Today we’re counting down the top 5 best ideas for passive income in real estate.
Sure, anyone can build passive income streams with these passive income ideas. But since our audience is full of real estate professionals, we decided to focus on passive income streams that will take advantage of the skills and knowledge real estate pros already have. Huge bonus: our best ideas for passive income also complement your real estate business!
But before we dive in, let’s give you a quick passive income overview.
What is Passive Income?
Passive income is making money without participating in the money making activity itself.
Unlike a get-rich-quick scheme, passive income takes time to develop and grow into a substantial sum of money. That being said, the sooner you start the more effective it is. If you’re lazy, this isn’t for you. Although, this scheme might seem laid back, it really is the contrary, a lot of time and effort needs to be put in to earn passive income. But, when done right it will be rewarding for years.
“If you don’t find a way to make money while you sleep, you will work until you die.”
– Warren Buffett.
Top 5 ways to earn passive income:
1. Write a Blog
Blogs can be a grueling task but as part of your business’ marketing strategy you should be writing your blog post weekly anyway. It has been proven that blogging regularly over time boosts your SEO, in order for you to be found by buyers and sellers online.
Not only does your blog demonstrate your market knowledge and expertise but also automatically builds trust and engagement with prospective clients and this is primarily why all agents should have their own website with a blog.
If you find yourself having time restraints, it is a good idea to hire a blog writer to write your posts!
2. Become the Bank
Banks earn interest income (income earned from lending money). And individuals can make money the same way.
You know how banks earn interest by lending money? You can do the same!
Seller carrybacks are quite frequent in real estate. Seller carrybacks are when the seller acts as a mortgage lender, financing the buyer and collecting principal and interest for the term of the loan. However, if the buyer defaults at any period of time, the seller can foreclose to regain legal ownership of the property. This is how seller carrybacks are an example of interest income.
Here are a few other ideas for earning interest income:
- Hard money loans: Hard money loans are similar to investing in real estate notes, but instead of being long-term mortgage loans, hard money loans are short-term (generally 6-24 months). Hard money loans might be used to fund a flip. You could issue a hard money loan to the flipper for the cost of the renovation at a whopping 10-15% interest rate. When the property sells, the flipper makes a tidy profit, and you earn exceptional returns
- Tax liens: If your state is a tax lien state (as opposed to a tax deed state), you can buy a lien on the property at a predetermined interest rate. You’re not buying the property; you’re only buying a lien against the property. At tax lien auctions, investors typically aren’t bidding up on the value of the lien. The value is simply the amount of property taxes due. Instead, investors bid to see who will offer the lowest interest rate to the property owner for the lien.
Being the Bank made our list of the best ideas for passive income because once you issue the loan, you just sit back and collect your income. There’s very little you have to do from that point on.
The downside is that there can be a fair amount of risk, especially if the loan isn’t secured by real estate. Always do your homework before issuing your own loan for passive income.
3.Sell Digital Products
Digital products are those that can be delivered electronically. Having digital products creates a Royalties Income Stream. Royalties Income Streams are not too popular between real estate agents however, it is a good and effective way of earning money by allowing people to use your work.
Here are a few examples:
- Templates and printables (you can sell these digital products on Etsy 24/7!)
- Stock photos and videos
- Online courses
My recommendation is to tie your digital products to your real estate business so that you’re actually marketing your real estate business whenever you sell (or even just advertise) your product.
Think about the knowledge you have and the things you’ve created to make your life easier. If you can productize these things, you’ll be able to jump-start your own royalties income stream.
3. Dividend Growth Investing
Dividend growth investing is an investment strategy that focuses on stock dividends rather than stock price performance. This creates Income
Most investors purchase stocks when the prices are low and sell them when the stock prices rise. On the other hand, dividend growth investing ignores stock price and instead focuses on dividends. Some companies like to reward their investors irrespective of how the stock market performs. Hence, for every share that you own, the company will pay you a small amount. Something that is not stressed on enough is that Dividends are completely independent from stock market prices. Dividends can be going up even when the stock marked goes down. This is a great example of recession proofing your investments. For example: during the great recession, Coca Cola’s dividends increased every year. In fact, Coca-Cola has paid dividends to its investors every quarter since 1920, and the amount has increased ever since. The concept is extremely simple- you buy stocks that generate dividends, and you get a paycheck every quarter for investing!
A “hack” to make your dividend growth investing work, is by reinvesting your dividends, this somewhat creates a flow of investment. The longer you reinvest your dividends, the greater your future payouts will be!
4. Own Rental Property
Real estate is one of my personal favorite investments. Here are just a few reasons why:
- Cash flow: Even if you finance your investment property, you’ll still enjoy a positive cash flow (assuming you did your due diligence to make sure the property would be a wise investment). This is aptly called Rental Income in the 7 Streams of Income. And once your tenants pay down your mortgage, your rental income cash flows sky-rocket.
- Tax breaks: Even with the new tax plan, there will be plenty of deductions available for investment property owners.
- Appreciation: In addition to the cash flow and the tax breaks, real estate generally appreciates over the long-term. Of course the exact rates vary heavily between markets and years. So I really consider appreciation to be icing on the cash flow cake. This is known as Capital Gains Income in the 7 Streams of Income.
- Highly passive income: Once you have good tenants moved in, you’ll just need to handle a few repairs and a lease renewal annually. Or you could hire a property manager to make the income entirely passive.
- Perfect for real estate professionals: As a real estate pro, you already know your market and have insider information to help you make smart investment decisions. Plus the cash flow will help stabilize your income during your slow season or even through a down market.
- Asset-building: If you spend your spare time collecting smart rental properties, you’ll be able to build quite a property portfolio over the years. These assets give you options later in life. You will always be able to live rent-free in retirement. You can pass the properties along to your family, or you can liquidate the portfolio to leave behind a strong inheritance or charitable donation.
That rental income cash flow is the main reason rental properties top our list of the best ideas for passive income. But the capital gains income achieved through appreciation is like a whole other passive income you automatically receive when you own rental properties. I recommend tracking your net worth year-over-year so you can watch your net worth grow as your assets generate capital gains.