management and everything related to real estate investment.
Real Estate Crowdfunding Investments
Real estate crowdfunding investmentsare online services that bring real estate investors who look to find funds or to invest together. Instead of having to buy and deal with professional property managers to generate passive income, real estate crowdfunding services such as RealtyShares and FundRise allow you to invest as little as $4,000 or fund projects. Investors can start to see returns just after a few weeks of funding a project.
Real estate investors who have projects that need funding should apply for crowdfunding to be reviewed and meet the standards of a crowdfunding platform, and their projects, whether rental properties or any other real estate investment types, will be presented to investors who want to invest.
After the investment gets funding and all the work needed is done, real estate investors start receiving money from the passive income investments. However, there are always risks associated with crowdfunding online services; therefore, you should holistically educate yourself about the different online platforms available, their pros and cons, and the possibility of success or failure when it comes to generate passive income.
Related:All You Need to Know About Real Estate Crowdfunding as a New Investor
Turnkey Rental Properties
Another way to generate passive income is turnkey rental properties, which are real estate rental properties sold by investment companies. These investment companies search for the properties, make all repairs and maintenance needed, and, in many cases, also find tenants for these investments that generate passive income.
Turnkey rentals save a lot of time and efforts for real estate investors as they do not have to go through the hustle and bustle of finding properties, repairing them, and looking for tenants, which means that they do not need management companies. Turnkey rental properties are actually one of the best ways to generate passive income when done right.
Related: The Advantages and Disadvantages of Turnkey Rentals for Real Estate Investors
Real Estate Investment Trusts
Real estate investment trusts, known as REITs, are companies that purchase multiple real estate investments ranging from malls, through hospitals and lands, to office buildings. They usually rent out investment properties and pass the rental income to the real estate investors who are dealing with them.
Investors dealing with REITs mostly invest in more than one investment property, which lowers the risk and guarantees to a certain extent generating passive income. REITs allow investors to invest in properties with an extended life span and generating cash flow. This real estate investment strategy is beneficial for those who do not have big capital and are interested in investments that do not take time to generate passive income.
Related: What is a Real Estate Investment Trust (REIT)?
Bottom Line
Although real estate investment is one of the best ways to generate passive income compared to other investments available in the market, there is not an actual investment that would directly and quickly generate passive income whatsoever. You need to plan very well for what you actually want to invest in, study the available choices for you, and wisely and professionally choose the best strategy to begin with. However, the above-mentioned investments can be easier than others when it comes to generating passive income, but they also need hard work and commitment, at least at the very beginning. And you should always remember that the investment you choose to invest in should align with your future plans and goals as successful and detailed planning eventually increases the potential of succeeding in real estate investmentsin the long and short term.
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