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Passive Income 101 – Real Estate Rentals

Last time we talked about passive income and how there was only one true source of passive income. Interest. Take a look at the post to see if you need to upgrade your passive income knowledge. Today we are going to delve into an area that I have spent a lot of time learning about. Real Estate Rentals

Real Estate Rentals

There are a lot of people that make money in real estate, but it’s not passive.

Not in the beginning.

If you are thinking, “But Andrew, I know a guy who has 32 rental properties and has a property manager take care of all of them. He just gets a check once a month to spend”

You’re absolutely right, that is passive.

But it didn’t start out that way. Because I know that guy who has 32 rental properties. I actually know a couple…

When I was learning about rental properties, the most passive income stream out of the whole real estate genre, I took them out for a coffee and picked their brains.

I got to know about our city’s local market, what they thought of the current conditions. I asked them what it was like starting out and what was the best way to get started. What to look for and what to avoid.

Then I realized, it just wasn’t for me right now. I helped a few of my friends get started with real estate rentals, and after a bumpy first year or two they are seeing the benefits more and more. So it is possible. But it’s not passive, at least not at first.

Here’s a few things that you will need to consider getting into real estate.

Evaluating properties

The saying goes “You will need to look at 100, offer on 10 , and out of those buy 1”. At least now you can do a lot of it online, but still good to know.

If you are impatient you can buy the first one you look at and “figure it out as you go” but I would strongly suggest not doing that.

Downpayment

When you find one, you will need to come up with a down payment. depending on what country you are in, that can go up to 25% or more of the house price.

Which isn’t cheap. There are always people saying there are ways around this,  there is another word for this, mortgage fraud.  I’m sure, but if you are going to do this type of investing you will want to keep everything on the up and up. The goal is passive income, not to commit mortgage fraud.

Finding Renters

Then you will need to get the place ready for rent. Which could be a lot or a little, depending on how you buy. Then you will need to find renters. 

That’s where the fun begins. Everyone I spoke to that has made rental properties a cornerstone of their passive income has said you need to train your renters. They will make or break you. Most people I know in real estate, get up to around the 3 house mark, and don’t go any further.

Why? Because they pick bad renters and then they are constantly dealing with them. This was a big take away for me. People who had dealt with tenants all said the same thing. Find good tenants. A good pre-emptive way to help your potential tenants is to provide them with a rent affordability calculator. This will help them know if they can truly afford their place, you will want to use it too and make sure their budget is workable. 

Delegate to a Property Manager

Eventually you can get a property manager but it’s a good idea to do it yourself the first year. You will learn the ins and outs of managing a property. So when you go to hire your own you can interview the prospects with a better knowledge of what involved with your property and what’s involved with the tenants.

Pick a Great Property Manager

Then you will have to interview property managers, this can be a big task but it’s not as bad as you would think. You will know what to ask because you have already been dealing with tenants for a year and will be better for it.

If you are ok with all of this, then consider real estate.

Are you ready? Because next up we are going to start with stocks.

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