Today we’re counting down the top 5 best ideas for passive income in real estate.
Sure, anyone can build passive income streams with these passive income ideas. But since our audience is full of real estate professionals, we decided to focus on passive income streams that will take advantage of the skills and knowledge real estate pros already have. Huge bonus: our best ideas for passive income also complement your real estate business!
But before we dive in, let’s give you a quick passive income overview.
Quick note: this post was originally published in August 2019. This is the new, improved version.
What is Passive Income?
Passive income is when you make money even when you’re not actively participating in the money-making activity.
No, it’s not a get-rich-quick scheme. It may even be the opposite. It takes time for some passive income streams to develop and grow into a substantial amount of money. So the sooner you start, the better off you’ll be.
It’s also not for the lazy! Sure, it sounds like the lazy man’s solution to cash flow: make money while doing nothing. But it takes time and effort on the front end to pay off on the back end. It may even require months of work with zero payoff. But, when done right, it will reward you with years (or even decades!) of income that requires minimal ongoing maintenance.
“If you don’t find a way to make money while you sleep, you will work until you die.”
– Warren Buffett
If you read our post on the 7 Streams of Income for Recession-Proof Realtors®, you already know the 7 different streams of income most millionaires have coming in. But did you realize that 4 of those 7 are passive? Rental income, interest income, dividend income, and royalties income…you can make money in each of these 4 streams while you sleep.
As we countdown our top 5 best ideas for passive income in real estate, I’ll point out which of the 7 millionaire income streams are at play in each.
No time to waste, let’s get to it.
The 5 Best Ideas for Passive Income in Real Estate
Starting with number 5…
5. Write a Blog
Your first thought might be “Wait a second…blogging isn’t passive. I have to write a new blog post every week!”
But here’s the thing: you should be writing your blog post every week as part of your marketing strategy anyway.
Remember, blogging regularly boosts your SEO over time
so you can be found by buyers and sellers online (without buying leads from Zillow®!). Your blog also demonstrates your market knowledge and expertise, so it automatically builds trust and engagement with prospective clients. That’s why all agents should have their own website with a blog.
And since you’re investing the time in blogging for leads, why not make some passive income while you’re at it? You can publish a blog post once, and earn income from that post for months or even years into the future.
By the way, if you have more money than time, and want to generate true passive income, hire a blog writer to write your posts! You’ll get all the benefits of blogging without investing any time in it.
How to Make Money from Your Real Estate Blog
Here are your best options for making money from your blog:
- Affiliate links: You recommend an existing product to your readers via a link. Whenever a reader clicks your link and makes a purchase, you earn a commission at no cost to your reader! You’ll find affiliate links scattered throughout this site. We have links to real estate investing books on Amazon, website hosting from Bluehost, and the best website design for Realtors® on Themeforest. And yes, each of those links is an affiliate link! These are a win-win-win. The reader learns about a great product, the blogger earns a commission, and the vendor makes a sale. It’s like earning royalties income on a product you didn’t even create yourself!
- Ads: You’ll see a few Google ads on each of our posts. Most of these ads are pay-per-click, so if you click an ad on our site, we’ll earn a little money, even if you don’t buy anything. Each click can be anywhere from a few cents to several dollars. You can add ads to your real estate blog today!
- Sponsored posts: You may even be able to get paid for some of your posts. If, for example, you’re posting about home renovations, you could reach out to local contractors to see if they’d be interested in sponsoring your post for a fee. In exchange, the contractor would receive a mention and a link in your post.
To learn more, read our post How to Make Money Blogging About Real Estate.
4. Be the Bank
Banks earn interest income (income earned from lending money). And individuals can make money the same way.
You may have seen a seller carryback (aka seller financing or OWC for “owner will carry”) in your real estate experience. This is when the seller acts as a mortgage lender, providing the financing for the buyer and collecting principal and interest for the term of the loan. If the buyer defaults at any point, the seller can foreclose to regain legal ownership of the property.
Seller carrybacks are an example of interest income. The seller is earning interest by lending money to the buyer for the purchase of the home.
And you can do the same. If you have buyer clients who are having a hard time qualifying for a mortgage, and you’re willing and able to accept the risk, you could be your buyer’s lender. If they default, you can take ownership of the home and either sell it yourself or use it as a rental. This is commonly referred to as note investing.
Note Investing Made Easier: How To Buy And Profit From Distressed Mortgages by Martin Saenz is a good place to start learning about earning interest income through note investing.
Other Ideas to Make Passive Income by Being the Bank
Here are a few other ideas for earning interest income:
- Hard money loans: Hard money loans are similar to investing in real estate notes, but instead of being long-term mortgage loans, hard money loans are short-term (generally 6-24 months). Hard money loans might be used to fund a flip. You could issue a hard money loan to the flipper for the cost of the renovation at a whopping 10-15% interest rate. When the property sells, the flipper makes a tidy profit, and you earn exceptional returns.
- Tax liens: If your state is a tax lien state (as opposed to a tax deed state), you can buy a lien on the property at a predetermined interest rate. You’re not buying the property; you’re only buying a lien against the property. At tax lien auctions, investors typically aren’t bidding up on the value of the lien. The value is simply the amount of property taxes due. Instead, investors bid to see who will offer the lowest interest rate to the property owner for the lien.
Being the Bank made our list of the best ideas for passive income because once you issue the loan, you just sit back and collect your income. There’s very little you have to do from that point on.
The downside is that there can be a fair amount of risk, especially if the loan isn’t secured by real estate. Always do your homework before issuing your own loan for passive income.
3. Sell Digital Products
Digital products are products that can be delivered electronically. Selling digital products creates a Royalties Income Stream. Royalties are when you earn money by allowing others to use your work. Many real estate agents never even consider adding royalties to their income streams. It just doesn’t occur to most people that you could earn income in perpetuity for something you create once.
Here are a few examples:
- Templates and printables (you can sell these digital products on Etsy 24/7!)
- Stock photos and videos
- eBooks
- Online courses
My recommendation is to tie your digital products to your real estate business so that you’re actually marketing your real estate business whenever you sell (or even just advertise) your product.
Digital products are one of the best ideas for passive income for a few different reasons:
- Passive income potential: Once the product is complete, and you’ve done your initial round of promotions, you just have minimal ongoing promotions to continue your cash flow.
- Low cost to produce: It may just be the cost of your time to create and market the product (unlike physical products, which require financial investment in production).
- Positioning as an authority in your niche: Authoring a book (yes, even an eBook) or course indicates expert-level knowledge of your subject.
- More buyer/seller clients: Buyers and sellers in your area are more likely to find you online and trust you to represent them once your product is published.
- Recession-proof your business: You can create products that sell best in a slow market to boost your income when the economy slows. For example, you can write an eBook about how (and why!) to buy during a recession to reach buyer-clients in a cold market. Or write about property taxes to gain property tax appeal clients during an economic downturn.
Think about the knowledge you have and the things you’ve created to make your life easier. If you can productize these things, you’ll be able to jump-start your own royalties income stream.
2. Dividend Growth Investing
Dividend growth investing is an investment strategy that focuses on stock dividends rather than stock price performance. This creates Dividend Income.
Most stock market investors choose their stocks by analyzing the stock price trend. They try to buy stocks while the stock price is low, then sell when the stock price is high.
Dividend growth investing, on the other hand, more or less ignores stock price. Instead, it focuses on dividends, which are simply payouts a company makes to its investors. See, some companies like to reward their investors whether the stock market is up or down, so for every share you own, the company will pay you a small amount (usually every quarter, but that’s not a hard-and-fast rule).
Dividends are completely independent from stock market prices. The dividends can go up even as the stock market goes down. We talk a lot about recession-proofing here at Real Estate Side Hustles, and dividends are a great example of recession-proofing your investments.
Even during the Great Recession, Coca-Cola’s dividends increased every year. In fact, Coca-Cola has paid dividends to its investors every quarter since 1920, and the dividend amount has increased every year since 1963.
The concept is incredibly simple. You buy stocks that generate dividends, and you get a paycheck every quarter for doing nothing more than investing.
The trick to making dividend growth investing work for you is to start early and reinvest your dividends. Reinvesting your dividends means using your dividends to buy more of the stock (instead of taking them as income right away). The longer you reinvest your dividends, the greater your future payouts will be.
Done right, dividend growth investing may just be the easiest passive income you’ll ever make!
While it’s true that you could lose money on stocks in the short term, over the long term, balanced stock portfolios earn returns that rival real estate returns. And if you’re investing specifically for the dividend income, the growth in the share price of your stocks doesn’t matter so much anyway.
REITs (Real Estate Investment Trusts) are the industry standard for dividend income. By law, REITs are required to maintain dividend payout ratios of at least 90%. You can either accept your dividends as cash flow (ie dividend income) or reinvest the dividends to grow your investment faster.
To learn all about REITs, check out The Complete Guide to Investing in REITs – Real Estate Investment Trusts: How to Earn High Rates of Returns Safely by Mark Gordon.
1. Own a Rental Property (or 2!)
Real estate is one of my personal favorite investments. Here are just a few reasons why:
- Cash flow: Even if you finance your investment property, you’ll still enjoy a positive cash flow (assuming you did your due diligence to make sure the property would be a wise investment). This is aptly called Rental Income in the 7 Streams of Income. And once your tenants pay down your mortgage, your rental income cash flows skyrocket.
- Tax breaks: Even with the new tax plan, there will be plenty of deductions available for investment property owners.
- Appreciation: In addition to the cash flow and the tax breaks, real estate generally appreciates over the long term. Of course, the exact rates vary heavily between markets and years. So I really consider appreciation to be icing on the cash flow cake. This is known as Capital Gains Income in the 7 Streams of Income.
- Highly passive income: Once you have good tenants moved in, you’ll just need to handle a few repairs and a lease renewal annually. Or you could hire a property manager to make the income entirely passive.
- Perfect for real estate professionals: As a real estate pro, you already know your market and have insider information to help you make smart investment decisions. Plus the cash flow will help stabilize your income during your slow season or even through a down market.
- Asset-building: If you spend your spare time collecting smart rental properties, you’ll be able to build quite a property portfolio over the years. These assets give you options later in life. You will always be able to live rent-free in retirement. You can pass the properties along to your family, or you can liquidate the portfolio to leave behind a strong inheritance or charitable donation.
That rental income cash flow is the main reason rental properties top our list of the best ideas for passive income. But the capital gains income achieved through appreciation is like a whole other passive income you automatically receive when you own rental properties. I recommend tracking your net worth year-over-year so you can watch your net worth grow as your assets generate capital gains.
Want to learn more about investing in real estate, check out our Top 10 Real Estate Investing Tips for New Investors.
Do you agree with our list?
Have anything to add to our list of the best ideas for passive income in real estate? We’d love to hear your ideas. Leave them in the comments!
