Here are 12 ways to make passive income from real estate investments. If you want to be a fully passive investor, the first four are for you!
1. Publicly-Traded Real Estate Investment Trusts (REITs)
REITs publicly traded in the stock market are often considered the easiest, more affordable way to invest in real estate. In the U.S. alone, REITs collectively own more than $3.5 trillion in gross real estate assets. They’re a fantastic source of passive income as they have to distribute 90% of earnings as dividends to keep their tax-advantaged status.
You have more than 200 publicly traded REITs to choose from, and most trade for under $100. Many REITs focus on specific niches, including residential, industrial, retail, and office, and can be bought and sold through a brokerage account, much like regular stocks.
Like other forms of passive income, the only work required of you is to figure out which REIT you’d like to invest in.
2. Private REITs
Unlike publicly-traded REITs, private REITs are purchased through investors, financial advisors, or direct-to-consumer sites like Realty Mogul. Typically, private REITs are less volatile because they can’t be bought and sold on a whim. They also usually yield higher returns, but less frequently. With Private REITs, you’ll usually earn passive income quarterly or annually, rather than monthly.
3. REIT Exchange-Traded Funds (ETFs)
REIT ETFs are similar to mutual funds. Instead of investing in a single REIT, with REIT ETFs, you’re investing in multiple REITs simultaneously, reducing your risk of losing money. If you’re a new real estate investor, buying REIT ETF shares is a great, low-cost way to get started.
Note that you will be charged a fee, also known as the ETF expense ratio, but this is usually under 1%.
4. Real Estate Crowdfunding
Real estate crowdfunding is fairly new, but it’s definitely one of the most popular passive real estate investment opportunities out there. With real estate crowdfunding, you pool your funds with several other investors so that a third-party sponsor can purchase and manage an investment property.
The frequency of the real estate passive income you earn depends on the investment opportunity and structure your sponsors select. Similar to REITs, you have many crowdfunding opportunities and niches to choose from. Also, like REITs, the only work required of you is selecting which crowdfunding opportunity you wish to invest in.
5. Single-Family Units
If you’re looking to actively invest in properties and hire a property management company to run them, purchasing a single-family unit is often the most popular way to start.
Single-family units are condos or single homes with only one tenant or family living in them. You’ll collect passive income every month in the form of rent (minus the rental property fees charged by your management company), which you can use to pay off the mortgage and other expenses while building equity.
However, be aware that when the unit is not occupied, you won’t earn money from it.
6. Multifamily Units
Multifamily units are typically duplexes, triplexes, and fourplexes. They operate similarly to single-family units, except you’ll earn multiple passive income streams, not just one. More units also means more tenants to manage, but if one of the units is vacant, you won’t take as big a financial hit.
7. Apartment Buildings
By definition, apartment buildings are classified as properties containing five or more units. You’ll want to do extensive research before hiring a property management company to maintain the building because they require more intensive management.
Besides potentially enjoying a larger passive income stream, real estate investors in apartment buildings can apply for a commercial loan instead of a residential one.
8. Short-Term Rental Properties
Short-term or vacation rental properties are great investments in areas with dense populations, lots of tourism, or popular vacation destinations. Instead of having tenants live in the property for months or years at a time, short-term rentals are usually charged per night.
You can earn 2-3x more income with a short-term rental property, but they also require more work, like scheduling, cleaning services, and cancellations. Companies managing rental properties usually charge 20%-50% in fees, but it can be well worth it.
9. Mobile Home Parks
Investors of mobile home parks often own the land and collect rents from residents who move their mobile homes onto it. These homes are a viable housing option for people experiencing economic stress or if housing costs are skyrocketing in your market.
Typically, you invest in a mobile home park with other investors or as part of a fund.
10. Commercial Properties
With commercial properties, you’ll usually enjoy longer leases with the companies who occupy them, as well as more steady passive real estate income streams. However, commercial properties are more niche and tend to be vacant longer, so you’ll need to prepare for that.
Much like residential real estate, location is everything for a commercial property. The more desirable the location, the better your chances of keeping it occupied.
11. Industrial Complexes
When you think of commercial properties, your mind may go straight to retail. However, there are plenty of other commercial sectors to consider, including the industrial sector, where warehouse, manufacturing, and storage facilities can generate passive income with minimal management required. Much like other commercial properties, owners of industrial complexes can enjoy longer leases but also experience extended vacancies.
12. Mixed-Use Developments
Some properties allow for versatility. With mixed-use developments, you can have residential, retail, industrial, and office tenants all at once! As such, you can enjoy a variety of lease streams and passive income streams.
Other real estate passive income opportunities include:
- Land lot ownership
- Self-storage units
- Private lending
- Tax liens and deeds