Real Estate Passive Income 101

Most people seek to achieve financial freedom in their lives. Did you know it is possible to use real estate investments to generate a passive income stream, build a family legacy, and live life leveraging the principles of financial, time, and location freedom?

However, it is natural to express fear and hesitation around putting your hard-earned money into passive real estate syndication. Life Bridge Capital is here to help you navigate what passive income is, settle your fears, and explore how it can be your path to financial freedom. 

What is passive income?

Passive income is money earned from an investment that requires little to no effort to profit and maintain. To be considered passive, the income source should have minimal daily involvement. 

Passive income provides an additional revenue stream, much like a second job, without the daily active efforts and time commitment. Instead, the commitment comes up front in the form of time and/or money—then the investment returns revenue on an ongoing basis. 

Ways to Make Passive Income with Real Estate Investing

If passive income sounds interesting to you, take a look at some of the ways you could make passive income with real estate investing:

Real Estate Syndication

Real estate syndication is an investment strategy where a sponsor/operator locates properties and shares them with you as potential investment options. In a syndication, you are part of an investment group—or syndicate—that looks at the options your sponsor/operator presents and lets individual members decide whether to move forward with investing in that specific offering.

Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) offer another way to make passive income with real estate investing. REITs are companies that own or finance real estate properties that produce income. They then pay out at least 90 percent of their taxable income from those income-producing properties to the shareholders. Unlike real estate syndicates, however, working with REITs means investors are essentially buying ‘shares’ of the trust itself, rather than getting to pick and choose which properties they want to invest in. 

Self-Owned Rental Properties

Owning a rental property likely requires a significant upfront investment in terms of both time and money. Fortunately, investors can find properties at a variety of price points due to the many types of rentals that tenants demand. Leasing a home or apartment may seem the most likely, but commercial leases and short-term rentals also offer passive income opportunities.

Conquer Your Fears Around Passive Income

Fear: I don’t know if I could trust the syndicator/sponsor

It is understandable to be skeptical about a sponsor. After all, the sponsor underwrites the whole project, selects a property, renovates, manages, and eventually sells it. The sponsor will be the one making decisions on the investor’s behalf so you want to be sure you work with an experienced and reliable syndication sponsor. But, how can you do that? 

Vet the sponsor. Take your time to get to know them. Ask questions, get familiar with their background and speak with their past clients. Additionally, an investor and a sponsor should be able to establish open communication and should start building trust. A competent and trustworthy sponsor would be transparent about any aspect of the project, including the risks.

Fear: What if this turns out to be a scheme and I lose all my money

Most investors are afraid of losing their money from fraudulent get-rich-quick schemes, having been fueled by stories of uncles or cousins duped by shady investment deals. Here, performing due diligence becomes crucial. 

To protect your money, invest only in deals that will pass your rigorous assessment. If needed, ask the help of a professional to help you analyze the deal. Another way to protect your money is to diversify your investments among different markets or spread your investments among different syndicators. In the event of a recession, each market would be affected in different ways hence minimizing your overall risks. 

Fear: I won’t have the time to focus on my real estate investments

A passive investor need not fear a lack of focus on day-to-day operation because the sponsor or syndicator handles everything from finding the property, structuring the deal, arranging the transaction, and operating the asset. Passive investors will be able to continue working on their profession and maximize their income potential in syndication while essentially outsourcing their investment in real estate to somebody else.

Fear: Multifamily is too big and scary, I think I’ll start small

Big doesn’t always mean harder to do, just as small does not always mean easier. In fact, in multifamily syndication, it is the opposite for a passive investor. When you become a passive investor in a big multifamily property (think apartment buildings), you don’t have to worry about the day-to-day operations of the business, maintenance, dealing with tenants, etc. Investors simply buy shares of the investment, receive distributions, and enjoy the long-term outcomes of smart investing. 

If you choose to invest in smaller assets such as single-family rentals, you’ll indeed have control of the daily operation as a landlord. However, this comes with more responsibilities such as tax preparation, dealing with tenants, reserves for vacancies, and maintenance. It’s basically a full-time job with almost similar, if not lesser, returns than syndication investing.

Fear: What will happen to my investment if the market crashes?

No investment is risk-free. We have to accept the fact that it is impossible to eliminate all the risks and give a guarantee of resounding success every single time that we invest in a deal. However, real estate – particularly multifamily real estate – has proven to be among the safest investments available in the market. 

Compared to the stock market during the recent recession, the real estate market has recovered much quicker, attracting younger investors to put their savings in real estate rather than in stocks and mutual funds.

How to Create Passive Income

So, we now know that a truly great way to generate passive income is by investing in real estate, which offers multiple ways to create those passive income streams. Many people prefer real estate investing because of the tangible quality of the asset that they would own compared to stocks and mutual funds. In addition, without much work on the investor’s part, real estate properties increase in value over time – from which the investor will profit upon the sale of the property. Here’s some additional things to keep in mind:

1. Understand and set your goals 

Be specific with what financial freedom means for you. Envision and write down your goals: the kind of lifestyle you want to live, how much savings you want in your bank account, the amount of your investment portfolio, being completely debt-free. Then, evaluate your current financial standing and spending habits. Ask yourself – with your current standing, what do you need to do to reach your goals? Draw out a plan specifying the steps to get to your goals.

2. Replace Limiting Beliefs with Empowering Ones

Identify your own limiting beliefs and replace them with empowering thoughts and ideas. Telling yourself “I am worthy of an abundant life”, “I am ready for a life of joy and meaning” will give you motivation and a positive mindset to achieve your financial freedom goal.

3. Get a Mentor

Mentors give encouragement and guidance – especially when things get challenging. They are our sounding boards who we can bounce ideas off of, and count on to tell us their honest opinions. Keeping a mentor by your side as you work toward your goal eases your worries by knowing that there is someone you can trust who has your best interests in mind.

4. Network and Build Your ‘Team’

Building community with people who share your values and passion, and complement your strengths and weaknesses is essential in attaining your financial freedom goals. Your combined skills will be beneficial for all members of the group as you stand to benefit from each other’s expertise and experiences, and help each other reach your goals.

5. Strengthen Your Ability to Store Money

Learning to prioritize between the things you need and the things you want, and making small adjustments to your lifestyle and spending habits will help you reach your goal faster. Developing the mindset of living life to the fullest with less while nurturing an outlook of gratitude with what you do have will help change your perspective about wealth.

Is Real Estate Investing Right for You?

Your earning potential is not capped at the salary your career offers, nor is it reliant on labor-intensive second jobs. If you’re looking for viable ways to generate passive income, consider the real estate investing opportunities mentioned here.

What do you think? Is real estate investing the right fit for your lifestyle? If you’d like to do a bit more research first, the Real Estate Syndication Show podcast is full of helpful information about real estate investing. Reach out to us if you need any resources to help you make a decision or if you’d like to learn more about passive investing. Our team will be glad to assist you. You can also email us at [email protected] to see if Life Bridge Capital’s investments are a fit for you!

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