Passive Income: Real Estate Investing
One benefit of having a passive income is that it guarantees you a paycheck even when you stop working. No wonder many investors diversify their portfolios to include residual or passive income streams. Some of the investment options primarily include royalties, annuities, and stocks. Over time, however, Las Vegas investors have come to embrace residential and commercial real estate investing as a lucrative way of securing a passive income. Besides providing recurrent income, real estate investing is not as risky as stocks, and the returns are almost always guaranteed if held long enough.
As a real estate investor, there are three main ways for you to make money. They are:
i. Getting rental income from your tenants.
ii. Increasing the worth of a turnkey residential or commercial property and then taking a low-interest rate loan against the property. You can then use the loan money to re-invest or diversify your portfolio.
iii. Lending money (first trust deed) to a real estate investor wishing to flip the property, and receiving interest on the loan. In this case, the borrower’s property acts as the security for your loan.
How can you create a passive income in real estate?
If you wish to invest in the Las Vegas real estate property market, you have a few options for building your passive income. These include:
i. Investment Properties, (Constructing or purchasing a property for leasing)
ii. Private Equity Funds
iii. Real Estate Investment Trusts (REITs)
i. Investment Properties
This strategy requires a real estate investor to build a new rental property or purchase a ready to rent property (it may need some renovations), which would then be rented out. It could also involve holding onto the property for an extended period and then selling it after its value appreciates. Although investment properties can provide huge recurrent revenues, it requires large amounts of upfront investments.
Furthermore, you need plenty of experience and hands-on work unless working with a professional property management company. For instance, you must screen your tenants well, attend to renter’s related challenges, advertise the vacant property and renovate the estate. All these can be tiring and time-consuming, which is why it makes sense to let a qualified property manager in Las Vegas handle the asset.
ii. Private Equity (PE) Funds
For you to enjoy huge returns on the rental property investment, you must have several lucrative properties. Owning such a portfolio can be very costly, making it a preserve of only high worth individuals or institutional investors. Prudent investors, therefore, come together and form a collective investment fund, through which they can contribute enough money to acquire different real estate properties.
The investors then entrust an experienced real estate expert who has strict underwriting standards to manage the portfolio. The good thing with PE funds is that it gives the investors access to more resources to invest in high-end properties that have superior passive returns. However, unlike Investment Properties, PE funds are illiquid.
iii. REITs (Real Estate Investment Trusts)
If you fancy not to invest directly in the real estate business, you can still earn a lucrative amount of passive income, by working with a REIT. Congress created the REIT’s so that ordinary individuals can take advantage of the investment opportunities in real estate. Real Estate Investment Trusts are highly profitable, have a high ROI and offer minimum risks. Moreover, the law obligates all REITs to distribute at least ninety percent of their earnings to investors annually. If you wish to create a passive real estate income through a REIT, you have two options; the traded and non-traded REITs.
What should you consider to build a lucrative passive income?
For you to successfully create a passive real estate income, you must take into account several factors. These will shield you from falling into the housing money pits, where all your rental income ends up in unending repairs, vacant houses, or little ROI. They are;
The site of a property significantly determines its market value as well as the kind of occupants it attracts. Opt for assets in areas with a higher per capita income, or those in markets with job growth potential.
ii. Property History
Carry out an extensive background check of the property to ascertain the tax history, viability, long-term potential, as well as the robustness of the local rental market. Going for properties with a sound history helps to attract renters quicker, hence preventing annoying interruptions to your passive rental income.
iii. The Cash Flow
As an investor, your primary concern ought to be the return on your investment. Make sure the asset generates more income than expenses.
High-quality tenants equate to the absence of unnecessary interruptions to your passive income or reduction of revenue resulting from frequent repairs. Have in place a strategy for screening the tenants to ensure you end up with the right ones. Similarly, consider investing in properties situated in affluent or stable neighborhoods like Boulder City, Boulevard, Summerlin, Casino Center, Canyon Gate, Desert Shores and The Lakes, if you wish to attract quality tenants.
v. The Condition of the Property
Make sure an independent home inspector assesses the property to confirm that it meets all the state’s rental property codes.
vi. Property Management
You must ascertain who will manage the property. If you live in Las Vegas, you could easily handle the investment. But, if you hold a busy schedule, or live outside the state, you are better off hiring a Las Vegas property management company.