Ways to generate passive income from real estate investments
Earning money outside of work is a great way to ensure financial stability and take care of additional expenses. If you are looking for a way to generate passive income, real estate has several options that may interest you.
For those who are wondering what passive income is, let’s deal with it. Passive income is exactly what it sounds like: investing and then making money through interest or dividends without being actively involved in the day-to-day management of real estate or investments. Just as if you buy shares in a company, you are not involved in its day-to-day operations; instead, you get financial benefits based on your initial investment if the company is doing well.
Acquisition and management of real estate is a great way to make money, but interacting with tenants, getting an education in the real estate market, processing paperwork and legal documentation, as well as maintaining the property require constant direct involvement from you. If you are not interested in actively managing and owning real estate, there are still ways to invest in real estate without the daily hassle.
Let’s take a look at several ways to generate passive income from real estate investments.
Real Estate Investment Fund (REIT) Shares
One of the easiest ways to generate passive real estate income is to invest in a REIT. REITs are very similar to mutual funds: investors buy stocks, deposit money, and receive monetary gain in return. In most cases, REITs are open source investment opportunities that can be found on major stock exchanges, allowing you to quickly buy and sell online. With a REIT, your investment is spread across your portfolio of properties.
REITs are required to return at least 90% of their income to investors in the form of dividends, and like mutual funds, they tend to be very easy to participate in, making them a great passive income option for many investors.
The downside to this investment opportunity is the lack of transparency and control over your investments, because REITs do not allow passive investors to choose which real estate assets they invest in. In addition, REITs will, on average, generate lower returns than other passive income opportunities.
Real estate syndication
Unlike a REIT, when you syndicate real estate, you don’t invest in a fund; instead, you buy a specific property and become the owner of the asset. As a property owner, as a passive investor, you have more opportunities to increase your tax credits.
Thus, real estate syndication involves bringing together multiple investors to purchase a real estate asset. The general partner or syndicator of a real estate syndication finds the deal, coordinates the deal and financing, and manages the investment after completion. Passive investors invest most of the required capital in exchange for a share in real estate. When syndicating real estate, passive investors do not need to actively participate in property management, accounting, or tenant-related matters.
An important aspect of syndicated real estate transactions is the transparency of your level of risk. When you are a passive real estate syndication investor, you know exactly where you are investing, what asset you are investing in and, most importantly, who you are investing in. This allows you to properly validate the opportunity and communicate with your sponsoring team directly throughout the investment process.
One of the benefits of syndicated real estate transactions is the potentially high yield. In the case of a multi-family syndicated firm, an average transaction might look like this:
• Holding time: five years of holding the asset.
• Passive income: 8% -10% return on your investment every year.
• Profit on sale: 40% -60% (or more) return on investment when selling real estate.
Real estate crowdfunding
Another option is crowdfunding. Similar to syndication, real estate crowdfunding is when a group of people pool their capital to buy real estate. Real estate crowdfunding uses the internet and social media to attract potential investors.
The main reason many people choose real estate crowdfunding is because it doesn’t require a lot of money to get started. You can only invest $ 1000. Unlike a REIT, with crowdfunding, you invest directly in real estate and can choose which real estate you want to invest in.