Investing in real estate has become synonymous with some of the greatest “perks” known to business professionals, and for good reason; it’s not every day that you come across a business that offers the freedom and compensation that real estate is capable of providing. Few career paths, for that matter, can match the returns potential of a great real estate investor, let alone offer the flexibility of being your own boss. However, it isn’t till you combine the earnings potential of real estate with the freedom of entrepreneurship that you are made aware of the most sought after income stream of them all: passive income.
Savvy, seasoned investors are already aware of the perks associated with passive income, but those new to the game should take a minute to familiarize themselves with the concept.
According to Investopedia, passive income investing represents the “earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved.” It is essentially a stream of income that is received on a regular basis, with little to no effort required to maintain it. What’s not to like about that?
Without getting ahead of myself, I must emphasize that passive income is not entirely passive. Passive investment properties, for that matter, can certainly result in great returns with relatively minimal effort, but you must nurture them until they reach a certain point. In other words, you need to put the work in ahead of time before you can start to see reliable cash flow coming in without much effort on your behalf. Remember, just because it is passive, doesn’t mean you still don’t have to work for your money, at least in the beginning.
“Many people think that passive income is about getting something for nothing,” says Tresidder, founder of FinancialMentor.com, a financial coaching service. “It has a ‘get rich quick’ appeal, but in the end, it still involves work. You just give the work upfront.”
Not surprisingly, far too many new investors underestimate what it takes to generate consistent, reliable passive income. More often than not, they are shocked when passive income doesn’t come passively. Truth be told, it requires a lot of work on the front end before the cash can start to flow passively.
To get started, I recommend taking the following steps before you even consider buying a property:
1. Find An Inexpensive, Stable Market: Those new to the passive income field should really consider investing in cities with minimal entry costs. If for nothing else, those neighborhoods with lower costs are much more forgiving. New investors will have a much easier time building a rental portfolio if the costs aren’t too high.
2. Become A Local Market Expert: With knowledge in your corner, it is a lot easier to make competent purchases; even the slightest understanding of a market can entitle you to a better price point. That said, understand what your market is trying to tell you and use it to your advantage. There is no other way, at least that I am aware of, to get a home for well under market value.
3. Learn From The Best: I am a strong advocate of learning from those that have already realized success in the area you intend to. In fact, I think there are very few assets more important to a new passive income investor than a knowledgeable coach in their corner. Remember, you are not trying to reinvent the wheel. Borrow from what successful people have already done and there is a good chance you will see the same results. At the very least, they will offer you advice on how to approach certain situations and — better yet — situations to avoid.
Armed with the right knowledge, financial freedom is certainly easier to achieve. However, simply knowing what you should do and acting on it are two entirely different things. For your real estate business to become truly passive, you need to have the right systems in place that will remove you from the equation. In other words, you need to own your business, and not let your business own you. Only then will you truly be able to realize financial freedom through passive income.