By some estimates, 90% of the world’s millionaires have been created by investing in real estate.
Yet, while investing in real estate has proven to be one of the most reliable, recession-proof, and now pandemic-proof ways to increase your net worth and create passive income, many see it as daunting and risky.
It shouldn’t be.
In fact, with the right mindset, strategy, and partners, it can actually be really simple!
To help you, here are the foundations of creating passive income through real estate investing.
First, What is Passive Income in Real Estate?
Passive income in real estate refers to a strategy of investing in real property that will bring in revenue with little-to-no active participation by the investor. One common way that investors achieve passive income is through purchasing rental properties.
Simple concept — but how do you virtually eliminate your involvement as a landlord and make your investment truly passive?
Here’s your starting point:
Have a Long-Term Mindset
When investing in real estate, it’s important to think long-term: 10, 20, 30 years — creating wealth that can be passed down to your children and future generations.
When you have this mindset, you’re much less likely to get wound up over the small inconveniences that can arise: repairs, tenant changeover, mortgage rate increases, etc.
And, you’ll also be more likely to take an approach that proactively mitigates these minor issues and keeps your emotional bandwidth free and clear.
Here’s what we recommend:
Know Your Monthly Costs
To make your investment passive, you can’t be thinking about income and expenses every day.
The key is to do your due diligence early and understand exactly what you’re spending month-to-month.
Property taxes, condo fees (if applicable), vacancy allowance, mortgage payments, mortgage interest, insurance, etc. Once you’ve accounted for all of your expenses, you’ll know the exact amount of rent you’ll need to cover them — and you won’t have to stress about balancing the books every month.
Pick a Low Maintenance Property
Many would-be investors fear repairs and maintenance: the time, the cost, the effort — and the angry tenants.
But, by choosing a newer or updated property — especially a condo where you don’t have to deal with the roof, windows, foundation, lawn, driveway, etc. — you can virtually take repairs and maintenance out of the equation.
Plus, when the property is new and modern, you’ll likely be able to charge higher rent and avoid having to make significant cosmetic upgrades.
Hire a Property Manager
This is a key ingredient of a passive real estate investment.
Hiring a property manager takes away a lot of the headaches associated with being a landlord. An experienced property manager will be able to handle tenants and upkeep of the property, relieving you of most of the everyday responsibilities.
Their services can be obtained for a relatively low (and tax-deductible) monthly fee. If you’re thinking long-term and don’t want to get bogged down with short-term issues, this is the ticket.
Find Qualified Tenants
It goes without saying that the right tenants will make your life easier. For that reason, a tenant vetting process is an absolute must.
By requiring prospective tenants to provide proof of employment and income, checking their credit score, and calling references (like past landlords!), you can be confident that your new renters will make their payments on time and keep your home in good order.
You can do this on your own but, to make your investment truly passive, you may want to consider hiring a professional to do it for you.
You can either use a Realtor or your property manager to facilitate the recruitment and vetting of your tenants. It’s a short-term cost, but quality tenants save you money long-term.
Consult with Real Estate Investment Professionals
By investing in real estate, you’re making a significant long-term decision. From being in real estate for nearly two decades, we’ve seen the weight of this decision nearly prevent would-be investors from taking action.
But, as you can see above, the right mindset, preparation, strategy, and professionals can make your investment truly passive and stress-free.
We’ve mentioned property managers above, but there are many more professional services that will make your life easy.
Mortgage professionals, lawyers, accountants, home inspectors, and, of course, Realtors.
A Realtor who focuses on investment properties will be able to put all of these pieces together for you, help you find the best investment opportunities, and make the entire process of acquiring and managing an income property simple and, of course, passive.