Why invest in real estate?
This question always comes to mind when looking at creating a passive income. Real estate is typically expensive and while many think it’s a great investment you may ask “is it?” and the answer is YES! That’s because real estate is an appreciating asset. Meaning it gains value over time. When you purchase a home or even land it will almost always be guaranteed to gain value over time. This is not the case when you purchase a car or a new boat. Unfortunately, when you purchase a car or a new boat it will lose value over time. So the simple fact that real estate is an appreciating asset is generally a great reason to invest in real estate.
Can real estate be passive?
Many people think that real estate investing is buying and selling homes. That can even be passive but there are many other ways to invest in real estate and make it passive. In the rental property business doing the initial setup with setting up a dedicated maintenance company, having everything set up for tenants to pay you, etc…Will all help make it passive. So yes real estate can be passive!
The dreaded task – Maintenance
As I mentioned above we all know maintenance is going to happen. Things will wear out, things will break and who is the tenant going to call?! YOU! If your spending tons of time fixing things at your property or properties we can’t truly call this a passive income and chances are you simply don’t have the time to be running around fixing issues! There are many dedicated rental property maintenance companies out there and many even offer a monthly plan that includes X amount of property visits and covers certain tasks to be completed. You can also always line up a company that will simply handle any issues that pop up and pay as you go. Either way, I would recommend hiring out the maintenance and be sure to include this cost in your rent so you’re covered.
How do I acquire properties!?
Many cross real estate investing and especially the rental property business off their lists of ways to make passive income due to the fear of not being able to purchase properties. This is totally understandable since most of us don’t have thousands of dollars laying around to purchase properties and many already have a personal home mortgage. This can sometimes be a deal breaker but not always. Taking out a second mortgage by yourself may be a challenge depending on your financial situation but that’s why it’s a smart idea to team up with an investor that can help you get started. Of course, they’ll want a share of the profits from this business but depending on the structure of the deal it’s a viable option and can truly help you get into real estate. I would not personally recommend going into business with a friend unless you can truly trust them but definitely don’t rule out the idea of having someone invest with you.
Types of tenants
I feel there are two types of tenants. Short term tenants and long term tenants.
Short term tenants will typically last from a year to two years and are generally trying to build their credit or build up their finances so they can purchase a home. These types of tenants are not bad at all as they’ll generally take great care of your property. You will, of course, need to find new tenants to replace old ones once they move out but in today’s market finding tenants is not hard at all.
Long term tenants are generally looking to stay more than two years and just aren’t interested in owning a home, or they aren’t financially able to purchase a home. This isn’t always a bad thing due to the stability you can benefit from. I feel the key with long term tenants is to find the right tenants. You want tenants that are looking to take care of your property, are financially stable and won’t constantly be late or not pay rent and will ultimately stay for the long haul.
Both long and short term tenants have advantages and disadvantages so you’ll need to find what you’re looking for. Do not be afraid to interview tenants and perform background checks and verify employment as all of these are precautions and will cover both sides.