How to Make Your Money Work for You? Real Estate (2024)

If you want to make money while you sleep, you need to learn how to make your money work for you. What we are talking about here is passive income.

Passive income is a crucial element in building wealth and attaining financial freedom. Some of the most popular strategies for making passive income include dividend stocks, network marketing, franchise fees, royalties, annuities or peer to peer lending. However, passive real estate investing is probably the best way of making your money work for you.

So, What Is Passive Income Real Estate?

Passive income real estate refers to any income that is generated without the real estate investor’s active, ongoing involvement. In other words, when you make your money work for you, you don’t have to exchange your time for money. With active income, if you don’t work, you don’t earn. In case something happens and you become incapacitated through illness, injury or any other misfortune, you automatically lose the ability to earn.

Here are some of the benefits of learning how to make your money work for you by generating a passive cash flow from real estate:

• Freedom of time – It is a fact that time is our greatest asset. Once it has passed, it is gone forever. Passive income gives you freedom of time since you don’t have to struggle to meet your financial obligations. When you make your money work for you, you can decide to travel the world, take up a hobby or settle down and begin a family.
• Less anxiety, stress, and fear of the future – Due to the inability to meet their financial obligations, many people suffer from anxiety and a sense of hopelessness. This stress affects you physically, spiritually, and mentally. Having passive income will help alleviate these fears.
• Ability to live and work from anywhere – For most people, travel is just a temporary event. When you make your money work for you, you can choose to live and work in Thailand, Singapore, Kenya, Mauritius or any other place on the planet.
• It allows you to pursue your passions – Are you passionate about music, art, sports or charity activities? Having a passive source of income will allow you to indulge in the things you love, not just what pays the bills

The Best Ways to Make Your Money Work for You with Real Estate Investments

Here are some of the best ways to make your money work for you in real estate:

1. REIT Dividends

If you want to invest in real estate without the cost and time of owning investment properties and managing them, consider real estate investment trusts (REITs). These are privately or publicly traded firms that pool investors’ cash to buy and manage commercial real estate investments. Since they pay not less than 90% of their taxable income to shareholders, REITs offer a higher dividend return, higher than many other stocks. REITs have a relatively low upfront cost and can be bought easily via a brokerage account. This makes them a great starting point for anyone looking for how to invest in real estate with no money or little money.

Related: What Is REIT and Is It a Good Idea to Invest in One?

2. Real Estate ETF Dividends

A real estate exchange-traded fund (ETF) is another great strategy for investing your money in real estate. Real estate investors can earn a good dividend return from a wide range of commercial real estate property types. Instead of purchasing individual shares of one REIT, a professional ETF manager will choose the best REITs to invest in.

Related: Get into Real Estate with Passive Income Investments

3. Crowdfunding

Also referred to as real estate syndication, crowdfunding is a relatively new strategy to become a real estate investor. In real estate crowdfunding, accredited investors pool their money together to allow a third-party sponsor to buy and manage income property. Returns in real estate crowdfunding vary depending on the sponsor’s structure and the specific investment opportunity. While some sponsors pay returns annually, quarterly or monthly, others offer a share of future profits from the disposition or sale of the investment property. Some of the most popular crowdfunding platforms include Fundrise, Rich Uncles, PeerStreet, EquityMultiple, and Groundfloor.

4. Rental Property

Buying multiple rental properties is the most popular way of making passive rental income in real estate. Some of the property types you could invest in include single-family homes, apartment buildings, condos, multi-family homes, and mixed-use developments. When buying rental property, you can also choose between investing in a long-term rental property or an Airbnb rental property. Whatever rental property type you select, income is earned through rent paid by tenants.

To generate passive cash flow with a rental property, you need two things: positive cash flow and a professional property manager.

For positive cash flow, the rental income earned should exceed the expenses of running the investment property. For instance, the rent on the property could be $2,000 a month and the expenses, $800 a month. This means that your cash flow is $1,200 per month, which is equal to $14,400 in annual passive income.

Before buying an investment property, make sure it is in the right location in order to achieve a positive cash flow. You can use Mashvisor to conduct neighborhood analysis before purchasing investment property. Metrics such as cap rate, cash on cash return, traditional and Airbnb occupancy rate, and optimal rental strategy will show you if a location is viable for investment. Working with an experienced real estate agent will also help you find the best investment opportunities in your desired area.

Owning investment property and becoming a landlord doesn’t mean that you must manage it all yourself. For your income to be truly passive, you need to consider hiring a rental property manager or professional property management firm to manage and maintain the property on your behalf. Roles of property managers include advertising the property, screening tenants, drafting leases, handling repairs, managing finances, and handling evictions.

Related: What to Do to Own Passive Income Real Estate

Conclusion

When it comes to how to make your money work for you, there is a common myth that you can’t really earn passive income in real estate. However, the truth is that you have plenty of options. Even with rental properties, you can significantly reduce the work that goes into looking for rental properties for sale and analyzing their viability by using the right real estate investment tools. And the rest can be handled by a property manager. With plenty of initial research and planning, you will enjoy a good passive income for years to come.