If you have ever wondered how to grow your real estate business, and are more or less oblivious of the best ways to do so, you are not alone. In fact, the concept of scaling a real estate business in today’s promising landscape is not lost on anyone with even the slightest aspirations — it’s simply too lucrative of a business not to want to give it your all. Yet, there is a sobering truth clouding the industry. It’s a sad truth, but a reality nonetheless: The prospect of growing a real estate business is something many aspire to, but few fail to fully comprehend the best way to go about doing so.
At the very least, there are countless ways to scale a business and meet the demands of today’s exciting real estate industry. It’s not uncommon for real estate investors to focus solely on wholesales or rehab deals, as both offer promising vehicles for forward mobility. Some have even found the less conventional world of real estate investment trusts (REITs) to be a great way to grow a portfolio. It is worth noting, however, that there is one way to grow your real estate business that, for one reason or another, too many investors fail to recognize as a viable option: passive income.
Otherwise known as a buy and hold exit strategy, passive income has become synonymous with the pinnacle of today’s most successful real estate businesses. Who doesn’t love the idea of making money passively? What’s more, passive income strategies have become the preferred vehicle while saving for retirement, but I digress. Most people view passive income as an endgame; one that is more fit for retirement savings, not a catalyst for growing your business from the onset of your career.
Passive income ideas aren’t relegated solely to retirement savings, and you would be wise to remember that. While I would argue passive income is one of the best retirement vehicles out there, it’s also the perfect solution if you want to learn how to grow your real estate business.
I want to make it abundantly clear; learning how to grow your real estate business with passive income is not the only option you have at your disposal, nor is it the fastest. However, I am convinced that scaling your business through the means of passive income is not only viable, but an exercise in consistency.
What do I mean by that? Well, to put it simply, learning how to grow your real estate business with passive income is about as steady and reliable of an exit strategy as they come. I won’t sit here and tell you it’s better or worse than a strategy that relies solely on rehabs or wholesales, but it is another option to consider. Which route you choose to take when learning how to grow your real estate business is up to you. Just know this: it is entirely possible to grow your business through the use of a passive income real estate investing strategy.
Not unlike every other exit strategy, growing your real estate business through the acquisition of buy and hold properties requires an acute attention to detail and due diligence. Namely, if you are interested in learning how to grow your real estate business through the acquisition of passive income properties, you must first understand the concept of cash flow.
As Investopedia so eloquently puts it, cash flow “is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges.”
Quite simply, cash flow represents a passive income investor’s best friend; it’s essentially the reason investors get into real estate in the first place. Positive cash flow suggests the assets are performing well and allowing for profits to be made. Negative cash flow, on the other hand, “indicates that a company’s liquid assets are decreasing.”
Having said that, it’s only through the comprehension of positive cash flow that you should consider learning how to grow your real estate business with the help of passive income. If for nothing else, positive cash flow is the most fundamental principle associated with a buy and hold strategy; it’s the most important thing to consider when determining whether or not to invest in a passive income property.
To grow your real estate business with passive income, you must first seek out a property capable of producing positive cash flow; anything less is unacceptable. So be sure to conduct a thorough analysis of any deal that comes across your table. When all is said and done, any passive income property you buy must be worth it. The amount of money you expect to bring in, in the form of rent, should offset every expense, and then some. In other words, the numbers need to work in your favor — you should be making more than you are spending every month. And with the rate in which tenants are willing to exponentially increase their rental expenditures in today’s market, that shouldn’t be too hard. With any luck, a good rental property should be yielding approximately 30% cash flow. And while that number will differ in just about every market, it’s a decent rule of thumb to work off of.
If you have done your homework and managed to find tenants for your first rental property, you should be making money after you account for all of your expenditures. While a single rental property won’t net an investor anywhere near a typical rehab in the first few months, it’s the long-term potential that should excite you if you are learning how to grow your real estate business with passive income. If for nothing else, a rehab will result in a significant, one-time payment, whereas a rental property is the gift that keeps on giving. It’s conceivable that you can profit from a rental property for the duration of its existence, passively nonetheless. And therein lies the secret to scaling a real estate business through the acquisition of passive income properties.
It’s the passive nature of buy and hold properties that make them such a great tool for growing a real estate business. The more properties you acquire, the more you can net in rental income. However, it’s worth noting that, with the help of a property manager, there is no correlation between the amount you make and the time you spend working. With the right portfolio of rental properties, it’s entirely possible to increase your earning exponentially without working more. Simply continue adding positive cash flow properties to your portfolio, and voila. In no time, you’ll have saved enough money to buy your next property and start the process all over.
Again, learning how to grow your real estate business with passive income isn’t the fastest strategy. However, it does coincide with several advantages that other exit strategies fail to produce. Namely, the passive nature awards savvy investors with the ability to make money without investing more time. Moreover, it serves as the perfect retirement vehicle. Provided you mind due diligence, there is reason to believe your earnings will increase dramatically when each respective mortgage is paid off. So, again, while growing your business through the acquisition of passive income properties may not be the fastest method, it’s arguably the best long-term play.