Tips To Generate Passive Income With Multifamily Real Estate

Having a good source of passive income is something that doesn’t happen overnight. There’s so much written about how you can work less and make more money with passive income, but rarely good insight on how to make this happen.

At this point, the sheer amount of information about this subject on the internet might be overwhelming. Fortunately, we’re here to lend a hand and share our own tips to generate a good source of passive income through investing in multifamily real estate.

All big things come from small beginnings

Unless you’re fortunate enough to have a lot of capital to start your journey into passive investing, you might want to maintain your expectations in check. 

Everyone gets into real estate investing under the promise of making a lot of money, 

But if you’re just starting up, this is rarely possible.

The best you can do is to shift your focus and start small, especially if you have never done anything like this before. 

Starting with small properties will teach you the ups and downs of investing with relative safety. Once you get the hang of it and build enough confidence, just find another property to invest in. 

As long as you keep putting money back into investing, eventually you may see exponential growth.

Start with Turnkey Properties

Assuming you have little to invest in, turnkey properties are your best option to start generating passive income as soon as possible. 

According to Investopedia, a turnkey property is a fully renovated home or apartment building that an investor can purchase and immediately rent out. 

If you follow our first advice and combine that strategy with acquiring turnkey properties, you’ll make enough money to eventually escalate into the best wealth-building vehicle: value-add property.  

Invest In Value-Add Properties

After you have accumulated enough experience with multifamily properties, and have a good understanding of an area, It’s time to move on to the big leagues. 

Value-add Multifamily properties can significantly increase your earnings if you put enough time, effort, and capital into developing them.

The best part is that over time you can still make improvements to meet the increasing demand, and when you want to cash in, you can sell for a much higher price than what you originally paid.

Use what you have learned so far to go into multifamily real estate. They have the biggest returns when it comes to passive income. The latest trends show an increased demand in apartment complexes and assisted living facilities, thanks to demographic phenomena like “The Silver Tsunami”.

Location Matters A Great Deal

Location is probably the most important thing you need to consider when finding the right properties.

The main variables to consider about an area are rents (which should be high enough for you to make a substantial profit), the current economic activity, and the employment rate.

Even though those metrics are few, they will tell you everything you need to know when you’re evaluating an area to invest in. Good economic activity and services drive up the prices of rental property and make the area more desirable to move to.

Also, if your location isn’t that great for acquiring rental property with good profit margins, don’t be afraid to look out of state. Do some research on cities that are currently experiencing economic and demographic growth, like Texas, Arizona, or Nevada, for example. 

Avoid decadent housing markets like California, which is currently going through an exodus of people because of overpopulation, lower quality of living, high-income tax rates, wildfires, and horrible traffic.

To give you an idea, as of 2020 California has 39 million inhabitants, which is more than the number of people living in Canada.

Remember that a location being popular doesn’t mean it is good for investing. Do your due diligence! Find a place where the rent is high or going up and where property values are on the rise.

See Other Investors As Allies

When adopting an entrepreneurial mindset, most people tend to think in terms of competition. You’ll see the success of others and you’ll either want to replicate it or surpass it. We all want to rise above and become the best.

What most people forget is that in every meaningful area of life, you’ll need masters; people that have walked the path and can offer insight. Successful people aren’t concerned about being outperformed because they’re too busy performing!

So one of the best moves you can make is to network with other investors, particularly those involved in the same type of investing. They’ll be able to give you some good advice about the areas and types of properties that do well. 

You may see other investors as competition, but you can be much more successful if you adopt a different mindset. See them as allies and you’ll be able to start generating passive income by discovering the most successful strategy available with them.

Build A Business That Can Run By Itself

The idea is to gradually be more hands-off with your properties, so you have more time to live the life you want. 

To make this happen there are 3 essential things you need to do:

1. Hire Great Property Managers 

Since they will be acting in your stead, you need to give careful consideration to this decision. Start by meeting with different people and see if their core values are aligned with yours. 

You might be tempted to follow other people’s recommendations and hire someone with a good rapport right away to save time, but remember that what works for other people might not work for you. 

Take time to develop your own criteria. Be clear with your expectations of them and always try to communicate to the best of your ability. You’ll be rewarded in the long run.

2. Assemble A Star Team

A business that can run without you can’t happen if you don’t go beyond hiring a property manager. Walking the extra mile means ensuring every person who will work on your properties is on board with your expectations. 

Take the time to talk with contractors, explain what your objectives are, and take time to be as clear as possible. This is the best way to ensure things will go smoothly in a project and will save you a lot of headaches.

3. DO Your Research

Before making the final decision on a property, you need to do your underwriting. Check online records and talk with people experienced in the area.

But most importantly, don’t get your information from just one source, or else you’ll overestimate the potential of a property and lose money in the process

Cash flow isn’t the only thing to consider when it comes to investing in a property. There are other important variables like the cost of renovations and maintenance. You don’t want to be on the verge of bankruptcy because you invested in a property, especially when it takes some time for that passive income to start coming your way.

You will have to spend some time getting everything established, from building your team to the underwriting of properties, but after that, you will be able to cut your work time significantly and check from time to time to make sure everything is running smoothly.

Then, and only after you truly spend the time building a well-oiled wealth-building machine, you can think of sipping margaritas in the Caribbean while your money works for you 🙂