Real estate offers a wide range of possible passive income streams that can be realised via Airbnb, investment packages, and co-ownership. Be part of the real estate gold rush! Here are some passive streams of income from real estate.
Passive income is the holy grail of personal finance, and real estate is a popular choice. Revenue flows into your bank account without you having to lift a finger. You earn money while playing with your kids, lying on the beach, or skiing down a mountain.
With enough passive income, you can cover living expenses and ditch your day job — no matter how old or young. As you explore your options for real estate investing, consider the following ways to generate passive income.
Long-Term Rental Properties
An oldie-but-goodie, everyone’s familiar with long-term rental properties. Most of us have lived in one, after all. While not entirely passive, landlords need to advertise vacant units, screen tenants, enforce lease agreements, and perform repairs. Rental properties do generate primarily passive income. And investors can, of course, hire a property manager to take on the labour of landlord-ing. In addition to ongoing cash flow, rental properties typically appreciate over time. And regarding cash flow, that usually improves over time as rents rise.
Airbnb, simply put, is “Air Bed and Breakfast.” Airbnb is a service that allows property owners or homeowners to rent out their property to travellers looking for a place to stay. Investing in or owning a short-term rental (like an Airbnb) is one of the most outstanding ways of earning passive income. Airbnb is a great way to make passive income when you have an extra room in your house or apartment that’s not being used. You can rent it out on the Airbnb platform and get paid each month by Airbnb, with no need to handle any of the logistics yourself.
Co-ownership, also called joint ownership, is when a group of people own the legal title to a particular property and hold all the beneficial interests. A good example is when two or more people contribute money to buy a property, thereby enjoying the legal title, rents, capital appreciation and all beneficial interest in that property. Co-ownership allows you to earn passive income jointly with others.
As a form of house hacking, lots of homeowners have started renting out portions of their property. It could be a standalone structure like the ‘boy’s quarters’ or even a room in the main house.
The idea is simple: the rent from the extra unit covers most or all of your rent or mortgage, depending on your situation. But bare in mind that if it’s a rented property, your landlord might not be in support and this could lead to a legal problem. So make proper research and ask questions.
Commercial Real Estate
Alternatively, investors can go bigger with commercial real estate. Residential properties with five units or more, office buildings, shopping centres, structures housing bars and restaurants, industrial buildings, and mixed-use structures all fall under this general category. Investors can invest in anything from a small neighbourhood coffee shop to a skyscraper.
Before investing hundreds of thousands of money, invest the time to learn how to invest in commercial real estate. Start simple with articles, podcasts, and books, then consider taking a course to dive deeper.
Real Estate Syndications
A real estate syndication works similarly to a crowdfunded real estate investment, where multiple investors contribute money to a large project. However, it’s structured differently, as investors become fractional owners of one specific property. Platforms like Cribstock, Squareroof, and Keble allow you to do this in Nigeria.
Real estate syndications offer a great way to passively invest in large real estate projects that you wouldn’t otherwise be able to afford, such as apartment buildings or commercial office buildings. But they also come with plenty of risks, so make sure you understand how real estate syndications work before investing your hard-earned money.
Do a joint venture with an experienced partner.
You don’t have to join full-scale real estate syndication to partner on a real estate project. Instead, consider just finding a real estate investor you can trust, and going in with them on their next deal. If you have the funds but not the time or desire to invest in real estate, partnering with an active investor might be the way to go.
Investing in raw land could probably be one of the best on this list of passive streams of income from real estate. First, investors don’t have to hassle nonpaying tenants or lengthy eviction proceedings. Second, land investors don’t have to worry about repairs or maintenance. Third, buying land is relatively cheaper. That means no investment property loan, no interest payments, and no risk of over-leveraging yourself. Read up on other advantages of land over existing homes for more details.
Rather than rent for a few days at a time to a tourist, many like to start real estate investing with medium-term corporate renters. Think expatriates and businesspeople who need to spend a few months in a location before returning home or moving on to the next location. They need a furnished unit and some flexibility to extend their lease term if needed. And they pay high rents, usually covered by their employer.
There is no right or wrong method to use real estate to generate passive income. Each of these sources of income has advantages and disadvantages. Begin with education. However, don’t sit by and watch for more than a few months. There is no better way to learn than to roll up your sleeves and get your hands dirty.