Real Estate Investments for Beginners: How to Make Passive Income

Everyone wants to make a living without having to work every day, and everyone could use a little extra income on the side. That’s why real estate investing has become so popular in recent years.

This is a viable financial strategy that has allowed many people to earn a passive income. Investing in real estate can help pay off your own house, be a side hustle, or even be equivalent to a full-time income.

And the best part is that anyone can do it if they learn how. Real estate investments for beginners doesn’t have to be complicated. With these tips, you can learn how to make a passive income in no time.

What is a Passive Income?

According to the IRS, a passive income can come from one of two sources. You can earn a passive income through trade or business activities you don’t participate in during the fiscal year. And rental activities unless you’re a professional in the real estate industry.

Basically, a passive income is money you make without having to do daily work as you would a traditional job. And that’s what makes them highly sought after.

Ways to Make a Passive Income

There’s no one way to make a passive income in real estate. The variety of options means you’ll be able to find the investment that’s best for you and how much responsibility you want to take on. Here are a few common ways real estate can help you make a passive income.

Publicly Traded Real Estate Investment Trusts

REITs trade publically on the stock market and are an easy, low-cost way to begin investing in real estate. Most trade for less than $100 each, so they’re easily accessible for most beginner investors.

These investments are also liquid and can be bought and sold through a broker when the stock market is open.

Debt-Like Investments

With debt-like investments, you’re lending money to other people to finance the purchase, construction, or renovation of a property. These can be great options because they’re lower risk when invested with the right people.

However, debt-like investments are fixed and don’t have the potential for capital appreciation like other forms of investment.

House Hacking

House hacking is a way to make a passive income from where you currently live. You can buy a duplex, condo, or single-family home and rent out the other units you don’t currently live in.

House hacking can be short- or long-term rentals and can help you pay off or offset your home payment. However, this can require a high up-front cost, depending on the space you buy.

Short-Term Rentals

Renting out a property in the short term, like short-term leases and vacation properties, are another common method to earn a passive income. This is especially true in areas that see a lot of visitors.

While you can make a passive income, short-term rentals often come with a lot of upkeep and maintenance and tend to have high up-front costs.

Rental Properties

Owning property is a popular method for making a passive income. Rental properties can include single-family homes, condos, or apartment buildings that you rent out to long-term tenants.

Rental properties and rental units generate a steady rental income. But they’re not always the most passive since they require a lot of management.

Ground Leases

With a ground lease, you own the land instead of the building. You can lease the land to a variety of businesses, who may choose to build a structure or use the land to farm.

Ground leases tend to be low risk; however, they can have a lower income potential compared to other passive income methods.

Avoid These Mistakes When Trying to Make a Passive Income

A passive income sounds alluring to many people, but you don’t want to go in unprepared. Make the most of your real estate investment by avoiding these common mistakes.

Not Having the Cash

It goes without saying that you need the right cash flow to start investing. But this doesn’t mean you have to have millions or even hundreds of thousands of dollars. You can invest as little as a hundred dollars if you do it wisely.

The trick isn’t about having cash, not getting in over your head for the amount of money you have. So don’t blow everything you have on one investment or sink everything into one investment account. Invest a little at a time until it grows, and the amount you can invest will grow as well.

Not Screening Tenants

When owning land or a building to rent out, it’s important that you choose the right kind of tenants. Leasing to the best tenants possible will help to maximize your passive income.

Bad tenants can lead to property damage, evictions, lawsuits, or vacancies that can cost you money in the long run. You want to be sure to have a tenant with a good background and a record of paying the lease amount on time.

Not Ready to Take on Landlord Responsibilities

While a rental property can be a good idea, it’s important to remember that being a landlord isn’t always easy. It’s still a passive income, but you’ll still need to be in charge of managing the property.

That means taking care of things like maintenance, rent, and tenant disputes. You can handle this yourself, but you can also hire a rental management company to make it easier.