17 Passive Streams of Income from Real Estate


14. Crowdfunded Real Estate Loans

Not all crowdfunded real estate investments work like pooled funds where you buy shares.

As an alternative model, you can invest money toward specific loans, secured against real estate. You pick and choose the loans you want based on the interest rate, the loan term, the property location, the LTV (loan-to-value ratio), and the borrower’s qualifications.

My favorite of these real estate peer-to-peer lending platforms is GroundFloor. They allow retail investors (non-accredited investors), and you can make an initial investment as low as $10.

Best of all, GroundFloor issues short-term loans, so you don’t have to lock your money up for five years at a time. As a hard money lender, they provide short-term fix-and-flip loans for house flipping or the BRRRR strategy. You can invest in loans ranging in term from 6–18 months.

 

15. Private Notes

Of course, you could also skip the middleman and lend directly to the borrower.

A promissory note is the legal document that borrowers sign when they take out a loan. You can lend money to other real estate investors directly, and sign a private note with them.

I do this with investors I know and trust, who have a track record of success. For example, I lent $25,000 at 10% on an interest-only note to an investing couple I know. As an interest-only loan, they don’t make payments toward their principal balance — they pay me 10% of the loan balance each year as interest. That means $2,500 per year as a passive stream of income for me.

Often, sellers offer owner financing to their buyer when they sell a property. That way, they not only earn a profit from selling the property, but also interest on it as a stream of passive income.

You can negotiate any terms you like with the borrower. That includes interest rate, loan term, amortization versus interest-only, and any up-front fees such as points. So, you can invest for any period of time, as negotiated with the borrower. If you like, you can also record a lien against the property so you can foreclose if the borrower defaults.

Word to the wise, however: only lend money to experienced real estate investors you know and trust well. If they default, it falls to you to enforce the note and recover your money. “Neither a borrower nor a lender be,” and all that.

 

16. Joint Venture with a Partner

Not an accredited investor, and don’t qualify to invest in a real estate syndication?

You can always form your own partnership with another real estate investor or two and go in on a property together.

In fact, you don’t even need any real estate investing experience. You can partner with a veteran real estate investor and lean on their expertise and network of lenders, contractors, real estate agents, and beyond. You learn the ropes on a partnered deal or two, to build confidence before buying properties on your own.

For that matter, you don’t necessarily need any investing capital, either. You can offer to contribute your labor toward the deal.

And in the meantime, you can start building passive streams of income.

 

17. Co-Investing

Speaking of partnering on a joint venture real estate deal, sometimes we let novice investors partner with us.

We launched a real estate co-investing program in 2021, after years of talking about it. It works like this: if you’re a course student of ours, or someone else we’ve established some sort of relationship with, you can partner with us on deals we’re doing. You buy in as a partial owner of the property, whether it’s a flip, a BRRRR deal, or a turnkey rental property.

Make no mistake, these are long-term investments. But if an emergency comes up and you need to pull your money out, we can buy you out.

We only allow junior partners to join us on deals if we’re willing to put in at least 51% of our own money. Our skin is very much in the game — these are our deals, we just occasionally open them up to a few members of our community that we’re close with.

How do these differ from a real estate syndication deal? First, the financial investors don’t sign away any rights. Each partner maintains full voting rights in the LLC that owns the property. Second, partners split the cost dollar for dollar: if you put up $2,000 toward a $100,000 property, you get 2% ownership interest. We keep the upfront investment low, while letting you learn by doing and still earning additional income.

By structuring these deals as joint venture partnerships, not syndications, we can keep them open for non-accredited investors. Which is precisely our mission: helping middle-class people learn and build passive income through real estate.

 

Final Thoughts

How close are you to reaching financial independence? Are you close to building enough streams of passive income to cover half your living expenses? All of them?

Play around with our financial independence calculator to see where you stand.

Whether you’re just starting out or making fast progress toward financial freedom, aim to create a passive income stream every single month. That could be as simple as buying more shares in a REIT or setting up recurring investments with a real estate crowdfunding platform, or as involved as buying a new rental property. Each dollar of extra income you earn makes it easier to save and invest more, to compound and grow exponentially over time.

Where you stand today doesn’t matter. Just start making tangible progress every single month, and you’ll find yourself reaching financial independence faster than you’d think.

 

What are your questions about how to create passive income streams? What challenges do you face in building passive streams of income? Chat with us below!

 

 

More Real Estate Investing Reads:





Source link