There are a number of ways to increase your retirement wealth, but one of the most effective is through passive income. Passive income is a steady stream of income that you earn from past business activity as opposed to activities you perform today. For instance, when you work to earn a paycheck, that is active income because you have to do something right now to earn an income. On the other hand, if you write a book and receive royalties on the sales of that book for a period of 20 years, that income is passive because you’ve already done the work and earn your income on past labor.
Passive income allows you to increase your current standard of living as well as save for your future retirement. Instead of spending the extra income you earn from your past work efforts, you could invest it and save it for retirement. Here are some three ways to earn a passive income from real estate.
- Renting – If you don’t mind being a landlord, you could buy up properties and rent them out. There are several ways to earn passive income from rental units. You can purchase single-family homes and rent them out as long as you don’t mind looking after each property. Another option is to specialize in multi-family units like apartment buildings and condominiums. With that strategy, you can have several rental units with one property. Commercial properties are another option. With this method, you can invest in shopping malls and shopping centers, rent out space to other businesses, and earn a passive income from that real estate. The advantage to commercial rental property is that these tenants tend to be long-term, as in 10 to 20 years, as opposed to 6 months to a year for residential renters.
- REITs – Real estate investment trusts are like mutual funds but the investments in the fund are real estate properties. When you buy shares in a REIT, you are buying a part of the real estate investments within the fund. It’s similar to buying stock. Over time, the REIT will pay out dividends and you can reinvest those dividends in the REIT or in other types of investments.
- Marketplace lending – A third way to earn passive income from real estate is with marketplace lending, also called real estate crowdfunding. Through platforms like Sharestates or Syndicate Profile, you can find properties to invest in that are either debt instruments or equity vehicles. Debt-based crowdfunding means you are loaning your money, along with other investors, to a property owner or developer to use for a project. That money will then earn a passive income for you until the loan is paid off, usually up to 12 months. Equity-based real estate crowdfunding allows you to buy interest in a real estate project, again, along with other investors, and when that property sells, you get back a return on your investment equal to the portion of equity you purchased in that real estate. Many marketplace lending investors reinvest their earnings through the platforms, building up a retirement nest egg of passive income returns.
There are other ways to earn passive income, but real estate is one of the most lucrative ways to earn for your retirement.