There are almost countless ways to build wealth through what is called “passive investing”. However, if you consider all variables, the passive income earned through investing in real estate is by far at the top of the list.
There is no age limit to withdrawing funds unlike your 401k.
The returns are often higher when you take into account the gained appreciation over time as well as the tax benefits.
And compared to other popular passive income ideas, the monetary contribution, time expense and labor involved is often far less.
So, what is passive income and passive investing really?
Passive income is very simply income that you make that takes very little to no effort to earn and maintain.
Historically, most people think of retirement accounts like a 401k as the simplest vehicle for passive income. You have money taken out of your paycheck and put into the account and it grows over time.
More recently, non-traditional methods of earning passive income have popped up. Do a search for “passive income ideas” and you will find a multitude of ideas like affiliate marketing, print on demand, resale ideas and freelancing.
And while real estate is a well-known source for passive income, there is often this misconception that purchasing and owning real estate for passive income purposes is too far out of reach. That is where most people make their first mistake.
Passive investing in real estate is often the foundation of financial freedom and building wealth. So, what exactly is “passive investing”. Just as with passive income… it is investing that takes very little to no financial effort.
In other words, you can invest in a property with little to no monetary contribution. The misconception that you have to have a large sum of money as a down payment to purchase real estate just isn’t true. This mental block is why most people believe that owning real estate investments is out of reach.
In truth, there are many creative ways to invest in real estate with little to no financial contribution.
The key word is “leverage”. In real estate, leverage is the act of using monetary resources that are not your own. You are borrowing money to make the investment (or purchase). Traditionally, this is a mortgage. And traditionally, a mortgage does require a down payment. However, that down payment can come from leveraging equity from another property or sources.
If you have equity in your primary home, that can be used as a down payment for another property. If you have a 401k, you can borrow from that. There may be time restrictions with some financial resources and often you do have to pay yourself back, but you can get a lump sum without digging into your personal savings.
A more non-traditional and more creative way to passively invest in real estate is through syndication. This option often allows for more freedom of choice in how you will contribute or invest.
Of course, you can always invest monetary funds but often you can contribute other resources to the investment that don’t involve a large sum of cash. Depending on how the syndication is structured, you might have the opportunity to invest knowledge or skills. Perhaps you are a contractor and can offer your knowledge and resources on retrofitting, remodeling or building.
And even if you do need to invest some cash, typically your cash investment doesn’t need to follow the strict traditional lender guidelines. For example, your percentage of ownership in the property could be equal to the percentage of cash invested. Whereas, with a traditional lender, they typically want to see you invest 20-30% of the purchase price before talking about a loan and you need to have a set amount of funds put away for capital reserves.
Once you determine that you want a passive investment and you have identified and secured your resources, you are ready to select your real estate investment opportunity. There are many choices from starting with owning a single-family home (or maybe a couple of them) or looking for multi-family apartment buildings or commercial opportunities.
Out of these three options, apartment buildings are often the preferred choice for savvy investors.
Simply, people always need a place to live so the buyer/renter pool is larger than it is for commercial property and an apartment building provides multiple revenue streams in one location compared to single family homes. Multi-family units may have a lower return than some commercial properties but, the cost of entry is usually lower, and they perform better during economic crisis.
Finally, if you choose to go a more non-traditional route with joining a syndication, you aren’t venturing out on your own. You get the added value of being a member of a group where each investor is bringing a wealth of experience and knowledge to ensure a successful venture!
We're excited to share our future deals with you all. We also have resources to help with further educating yourself on real estate investments such as our free eBook.
Sam Khairi
Afto Capital
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