Passive income is every real estate investor’s dream scenario. What could be better than reaping the rewards of smart decisions, with minimal intervention or effort? Passive income investments are therefore top of mind for many investors. Many individuals are able to achieve financial freedom via smart real estate investments, and retiring early with real estate is becoming more and more commonplace. Here’s your breakdown on the best passive income generating assets in real estate to get started down this route!
Single Family Homes
Single family homes are among the best income generating assets for real estate investors. Due to the fact that there will only be one tenant at a time, the amount of work required from the investor is often very minimal. Occasional maintenance will be required, of course, but this can often be scheduled and outsourced to a licensed professional.
For this reason, single family homes can often be passive income generating assets without the need for professional property management. If you set the right systems in place, like online rent payment and digital lease agreements, your single family home will hardly ever need intervention.
Multi Family Homes
Multi family homes can sometimes create controversy within the context of passive real estate investing. While some investors swear by them, many others view them as time-consuming investments that require frequent intervention. However, by planning ahead for the cost of property management, multi family homes can be incredible passive income generating assets.
With multiple tenants comes multiple sources of income, meaning you’ll be reaping significant rewards from your real estate investment. But if you intend to invest for the purpose of passive income, it becomes crucial that you take property management fees into consideration before your purchase. Since this is an added ongoing cost, it can have an impact on your bottom line — or in the worst-case scenario, push your investment into unprofitability.
Using a cash flow calculator is therefore hugely helpful in this stage. Foremost, you’ll need to compile a list of your ongoing expenses (including property management), your fixed expenses, and the terms of your loan agreement. (Mashvisor also provides estimates for rental property expenses.) Inputting these pieces of information into a cash flow calculator like the one offered by Mashvisor will churn out the figure you can expect to pocket. This should be done whenever you’re looking to invest in cash flow income properties, and especially with passive income generating assets. If the calculator pops out a number that looks good to you after the costs of property management are covered, then you’re on to a good positive cash flow investment. If, however, the number comes out too low or even negative, then you’ll know to move on to the next property in your search.
Related: The Best Cash Flow Calculator in 2020: What Is It and Where to Find It?
Short Term Rentals
When considering passive income generating assets, short term rentals almost certainly won’t be anyone’s first thought. Due to the heavy volume of incoming and outgoing tenants, short term rentals can very quickly become logistical burdens. All that work can’t be considered passive, right?
On the flip side, recruiting professional property management can make short term rentals an incredible choice as passive income generating assets.
Many are surprised to find out that vacation rentals can often generate more income than traditional rentals. This is dependent on a lot of factors, of course. Things such as location, competition, and the investment property itself influence whether a property is more profitable as a traditional or Airbnb rental.
To figure out which rental properties for sale are suited for this mode of investment, consider using an advanced platform like Mashvisor, which offers an Airbnb calculator. This platform provides an in-depth analysis of any property you choose, and lets you know the important numbers like cap rate and cash on cash return. Most importantly in this context, you’ll get a full breakdown of how the investment will perform as a traditional property and as an Airbnb property. Many properties will provide you with substantially higher figures for Airbnb properties.
This added income will very often be lower than the added cost of property management. If your numbers still look good after all of that is covered, short term rentals can be superb choices as passive income generating assets.
Related: How to Invest in Short Term Rentals: A Step-By-Step Guide
Real Estate Investment Trusts
Real estate investment trusts are companies that handle the ownership, management, and financing of real estate assets. Much like other companies, investors have the opportunity to buy shares of REITs. Investors then reap dividends from their real estate investment, which — if you’ve chosen the right REIT — can be a great source of income. These are definitely among the best passive income generating assets.
By generating money from many different investors, REITs effectively take advantage of real estate crowdfunding. They acquire financing from many different investors to secure real estate, generate income from those investment properties, and distribute that income among investors.
This is a great choice for beginner real estate investors since it is a relatively safe investment. You won’t have to save up large sums of money on your first down payment; whatever you can afford, you can invest! For experienced investors, REITs fit perfectly within any diverse portfolio. Whether you’re a beginner or a seasoned veteran, shares in REITs are great passive income generating assets in real estate.
Related: Direct Real Estate Investment vs. REITs
How Can I Find Passive Income Generating Assets?
Whichever route you decide to go in regards to income producing assets, it is essential that you use the right tools. Using an advanced real estate investment app to run your numbers is always a wise choice when it comes to guaranteeing a profitable investment. Unlike traditional property search engines, Mashvisor offers a very comprehensive property analysis alongside every listing. Using the Heatmap Analysis tool or the Property Finder, you’ll have access to a huge library of rental properties for sale, and a detailed report of how well it would fare as an investment! Using the right tools is essential for making the right investment.
Bottom Line
Many individuals are under the impression that retiring early with real estate is a lofty and unrealistic aspiration. But knowing how to find and manage passive income generating assets can turn this aspiration into a reality. To start making passive rental income, you just need the right tools!