In this article we’ll look at the use of real estate investing for generating dependable passive real estate cash flow. The ultimate goal for your hard-earned money should be to have it work hard for you. The crux of passive investing is to do minimal work for maximum return on investment. There’s only one problem with this scenario.
The problem, in a nutshell, is that there are typically significant opportunity costs to make this a reality. The less work you do, the more you have to have someone else do the work, so the higher your overhead or the lower your returns. The trick is to find the right balance between work and return.
One way to generate passive real estate income is to invest in REITs, or real estate investment trusts. These investments are typically promoted by financial planners and they are regulated by the SEC. Most REITs invest in large commercial properties. Other people do all the work with REITs, however the returns are typically low, in the 4-8% a year range. Down the road, typically in 3-5 years, when the property is sold there is also a percentage of the profit as well. You’ll need a pretty big chunk of change to participate in a REIT, usually $100,000 or even more.
Alternatively, you can research areas to invest and find a real estate agent to purchase properties directly and have your properties managed by a property management company. The management company will do all the work finding tenants, scheduling repairs, collecting rent, etc but you’ll have to pay them 5-10% of the rental income.
There is another alternative that is more lucrative. You can find distressed properties in strong rental markets across the country, rehab them, and then have a property management company take over. The profits can be much higher and the risks lower because you’re buying below market value. If you don’t have the time to directly manage this process there are companies like Summit Assets Group that do the research to find the best areas for investing, work with local agents and contractors to purchase and rehab the properties with the highest income and profit potential, and find a tenant for the property.
There are a couple of points that you must consider when considering passive investing.
- It is up to you to decide how passive or active you want to be and then partner with companies or people that fit in with your strategy.
- You must understand the IRS rules regarding what constitutes active and passive real estate investing and make sure your plan takes this into account.
The good news is you can generate dependable passive income with high returns in real estate even if you don’t have the time or expertise.
And now I would like to invite you to view our exclusive turnkey properties that have been hand-picked in the top rental markets in the country. These properties have been selected for their high monthly cash flow and all come with our unique 12 month rent guarantee.