Real estate investing can be an excellent way to create passive income for investors.
An average of 15% of an ultra-wealthy person’s portfolio consists of real estate investments, according to a 2017 study from UBS and Campden Wealth.
How can you use real estate to build a passive income stream for yourself?
Here are three ways to create passive income through residential and commercial real estate investments.
Investment Properties generate passive income
You can create passive income with investment properties by leasing or renting the property to others. Owning these types of investments can provide depreciation tax benefits and value appreciation in the long term. Commercial real estate investments can require a large amount of capital upfront and are often labor-intensive. You will need to manage the property, but it is common for novice investors to hire property managers rather than doing it themselves. You can find these properties by downloading a top investing app on your smartphone for free online.
Private Equity Funds
This type of investment is a collective fund consisting of cash investments made by several investors. They provide extensive diversification with different investment types. There is typically a 2% investment management fee on an annual basis and a performance fee that’s usually around 20% of the profits earned. If you are lucky enough to find an investment that seemingly explodes overnight, you can see incredibly large returns on your investment.
Real Estate Investment Trusts
Real Estate Investments Trusts (REITs) distribute 90% of taxable income to shareholders every year. REITs are either publicly traded, publicly non-traded, or private non-traded. Publicly traded REITs are made available for the purchase of shares on an open stock exchange. Non-traded REITs are available through broker-dealers or directly from the REIT itself. Non-traded REITs can provide larger dividends but often have expensive upfront fees. If you want to learn more about what REITs are and how they work, check out our detailed breakdown.
These trusts can also save you money from having to manage tenants or hiring a property manager. They are also exempt from corporate taxes as long as they adhere to specific guidelines set forth by Congress. REIT dividends have the potential to increase over time, as the properties appreciate. You can find these funds by searching for apps for real estate investors on your smartphone.
Build your passive income stream
Investing through a real estate investment app can be an excellent way to build residual income. It’s wise to scrutinize each type of investment before making any decisions. Fully understand the risks before putting your money on the line. Diversify your assets. A well-balanced portfolio will help reduce your risks and produce stable streams of income for many years to come.