The US housing market hit a total value of $43 trillion in 2021. With that much money in play, it isn't surprising that so many people try to make their fortunes in real estate. Rags-to-riches success stories are rare, though, so don't expect to strike it rich on investments alone.
While you won't be the next Bill Gates or Andrew Carnegie, that doesn't mean real estate isn't worth the investment. Investing in the housing market can generate passive income.
Passive income can give you well-needed financial security and help you live more comfortably. We'll discuss how real estate generates passive income in this article.
What is Passive Income?
Before we go any further, we have to define passive income. Passive income refers to any form of income that doesn't need any labor on the investor's part. This includes things like residual checks, stock dividends, and rental income.
Passive income is the result of any investment that will generate money over a sustained period of time.
Single-family homes are a common way to invest in property. They're often rented out to one family. Single-family homes are a great place to start in real estate investing because they're more affordable than most other rental properties while also pulling in a good amount of money.
Since these properties are larger than an apartment or mobile home, they can command a larger rental price. However, this comes at a risk.
The rental agreement can fall through and leave you without a passive income. You also run the risk of the house needing some kind of repair. This will cost you money because the tenants can deduct these repair costs from their rent.
If you pride yourself on being an organized person, you might consider investing in a multi-family unit. These units include things like duplexes, triplexes, and quadplexes. They make a great addition to your investment portfolio.
These properties offer an interesting advantage. They command a higher rent, but that rent is combined, so the residents share one rent payment. This keeps the rent reliable even when one resident moves out.
The downside is that there's more to keep track of. Multiple tenants mean there will be more personal qualms and concerns to deal with. It means more background checks.
Most of us know the basics of how an apartment lease works. You'll need to manage the affairs of every tenant, but you'll also collect payment from every tenant.
Renovations are also a different issue. Unlike multi-family units, a property upgrade to one unit will only increase the value of one unit. Plus, since you manage many units, each with its own connections and appliances, you'll have to fix things more often.
Real Estate and Passive Income
Real estate is an excellent source of passive income. We've discussed some possible sources of passive real estate income here, but you can never learn too much.
You can learn more about property management by reading our blog. If you're looking for a property to rent out in the Dallas area, we can help. Please contact us if you want to discuss available properties.