Growing Your Passive Income Stream With Rental Properties in Charleston, SC
For anyone looking for sources of additional income, the options are usually to start a business or to invest their money. Of all the investment options people are presented with, buying real estate is the best. Real property investing offers, probably, the most easily accessible avenue for anyone to make a sustainable income, without the need to invest a lot of time.
Although buying properties requires a significant amount of money, real estate investors don’t have to have all the money to buy a property before they can start earning from it. Property is one of the few investments where you only need to provide 20-25% of the purchase price of the asset to start making money from the investment.
The main attraction of real estate is the opportunity to earn substantial passive income on a regular basis. Passive income is the bedrock of financial independence. As long as your ability to make money is directly tied to how much time you invest in a business or job, your income will be limited. A passive income source is one where financial rewards are not directly tied to time.
Real estate investing is one of the best ways to earn passive income. If you have been wanting to earn passive income from real estate, what are the things you need to know?
Passive income through real estate investing
The idea of earning passive income seems fairly straightforward but the reality is that it’s always not that simple. Getting to the place where your property investments can provide sufficient income to sustain your desired lifestyle (even in retirement) takes planning, hard work, and time. But the good news is it is possible.
As a first step, you should know the available real estate investment options and how they work. This will help you decide the real estate investing method that best serves your purpose.
Types of real estate investing
Real Estate Investment Trusts (REITs)
These are private or public-traded companies that use investors’ funds to buy real estate and manage those properties on behalf of their investors. When you invest in a REIT, you earn dividends. Dividends from REITs are often higher than dividends from other stocks because REITs are required by law to pay no less than 90% of their taxable income to their shareholders.
Real estate crowdfunding
This is a relatively new form of property investing where a group of investors pool their funds to let a third party buy and manage a real estate investment. The returns from these investments vary and depending on the particular platform, payouts are done monthly, quarterly, or yearly. There are crowd-funding platforms that will also split future profits with investors.
This is usually what people mean when they think of real estate investing, explains Dawson Property Management. It is the real estate investment option we will focus on for the rest of this post. Rental properties can be separated into two broad categories: commercial rental property (buildings that are used as business premises) and residential rental property.
Why should you invest in rental properties?
It is easier to get a bank loan when you are investing in real estate than any other type of investment (including REITS and Real estate crowd-funding). There is usually no need to provide collateral for a rental property loan because the property serves as the collateral.
A rental property offers you direct control over your assets, unlike other investments where the asset is under the management of an investment firm. You can make more with a rental property than you can with stocks.
A rental property essentially pays for itself because the tenants in the building pay the mortgage through their rents. There are opportunities to improve profits on the property by taking advantage of tax deductions that are not available with other assets.
You can use one rental property as the basis for acquiring more rental properties when you use equity financing. This means that if you buy your first property in a good location and manage it well, you won’t need to look for capital to buy your next property.
Making your rental property truly passive
The only issue you may encounter when investing in rental properties is rental properties are a lot of work to manage. You must maintain the building’s physical structures, advertise for tenants, make sure tenants pay the rent and abide by the terms of the lease, and other tasks. This is why some people opt for more passive property investments like REITs and crowdfunding.
However, there is a reliable way to make a rental property a truly passive source of income. This is possible when you hire a property management company to oversee the day-to-day running of the asset. That way you need only concern yourself with how to grow your property portfolio and identify new locations for your next rental property investment.