Did you know that 35% of Americans rent their homes? This means that there are plenty of opportunities for real estate investors. Renting out a home is one of the best ways to generate passive income for beginners, but it isn’t the only trick in the book!
Are you interested in learning how to become an investor? Keep reading!
What Is Passive Income?
We have active income and passive income.
Active income is when you work for your earnings, such as your day job, side hustles, or other likewise sources of income. Passive income generates income from investments that don’t require constant work.
For example, the interest you earn on your savings account is passive income as you are not actively working for these earnings.
Passive income can come in all sorts of forms, such as:
- Rental properties
- REIT investments
- Dividend stocks
- Peer to peer lending
- Rental of other assets
You will need a large amount of money to start some of these forms of income. Investments like stocks, peer-to-peer lending, and real estate will need a large amount of money upfront.
However, you can scale down your investments as it takes time to grow. Start small and work your way up with the extra earnings you receive.
The Best Real Estate Investments
If you decide to invest in real estate, you’ll have a couple of options.
We mentioned REITs, which is a great way to start small, as you don’t need a lot of capital to get started. Real Estate Investment Trusts invest in all real estate types, from apartment buildings to cell towers.
To join a REIT, you buy a share of the building and own the respective percentage. They work similarly to stocks. However, even though you may own a part of the company, you will not have any say in the board’s decisions.
If this isn’t your cup of tea, we can move on to owning your own real estate building. Again, start small.
Start with an apartment you can rent out, then move on to a home, a multi-unit home, and so forth.
One thing that most experts agree on is that investors should diversify their financial portfolios. Meaning that you shouldn’t put all your eggs in one basket. We will discuss this further below.
Passive Income for Beginners: Getting Started
As a beginner investor, there are a few things you should consider. First, no investment is without risks, so you must keep the risks in mind when you invest.
Many experts agree that the real estate market is unpredictable. The latest pandemic is a good indicator that it is. Anything that can happen will happen.
We can prepare for everything, but make sure you leave a rainy-day fund if the investment goes sour.
To start investing, you will likely need to put together some funding. Unfortunately, most people don’t have a 100K laying around. While this seems like a lot of money, it won’t even get you very far in the world of investments.
Consider loans and mortgages for your first investment. If you are an active duty service member, you may qualify for a VA loan for investment property.
Alternatively, you can apply for a regular mortgage or loan at a bank or private lender. You will still need to provide a percentage of the investment, have good or excellent credit, and prove your sources of income.
Choosing the Right Investment
Once you’ve secured your funding, you need to choose the right property. This looks different for everyone, but there are some pointers you should consider.
First off, consider the location of the property.
Are you likely to find tenants? Is it in a reputable neighborhood? What are the vacancy rates in the area?
You should also consider the state of the property. How much work does it need before you can rent it out? What are the maintenance costs? And how much are the utilities?
You need to ask yourself all of these questions before you start investing.
Make sure that the location is desirable, maintenance costs aren’t too high, and the work needed is manageable by you and your team.
Investments 101: Top Tips
You are convinced that investing in real estate is the right call for you. Great! Take these tips with you when you start looking around.
As we mentioned above, don’t forget to diversify your portfolio. Now, you are making your first investment, so it isn’t of importance right now.
But going forward in the future, make sure you invest in different properties, such as multi-units, commercial buildings, or vacant land.
Additionally, you should also diversify in location. Let’s say that one of your properties is struck by a natural disaster; if you have properties in different areas, you will only need to deal with one disaster at a time. Worst-case scenario, you can cut your losses and sell.
Finally, diversify how you invest. A portion should come from your own savings, while the remaining investment should come from loans. The golden rule for investment is the 50-30-20 rule.
50% of your income should go to your needs, 30% to wants, and 20% to savings. The savings you can use to invest, and in turn, that will generate more for your wants and needs.
Start Generating Passive Income Today
Generating passive income for beginners might be daunting, but you are on the right track with this guide. Make sure you secure the funding, invest a portion of your own money, and start small.
Are you looking for more resources on passive income? At Passive Income, Active Duty, we have everything you need to start investing in real estate as active-duty personnel or veterans. Check out our courses today!