Many people started seeing real estate investment as a source of long-term income. Let us discuss how this can be a part of your financial plan?
Real estate is a good option as it is a long-term asset that is capable of earning you passive income. Wondering why?
Well then, the demand for residential and commercial spaces has been increasing with the rise in the population and economical investments.
Real estate investments are considered as an alternative asset class like stocks, bonds, golds, and company shares.
This investment comes with a wide range of options ranging from commercial opportunities such as office spaces, retail spaces, warehousing facilities, factories, etc.
It also expands into residential options such as apartments, co-living spaces, senior living spaces, etc. By investing in a wide range of rental properties you can earn a good income and also diversify your portfolio.
However, income generated through these immovable properties requires some amount of commitment. Active participation from the property owner can even increase the revenue.
Investing in commercial and residential properties such as a single-family home, condominium unit, or apartment complex, is often considered to be the best way for long-term revenue.
However, these options do not let you stay completely passive. As you need to delegate them to a property management company and require some sort of active participation.
It includes screening the tenants, fixing the repair, replacing the broken, recapped, or painted. So is investing in rental real estate a passive form of investment? Let’s understand the concept of passive income investing further.
Concept of Land Holdings Passive Income
The concept of passive income is the process of earning income through your investments without you participating.
In other words, you earn income by putting in minimal effort. There are two methods of earning passive income through real estate.
Direct Passive Real-estate Investing
Indirect Passive Real-estate Investing
1. Direct Passive Real Estate Investing
In the case of direct passive income, the investor buys a real estate property and then lets it out on rent.
While purchasing a whole property, it is common for the investors to hire the aid of the property management companies which takes care of the operational activities of the property.
They are responsible to carry out the maintenance process and also collect the rent on a regular basis.
By doing so, the investor can keep his hands off the property and still earn income from the possessions.
2. Indirect Passive Real Estate Investing
This concept of investment can be defined as the process of investing in land and building options that are not traditional.
That is, buying the physical property directly while investing indirectly in other options such as REITs and real estate-related mutual funds.
This form of investment is considered to be an indirect passive income investment option as it does not require your active participation.
By investing in these methods, you can earn long-term income through the dividend or return from your funds.
Different Methods of Passive Real Estate Investing
Time is precious and we have only 24 hours in a day. No matter what their age, occupation, religion is if the time once lost is ever lost.
It is the only thing on the earth that can never be recreated or re-spent. So, in the span of 24hrs, we need to earn, spend time with our family and ourselves.
One cannot spend the whole day running behind the money. So there comes the importance of Passive Income where we can earn money even while we sleep.
Most people do office jobs (or) work from someone where money is directly proportional to the time. This means you will get pay only when you work.
If you put leave (or) sick and not worked, you will not be paid. And this is not the case in the other method as you can make money even you sleep.
Now, here in this article, let me take you through the various methods of cool real estate investing ideas.
Real estate crowdfunding is a new investing option. Here several investors come together with a pool of funds towards a specific real estate deal or offer.
By investing using crowdfunding options, you enjoy the benefit of not actively participating and also acquiring large investment projects with little or less capital.
Property biased crowdfunding is also conducted using online investment platforms. The investors generally go to the online market and then browse through the various options available.
Later they can choose the best-suited investment option. Assetmonk is an online crowdfunding platform that offers investors various investment options in top Indian cities.
2. Real Estate Investment Trust (REIT)
Real estate investment trusts are corporations, trusts, or associations that are involved in investing money in income-producing land and buildings.
And that too without the expense of purchasing or maintaining an actual real estate property.
The concept of REITs also has more classifications such as equity, mortgage, hybrid REITs, Publicly traded REITs, Public Non-traded REITs, Private REITs, etc.
Investing in REITs can also be beneficial as it has a lower risk of investment as it includes less capital and also has a potential rate of appreciation.
I believe that everyone has experience in investing in Stocks and Bonds. This investment is also similar to that type of instrument.
3. Real Estate Funds
A real estate fund is a type of mutual fund investment that is made in the immovable asset sector.
These funds are mostly invested in REITs and offer certain benefits to their investors.
Investing in real estate mutual funds is also good to diversify the investor’s portfolio and maximize their returns.
A large portion of this pool of money is invested in commercial properties such as office spaces, retails, malls and shopping complexes, etc.
4. Rental Land and Building Property
Investing in rental properties may not let you stay completely passive and while require your time to time active participation.
By investing in rental real estate property, you can earn a steady flow of second income.
You can however make your investment completely passive by delegating the maintenance and responsibilities of collecting rent to a property management company.
Once the task of maintaining the property is transferred to the property management company, they are responsible to find the potential tenants for your property and ensure that all rents are paid on the due date.
Investing in passive income options may be a good option when you are looking to raise some additional cash to meet any emergencies.
Why Invest in Passive Income Methods?
One of the main reasons why people prefer to invest in real estate property is because it appreciates more over time in comparison to stocks and bonds.
The rental value of the properties has risen due to the increase in the inflation rate and also the cost of living.
A few factors that can hold you from investing in realty plots are its high capital requirements. However, options such as REITs, real estate mutual funds, crowdfunding, etc. have made investments more convenient and easier.
These investment options come with dividends and capital appreciation which makes them a potential alternative to stocks and other bonds.
Investing in real estate for passive income may be also beneficial and you have certain tax benefits that are offered.
Listed below are some of the top reasons why you should invest in real estate to earn passive income.
1. Portfolio Diversification
Investing in real estate may be a good way to diversify your portfolio.
By investing in several types, you can also reduce the investment risk even if one invested stake suffers.
It is considered to be one of the safest backing options as the value of real estate property appreciates over time and ensures high capital appreciation.
2. Steady Income
Investing in real estate will ensure you a steady income with little or no participation.
By investing in rental properties, you may have to carry out the maintenance and repair works along with collecting rent.
However, you can remain completely passive if you employ a property management company to carry out these functions for you.
As the population, cost of living, and inflation rates are increasing, the rental value of the property is also increasing.
Thus investing in rental properties means high and stable income.
If you wish to remain completely passive, then you may invest in a real estate investment trust or real estate bonds.
By investing in these realty holdings, you can earn dividends and capital appreciation. You can also exit whenever you wish too.
3. Perfect for Retirement Plan
Property Holdings is a perfect option if you are planning for retirement. Investing in rental properties is not only better because they are earning you rental income.
Many retirees prefer to invest in land and buildings as it is long-term financial security. The retirees look forward to investing in something that will earn them high returns.
This also ensures a regular income along with their retirement fund. Thus real estate becomes the ideal choice as it comes with both these benefits.
Investing in REITs and real estate mutual funds can also be a good option for retirees to earn passive income as they come with all the benefits of investing in stocks such as a dividend.
4. Tax Benefits
Investing in real estate also comes with a certain tax reduction. The Indian Income Tax Act provides for certain tax-free income when a property is financed through a loan under sections 24 and 80EE.
The deduction under both these sections is graded on the interest at which the property is acquired. You are eligible for a complete waiver of the amount if you let your property out on rent.
By renting properties, you can also claim the benefits of both sections if you satisfy the conditions. Avail of the benefits of Section 24 first and after exhausting, you can claim the benefits under Section 88EE.
5. Offers High Rates of Return
It is an indisputable fact that the value of the real estate property appreciates over time. This is also one of the main reasons why people prefer to invest in real estate.
The rapid developments in infrastructure, technology, and connectivity are some of the aiding factors for the appreciation of land and buildings.
Acquiring real estate properties through foreclosure auctions, etc. can be beneficial. Because the capital involved will be less and gives you a higher return on your investment.
In the case of commercial real estate property, the net operating income of your property plays a vital role in ensuring the high rates of capital appreciation.
Thus by investing in commercial real estate options with high net operating income, you are also ensuring yourself a higher return in the future.
Real estate investing can indeed be a great choice for investing. It ensures you a steady flow of income and a high rate of appreciation.
The real estate stake is not an asset with a high liquidity rate. But it acts as security in the long run and for acquiring bank loans.
Investing in the right possessions is a good source to earn passive income, however, you cannot remain completely passive.
You have to actively participate while making investments by cross-checking the documents and conducting due diligence on the property.
You also have to carry out the maintenance and repair activities. However, by employing a property management company you can remain completely passive and still earn good returns.
Assetmonk is a smart investment platform offering investment opportunities in top Indian cities.
Assetmonk also offers crowdfunding investment options to its investors, offering long-term and short-term benefits.
The properties have been categorized as growth, growth plus, and yield properties.
FAQ of Building Passive Income Through Real Estate Investment
You can make passive income from real estate by investing in rental real estate properties, REITs, real estate-related funds, or through options such as crowdfunding.
Real estate investments whereby you do not have to put in much effort or take active participation in the management of the property is called passive real estate income. These investments generally earn you an income in the form of rent, dividends, etc.
Real estate is a great option for earning passive income as it helps in reducing the risk and portfolio diversification. It also ensures a steady income in the form of dividends or rent. Real estate investments come with tax benefits and high rates of capital appreciation. It is a perfect peaceful option for retirees as well.