Several industries have come and gone, but only a handful survived the test of time. The stock market has survived quite well even though people barely trust the stock market today compared to previous generations. And you can’t blame us—the average Millennial has experienced more stock market crashes than all the previous generations since the stock exchange was formed.
However, the one industry that has almost never betrayed our trust is real estate.
As a real estate investor and active manager of second homes for dozens of Americans, I’ve found the real estate industry is one of the most reliable and lucrative industries to earn predictable passive income. There’s little wonder why a majority of American millionaires are prominent real estate investors.
Unlike traditional investment vehicles that often yield meager returns, real estate provides the unique advantage of generating both ongoing cash flow and long-term appreciation.
However, it’s often capital-intensive to invest in real estate, but with innovative investing ideas, the options are limitless. Here are five ways you can start investing in real estate and make decent bucks with little to no active management.
1. SECURE LEVERAGE ON RENTAL PROPERTIES
According to Pew Research Center, there are more American households living on rented property than there were in the last 50 years. As more Gen Zers become adults and the country’s population grows, the percentage of households living in rental properties is set to go higher.
It turns out that acquiring a property isn’t so difficult after all. If you have a FICO credit score above 620, you can secure high leverage on real estate property through a mortgage deal. There are several mortgage lenders that allow you to purchase a property with a 0%-3% down payment.
Taking out a mortgage doesn’t necessarily mean making repayments out of your active income. A property acquired for rental purposes can pretty much pay off the mortgage by itself and leave you with a decent buck on an ongoing basis.
An August 2023 report from Rent showed American households pay a median rent of around $2,038 per month. Meanwhile, the U.S. Census Bureau put median mortgage repayment at $1,672 per month.
2. INVEST SAVINGS IN REAL ESTATE INVESTMENT TRUSTS (REITS)
For busy high-income earners, finding a high property with good potential and pursuing a mortgage loan to acquire it may be a stretch. As an alternative, you can invest in a REIT.
Investing in a REIT is a way to get a small piece of a much bigger pie because REITs take on huge real estate opportunities that are almost impossible for an individual to acquire.
For instance, REITs fund the building and management of large malls, tall office buildings, large-scale housing projects, and business sites. Some REITs even offer mortgage loans and generate income from interest paid on those loans.
By investing in REITs like dividend-paying stocks, you’re entitled to a share of the generated income. It can be a nice way to invest in real estate without enduring the hassles of real estate.
3. BUY HIGH-YIELD PROPERTIES THROUGH REAL ESTATE CROWDFUNDING
While some REITs allow you to invest as little as $1,000, earning a decent income requires substantial investment. As an alternative to investing in REITs, you can find high-yield properties of your own and crowdfund the money needed to acquire them.
The most important aspect of crowdfunding a real estate property is having a laid-out plan of how you intend to convert the property into a profit-making asset. Other investors are out to make money and they will be more likely to put their money into ventures with the most promising outcome.
Therefore, after spotting a property, you should define your goal for that property and map out how you intend to achieve that goal with the funds you’re raising. A pitch deck comes in handy in a real estate crowdfunding pursuit.
4. USE REAL ESTATE SYNDICATES
You can also crowdfund a real estate project with total strangers. What if you had a network of people with spare cash who were willing to invest in a promising real estate project? That’s what real estate syndication is all about. It’s also called “real estate co-ownership.”
A syndicate is a small group of investors led by a syndicator. Unlike REITs, joining a syndicate gives you more insight into the projects being funded since it’s a pretty small group and the projects are streamlined.
You can either start your own syndicate with a group of friends or find an already existing syndicate to join. Whatever option you choose, you should consider getting to know the type of investors involved and the details of the deal.
5. TURN SECONDARY RESIDENCES INTO VACATION RENTALS
In 2018, nearly 5% of American adults had second homes. If you’re the owner of a second home, you can earn passive income on your second home while living in your primary residence.
The major concern for second homeowners is the active involvement in the management of the property if rented out or used for some kind of income-generating venture. That’s a solved challenge.
As a real estate investor and active manager of second homes, I’ve seen firsthand how second homeowners earn better-than-decent on their second homes by letting people rent them as vacation homes, which is what they are in the first place.
All you need to do is find a real estate manager (or concierge) to pass the responsibility of managing your property for you in exchange for a commission. That way your second home can be a true asset instead of a liability that’s unused for the better part of the year.
FINAL THOUGHTS
Real estate investing stands as a time-tested avenue for generating passive income, offering the potential for both immediate cash flow and long-term asset appreciation. While it can be capital-intensive, the modern landscape provides diverse strategies for investors to capitalize on property ownership with varying degrees of hands-on involvement. This versatility makes real estate a compelling option for those looking to diversify their investment portfolios and achieve financial independence.
