Reality TV makes it look as if most real estate investing involves active, dusty, dirty work on fixer-uppers for fast flipping. But in true reality, more real estate investing is passive and focused on long-term financial goals. Let’s look at a few ways you can create these passive income streams.
This is what most people commonly think of when they consider a passive real estate investment: buying a home or a multi-unit building that they’ll rent to tenants. For these to be truly passive, you’ll need to hire a property manager, who usually takes from 8% to 10% of the rent that’s collected. One of the best ways to finance such investment properties is with an Investor Cash Flow loan. Rather than relying on the borrower’s income or employment history for qualification, this unique loan considers the income that a property will generate for approval, available for amounts up to $3.5MM on one to four-unit properties.
Consider a Vacation Home
There’s no rule that says you can’t make money with a second home and enjoy it too. And rental platforms such as Airbnb have made that easier than ever before. To qualify as a vacation home for tax purposes, an owner must stay at the property for at least 30 days a year. The other 335 days could be open for the purpose of making you money. (Talk to your tax preparer to discuss the specifics of your situation.) Full Doc and Alternative Doc loan programs are specifically tailored to the financing of second homes and investment properties.
Using Cash-Out Refinancing
You may have enough equity in your home to finance the down payment on an investment property, or perhaps to even buy one outright. Cash-out refinancing allows homeowners to take out up to 80% of a home’s existing value. You’ll be replacing your current mortgage with a larger loan, and thus your monthly payments will increase, so the math will need to work out in your favor; the income generated from the investment property should be more than the increased payments. Remember to factor in that you’re also earning through equity on ownership of the investment property.
As the money one gets from cash-out refinancing can be used for anything, a real estate investment trust (REIT) is another good option. This truly passive investment works like a mutual fund, with many investors owning shares of one or more properties.
Are you ready to start generating passive income with real estate? Contact one of our loan originators today.
Disclaimer: Please note that underwriting guidelines are subject to change and may have already changed by the time you are reading this post. Always check with a mortgage loan originator for the most accurate and updated information on loan requirements.
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