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How To Make Passive Income from Real Estate

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The most common question I get in my direct messages and even through videos is, “What does it look like for me to get started on real estate?” I usually give them the exact framework I give everyone else.

When I first set out to get my first rental property, I wanted to make sure that I was educated and knew what steps to take.

Today I’ll be sharing my top tips on how to make passive income from real estate. I hope this formula will help you scale up to a second, third, or even fourth property and beyond.

A Comprehensive Guide on How You Can Build Wealth Through Real Estate

Get Educated

How To Make Passive Income from Real Estate

What does that look like? In today’s era, information is available at your fingertips, literally. You can access books, podcasts, documentaries, and even research journals from your mobile phone, iPad, and tablet. 

There are so many real estate podcasts. You can even get information by going on YouTube. There are also plenty of blog posts and books full of information on the real estate industry. Here’s something that one of my first mentors ever taught me, “Earners are Learners.”

There’s probably a local real estate meet-up in your area. If you don’t know of any, look it up on Google or Facebook. You could also try your luck with the local landlord association- they usually meet once a month.

These functions are a great place to talk to people in the real estate industry, those with rentals, multifamily units, whatever it is. The more you educate yourself, the more you get exposure.

Exposure is the ultimate friend of success. You don’t know what you don’t know, so you have to gain exposure first to learn from people already living the dream.

Get Yourself a Mentor

How To Make Passive Income from Real Estate

Don’t go out there and try to do it on your own. More specifically, try to find somebody you can talk to regularly, whether daily or weekly.

Someone to mentor you will help track your progress and figure out solutions for any challenges you might come across. Most people will seek out all the information they can get their hands on first before taking any step.

Time is a valuable component in this equation. For someone like me or anyone you know who already owns the property, is flipping houses, or helping other people, we protect our time.

We prefer to consult with someone who is already out in that space and observe the actions they’ve taken to get to that point.

There are plenty of ways to approach a potential mentor. You could go in with “Hey, I just read your book…” if they are an author.

Alternatively, if they host a podcast, you can start a conversation by sharing your opinion on a particular episode they produced. First impressions are important; you want to show that you’ve already begun taking action.

Once you’ve successfully gotten their attention, make your pitch. “I’m looking to take things to the next step, and I know that you can help me.”

So go out there, get educated. Take some time to soak it in, then start talking to people in the industry, preferably locals.

Learn the Market

How To Make Passive Income from Real Estate

Educating yourself about the market directly ties into finding people in the area you want to invest in. This is so big because it teaches you not only how to buy but also when to buy. A lot of people don’t know the right time to jump.

Well, that’s because there’s never really a “right” time to jump. There’s a quote that we all use in real estate, especially on the investing side. It goes like, “The best time to buy real estate was twenty years ago. The second best time is TODAY.”

Real estate deals mostly with compound interest, just like any other investment. The longer you hold onto real estate, the sooner you can buy it. Right now, real estate in your market is the cheapest that it’s ever going to be unless we hit a recession or something of the sort.

Even then, you want to be prepared if a recession happens. You want to have properties you can leverage because everybody will be looking to sell, and great investors will buy. The latter is an excellent example of why you need to learn the market.

You need to know places where there is job growth. Where are they building that new plant? How many jobs is it going to bring? Are there other developers looking to revamp another community? Can you get property adjacent to that location?

You have to look at all these factors to understand whether you’re investing in:

  •  A-class property: 80% homeowners, 20% renters
  • B-class: 65% homeowners and 35% renters or,
  • C-class property: 40% homeowners and 60% renters.

I always ensure to invest in:

  1.   Location
  2.   Dependability

Don’t buy a property solely for the cash flow. Cash Flow is king in the real estate industry, but you need to ensure it’s a unit you can live in.

Analyze Your Deals

How To Make Passive Income from Real Estate

You need to understand the terms of a deal before closing. Are you going to be in an 80-20 zone or 65-35 zone? Understand what type of cash flow deal you’re about to get into. A successful investor will know the numbers. You have to know the numbers.

There are plenty of resources you can use to do this. YouTube is a great place to start. Blogs and templates are an alternative as well. You can also talk with your mentor; you might pick up some essential tips.

If you’re having trouble finding these deals, I recommend Zillow or Realtor.com. Facebook is also a good source for bargains; they have marketplaces and forums where people sell and buy stuff.

Analyze the ARV, short for After Repair Value. It’s an estimate of how much a property will cost once it’s been fixed up.

I always look for properties I can buy 20% discounted on the dollar. This phrase simply means that if the property is worth $100,000, I’ll buy it at no more than $80,000. I make sure I have 20% equity. Make sure you always provide a cushion for yourself.

The reason is there might be hidden costs in the deal like:

  • Taxes
  • Repairs
  • Replacements.

A good rule of thumb is 15 to 20% Cash Return on Investment.

Get A Good Real Estate Agent

How To Make Passive Income from Real Estate

Another helpful tip in passive investing in real estate is you need someone who understands the market of investing.

This way, you get perks such as off-market deals. They’re either constantly getting deals or marketing them, so that’s a great way to help you secure good investments.

You Need Financing

How To Make Passive Income from Real Estate

Financing doesn’t always have to be from a bank. A great alternative is seller financing, which is an excellent tool for helping you secure properties. This way, you can pay the seller a certain amount of money each month until you can rebuy or have it in your name.

Secondly, you can also partner up with someone, as long as it’s a great deal. Investing in real estate is much more secure, unlike stocks. You can touch, feel and see the assets. You can also rely on money lenders to get funding besides the two options, but it depends on how good a deal you have.

Conclusion

There is no such thing as a perfect deal. The only way to reach your goal, whether financial freedom or securing passive income, is by taking action. Hopefully, these steps will help you navigate the journey of passive investing in real estate.

If you have any questions or related concerns, please send me a message. In the dream, we trust, but you have to take action. Otherwise, it’s all a fantasy.

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