Most of us at one point in time have either made a rent or mortgage payment. With each monthly payment, the landlord or bank made a small profit. Now you can make money investing in real estate as a passive income stream.
As everybody needs a roof over their head to sleep, there will always be a market for real estate. You just need to figure out how to gain a foothold in the market.
Buy a Rental Home
The most obvious way you might think about investing in real estate is by buying a house, duplex, or small apartment to rent to an individual or family.
This might also become an expensive option depending on where you live. Checking adjacent property values on Zillow can help you get an accurate financial picture of appraisal values and average rent prices to ensure you don’t buy an overpriced property or undercharge your tenants.
Renting isn’t for everybody. You do need to be prepared to ask for late payments from tenants, repair leaky faucets and other broken fixtures, and there’s no guarantee your rental property will always be occupied (i.e. you need to afford the mortgage payment if a tenant isn’t paying it for you).
With that said, there is always a need for rental properties for families that only plan to live in your local area for a few years for business or until they can save enough money to buy their own house.
Tips For Buying A Rental Home
You will want to treat your rental property as buying your first house. These tips can help you find a property for the best possible price:
- Buy a “fixer upper” that you can do most of the repairs yourself
- Look for “fixer upper” houses in a desirable neighborhood next to a good school district, college campus, or business park that attract more responsible tenants
- Avoid flood zones or high-crime areas where insurance rates are higher & rent is lower
- Rent a duplex and charge your monthly mortgage amount to both tenants to “break even” when one side is vacant
- If you move into a new house, rent your old house
- Use mortgage points to avoid Private Mortgage Insurance (PMI)
Thanks to the internet, agency-owned timeshares or hotels are no longer the only two lodging options when you go on vacation. Sites like VRBO or Airbnb, make it possible to rent your second home or a spare bedroom to travelers.
If you want to become an Airbnb host, you don’t even have to own a 2nd property. This could be one of the easiest ways for you to earn a little extra income if you don’t mind strangers sleeping in your house.
Invest in Real Estate Investment Trusts (REITs)
You can also invest in real estate without owning an actual building or house. Instead, you invest in the companies through on the stock market. REIT funds typically invest in commercial real estate and yield a small dividend. This can be an alternative to traditional stock investments.
REITs allow you to invest domestically within the U.S. or internationally. Just like any other stock investment, these funds can lose value in the share price if the real estate markets underperform.
Invest in Real Estate Investment Groups
Another option is to buy a rental property with a group of local investors. It might be undeveloped land that you hope can be sold (for a profit) to a developer to become the next big subdivision or commercial complex. You might also invest in an existing building or apartment complex.
This can be a good option if you want to buy managed properties. You own the units but their office takes care of finding tenants and maintenance. There are some additional fees associated with this option, but, it’s still a good way to earn passive income.
These are 4 ways you can make money investing in real estate. Whether you own a physical property that you maintain or invest in a commercial REIT that does all the work for you. While there might be some active work involved when it comes to maintenance or vetting tenants, investing in real estate is a great way to earn steady passive income.