You already know that passive income is the secret to building a nest egg, retiring on schedule, and enjoying the financial peace of mind you’ve always wanted. The only problem is that too many people think the only way to earn decent passive income is by investing your cash in the stock market. While the stock market has helped many average investors become millionaires, investing in real estate can be a safer alternative.
Many people think that investing in real estate means owning rental property or flipping fixer-upper houses. These are two very popular ways, but you might not have the time or money to own a second rental house.
Thankfully, there are a few ways to earn passive income from real estate without being a landlord or a millionaire real estate mogul.
Invest in REITs
This first suggestion still involves having your money invested in the stock market, but it can be a good dividend-paying hedge compared to your stock and bond investments. Your employer 401k might even include a real estate mutual fund as well.
Real Estate Investment Trusts (REITs) generally invest in a single type of property: residential, industrial, or commercial. For instant diversification, you might consider investing in a REIT index fund that has small positions in multiple residential, commercial, and industrial REITs like the Vanguard Real Estate ETF (VNQ) which currently yields a 4.79% dividend.
While REIT ETFs and mutual fund share prices fluctuate daily, they are highly liquid. You can buy today and sell the fund tomorrow if you really needed the money. This liquidity is different than most real estate investments where you don’t get your money back until the sale finalizes or another investor takes your spot.
Explore Crowdfunding Real Estate
Have you ever heard of websites like Fundrise, PeerStreet, or RealtyShares?
The internet has made it easier than ever for average investors to have access to high-profile real estate projects that only the well-connected real estate investors had access to in the past.
Crowdfunding real estate has also helped relieve the headaches of many landlords and house flippers because you invest your money and somebody else does the hard work for you, and you can expect an average annual return between 11% and 15%. Considering most stock investments return between 6% and 10% each year, real estate investing can help you earn potentially higher returns than the stock market with less volatility.
Some of the real estate crowdfunding platforms let you invest in individual projects. Other platforms require you to invest into an eREIT that automatically invests your money in a basket of properties so you don’t invest in overly risky properties and not earn any income because the borrowers couldn’t afford to make their payments.
Flip Vacant Land
This third suggestion requires a little more work than the other two, but it can be a good compromise between investing in crowdfunding real estate and buying a house to flip or rent out. If you have some time to research the surrounding area, you might be able to buy vacant, undeveloped land and flip it for a profit.
If you can buy land for less than market value because the person is behind on their property taxes or maybe the current owner no longer wants to own it and wants it off their hands quickly.
Vacant land is cheaper than buying a house because it’s undeveloped and you can sell it to somebody that wants to build on it. Maybe they want to build a house, business, or have more land to farm or log for timber on your investment property.
Start a Real Estate Investing Group
Maybe you have money, but you don’t have enough experience to invest in local real estate. You can start a real estate investing group to pool your funds and knowledge to make a deal. Investing in real estate with others limits your risk because you’re not solely responsible for financing the project and you can learn more about real estate investing that can benefit you when future investment opportunities come up.
Should You Invest in Real Estate When You’re in Debt?
Many people think they can’t begin investing until they get out of debt. This is a good principle and you need to weigh how much potential interest you can earn from real estate investing compared to the interest you can save by paying off your high-interest debt first.
If your credit card balance has a 15% interest rate, the money you save by paying off your high-interest debt will exceed how much you will probably make from real estate investing. You should use your extra cash to repay your debt first.
Even if you’re in debt, you should still set aside some money for the future. If your employer offers matching 401k contributions, consider investing a portion of those contributions into your plan’s real estate fund for your next contribution.
Real estate investing doesn’t have to require $100,000 deals and hours of your time. With these tips, you can invest in real estate in a matter of minutes without breaking the bank.