Owning passive income real estate is perhaps one of the smartest ways to make extra money. So beginners should learn early on exactly how to make passive income from real estate. Passive income real estate investing starts with finding investment properties that are profitable. This way, you will ensure that the property still produces positive cash flow regardless of its rental expenses. So, here’s a step-by-step guide to buying and owning passive income real estate:
Step #1: Identify Profitable Real Estate Markets
The first step to finding passive income real estate opportunities is to identify the best markets for such investments. In other words, you will need to conduct a real estate market analysis. But for this, you first need to pick a rental strategy to make sure you choose the right location for that specific strategy. Once you’ve gotten that out of the way, you will need to look for real estate markets which support that rental strategy. For example, a beach location might better support an Airbnb rental strategy. On the other hand, a city center might be a better option for long-term rentals.
Other location criteria include rental demand, occupancy vs. vacancy rates, property appreciation rates and so on. But the question still remains, how do you analyze all of that in a specific market within a specific location?
The answer is, of course, use real estate investment tools. One helpful tool is the heatmap analysis tool. This specific tool is designed to analyze smaller markets within larger ones. To be more precise, it helps a real estate investor narrow down their choices to specific neighborhoods. It will also provide data on the neighborhood’s performance which will allow you to conduct a comparative analysis of various real estate markets. In addition to that, it will also help you narrow down your choices for the next step which is the investment property analysis.
To learn more about this tool, read the Expert’s Guide on Finding Income Properties Using a Heatmap.
Step #2: Choose a Lucrative Investment Property
By now, you have narrowed down your choices of location. The time has come to look at the investment properties for sale to determine the best fit for your investment purposes. Therefore, you will need to use a few more real estate investment tools: the property finder and the investment property calculator.
How can these tools help you find the best real estate investments?
1. You will need to find investment properties for sale within a specific market which qualify for passive income real estate investing. Therefore, you will need to use the property finder tool to find such properties within a real estate market. The tool will provide necessary data which when combined with other profitability measures will help you narrow down your property options. Specifically, this tool will show you the properties with the highest returns. This will increase your chances of finding a positive cash flow property when using the next tool.
2. You viewed the profitability measures provided by the property finder tool. Now, it is time to further analyze, compare and decide. Use the real estate investment calculator to insert your financing information and any unique expenses and get all the in-depth measures you need about the return on investment. You want to make sure you pick a positive cash flow investment property. Finally, decide what investment property makes for the best candidate for passive income real estate. Work out your finances and seal the deal with the owner.
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Related: What Are the Best Passive Income Investments in the Real Estate Market?
Congratulations, you are now the owner of a rental property. But, how do you ensure passive income real estate investing once you’ve obtained ownership of the investment property? That’s what we’ll talk about in the final step.
Step #3: Professional Rental Property Management
At this point, you are the owner of a rental property that you do not wish to directly manage. So, what do you do to turn it into a passive income real estate investment? You hire professional property management services, of course.
You chose passive income real estate because you know what tasks come with a rental property. The duties of a landlord include learning how to find good tenants, taking care of the upkeep of the property, dealing with emergency situations, collecting the rent, dealing with rental arrears and so on and so forth. That is, in fact, a lot to deal with especially if you already have a job or a career you are dedicated to. And, this is where professional property management fits in.
You basically hire a company that will take care of everything related to your investment property. All you have to do as a passive real estate investor is keep up with the reports they provide for you. Of course, this kind of service comes with its own costs- professional property management fees. But as long as you include these fees in your initial investment property analysis before buying the property, it shouldn’t be an issue. Now you understand why we said that it is important to find a positive cash flow investment property. The property management fees will be part of your rental expenses.
Related: 10 Signs You Need to Hire Professional Property Management
The Bottom Line
It does take quite a lot to get to the point where you own passive real estate property. But, as a real estate investing platform, we have dedicated ourselves to serving aspiring and seasoned real estate investors to achieve their goals. Not only do we provide the real estate education and properties for sale, but we also provide you with the best investment tools that you need for owning passive income real estate. For that purpose, we have put together the best and latest tools in the industry to help you find and analyze investment opportunities especially if you are looking to make passive income from real estate. Therefore, we invite you to sign up for Mashvisor’s services and see how we can guide you towards better investment decisions!