If you had $20,000, how would you spend it? One of the smartest things you could do if you suddenly came into an extra $20,000 – or managed to save that much money over time – would be to invest it. But where? And how?
The right answer differs for everyone and depends on your financial objectives, comfort level with risk, and time horizon. This guide illuminates 10 ideal ways to invest $20,000 and maximize your returns.
Set Your Investment Goals and Assess Your Risk Tolerance
Establishing clear financial objectives and measuring your tolerance for risk should serve as the cornerstone of your investment decisions. For instance, if you’re eyeing retirement, long-term investments like stocks or real estate might be right up your alley. Conversely, if your goal is to accumulate funds for a house down payment in five years, safer options like a high yield savings account may be more appealing.
Risk tolerance plays an equally critical role. If the thought of market volatility unsettles you, safer options with lower returns might suit you better. But if you can handle a higher level of risk for the prospect of higher returns, you might explore riskier ventures like individual stocks or even cryptocurrencies. A consultation with an in-person financial advisor can help you decipher your financial goals and risk tolerance.
10 Best Ways to Invest $20K
As you prepare to grow your $20k investment, an array of options awaits. Your financial goals, risk tolerance, and timeline will guide you to the ideal choice. Here are 10 ways to strategically invest your $20k:
1: High-Yield Savings Accounts
High-yield savings accounts are a low-risk, steady-growth choice for those looking to invest $20k. They offer more competitive interest rates than traditional savings accounts, meaning your money works harder for you. The Federal Deposit Insurance Corporation (FDIC) protects these accounts, offering an additional layer of security and peace of mind.
This investment route is particularly beneficial if you prefer having your emergency fund accessible, or if you’re saving for near-term goals. Despite the returns being lower than riskier investment options, the safety and stability they provide make high-yield savings accounts an attractive option for many investors.
2: Bitcoin
Bitcoin has emerged as a prominent player in the investment world, offering a high-risk, high-reward dynamic that appeals to some investors. The value of Bitcoin is notoriously volatile, yet its remarkable growth cannot be ignored.
Over the past decade, Bitcoin has experienced gains exceeding 5,700%, significantly outpacing traditional markets like the NASDAQ, which had a gain of 336% over the same period. Even within a five-year timeframe, Bitcoin still came out ahead with a 96% increase compared to the NASDAQ’s 69%.
Given its digital nature and decentralized structure, investing in Bitcoin can be complex and fraught with unique risks. Unlike traditional currencies, Bitcoin operates independently of a central bank. Furthermore, its value is susceptible to sharp fluctuations influenced by a variety of factors, including market demand, investor sentiments, regulatory news, and macroeconomic trends.
Ready to dive into Bitcoin investing? Consider Swan Bitcoin, where you can easily set up recurring buys or make instant purchases right from your bank account.
3: Stock Market Investing
Stock market investing is a viable path for those seeking to grow their $20k investment, especially for long-term financial goals. Today’s investing apps make it easy to start investing with as little as $1 and to diversify your investments with fractional shares if you desire.
When considering individual stocks, potential returns can be substantial, but they often come with a higher level of risk. By holding a variety of stocks across different sectors and regions, a diversified portfolio can help mitigate these risks, providing a buffer against market volatility.
As an investor, it’s important to remember that past performance doesn’t guarantee future results. The stock market has demonstrated remarkable growth over time, but it’s not immune to periods of downturn. Staying resilient and maintaining a long-term perspective can help you deal with these fluctuations.
4: Mutual Funds and Exchange-Traded Funds (ETFs)
Mutual funds and ETFs offer investors an easy way to diversify their portfolios. These funds allow investors to buy a stake in a wide range of stocks and bonds, spreading the risk and potentially improving the returns over time.
Financial institutions manage mutual funds and ETFs, charging management fees for the expertise they provide in managing and selecting the assets within the funds. While mutual funds often require a significant initial investment, ETFs are more accessible for investors, as most brokerage firms offer a wide variety of ETFs with no minimum investment requirements.
Index funds, a subtype of mutual funds or ETFs, aim to replicate the performance of a specific market index, such as the S&P 500. These types of funds are a popular choice among passive investors due to their typically lower management fees compared to actively managed funds. The strategy of mimicking the market rather than attempting to outperform it allows investors to enjoy broad market returns while keeping costs low.
5: Bonds and Treasury Securities
For more conservative investors, bonds and Treasury securities offer a safer, lower-yield alternative. When you purchase a bond, you’re essentially loaning money to a corporation or government entity. In return, you receive interest payments over a specified period and the return of the principal amount at the bond’s maturity.
Treasury securities are a type of bond issued by the U.S. government, widely regarded as one of the safest investment vehicles. For broader exposure, bond ETFs and bond mutual funds allow you to diversify across different types of bonds, reducing the impact of any single bond defaulting.
6: Robo-Advisors
For those who prefer a hands-off approach to investing, robo-advisors can be an excellent option. These digital platforms create and manage your investment portfolio using sophisticated algorithms, taking into account factors such as your risk tolerance, investment goals, and time horizon.
Robo-advisors typically charge lower fees than traditional financial advisors, making them a cost-effective choice, especially for beginners or those with simpler financial situations. They offer a straightforward path to diversification and automatic portfolio rebalancing, reducing the need for constant monitoring and manual adjustments. It’s an appealing solution for those looking to invest $20k while minimizing time and effort spent on investment management.
Most robo-advisor platforms offer exposure to stocks, bonds, ETFs, and mutual funds.
7: Real Estate Investing
Real estate has proven to be a lucrative asset class for many investors. Income-producing real estate, like rental properties, can generate a steady flow of rental income, with potential property appreciation over time. However, property management can be time-intensive and comes with additional costs such as maintenance and property taxes.
If the idea of becoming a landlord doesn’t appeal to you, you might want to consider investing in real estate investment trusts (REITs). These publicly-traded companies own, operate, or finance income-producing real estate, allowing you to dip your toes into real estate without the hassle of managing properties.
8: Peer-to-Peer Lending
Peer-to-peer lending, an alternative form of investing, involves lending money to individuals or small businesses through online platforms that match lenders with borrowers. As an investor, you can potentially enjoy higher returns than those offered by traditional savings or money market accounts. However, this approach comes with its own set of risks, including the risk of borrower default.
To safeguard against potential losses from defaults, it’s wise to diversify your lending across different borrowers. This practice, similar to diversification in a stock portfolio, can help spread the risk, increasing your chances of overall success.
9: Investing in a Small Business or Start-up
Investing in a small business or a start-up offers an opportunity to potentially reap significant returns. However, it is a high-risk venture and typically requires becoming an accredited investor. As an accredited investor, you’ll need to meet specific income and net worth criteria, emphasizing the fact that this investment option is not for everyone.
Due to the inherent risk, this investment path should only be considered if you’re financially secure enough to withstand potential losses. Remember, while investing in a burgeoning business can be lucrative, it could also result in losing your entire investment.
10: Education and Skill-Building
Often overlooked in investment discussions, investing in yourself through education and skill-building can offer meaningful long-term returns. Whether it’s advancing your current job skills, earning a new certification, or exploring a new field, enhancing your knowledge base and skills can lead to increased earning potential and greater job satisfaction.
While the returns may not be immediate or easily quantifiable like other investments, investing in your personal and professional growth can open doors to new opportunities and provide long-lasting benefits. This is a valuable investment that you can make, regardless of market conditions.
What to Consider Before Investing
Before you venture into investing, it’s crucial to have an emergency fund, ideally three to six months’ worth of living expenses, set aside. Additionally, paying off high-interest debt, like credit card debt, should be a priority. The average credit card account interest rates often outpace the returns you’d earn from investments.
Consider the tax implications of your investments. Some investments, like taxable brokerage accounts, are subject to capital gains tax, while others, like Roth IRAs, offer tax-free income in retirement.
Finally, diversification is a key strategy to manage risk. By spreading your money across different types of investments (stocks, bonds, real estate), you can better weather market fluctuations.
Conclusion
Wisely investing 20k requires careful consideration of your financial goals, comfort level with risk, and investment timeline. Whether you choose high-yield savings accounts, the stock market, real estate, or another option, the goal is to grow your wealth over time and move closer to achieving financial freedom.
Regardless of your chosen path, remember that investing involves risks, including potential loss of principal. So, it’s crucial to review any investment strategy periodically to ensure it still aligns with your financial objectives. Consider seeking advice from a financial planner or other professionals to help guide your investment journey.
Looking for a real estate side hustle? Whether you are looking for passive income ideas or if you are looking for a part-time job (or more!), there are many different real estate side hustles. I have done a few different real estate side gigs, and I know many people who have side hustles in this…
Looking for a real estate side hustle?
Whether you are looking for passive income ideas or if you are looking for a part-time job (or more!), there are many different real estate side hustles.
I have done a few different real estate side gigs, and I know many people who have side hustles in this area as well. To get started in real estate, you don’t have to spend a lot of money – there are several real estate side gigs that can be started even if you are brand new or are on a budget.
Key Takeaways
Real estate side hustles have a range of options from income generating assets to freelance opportunities to office jobs.
You can supplement your income with both short-term and long-term real estate strategies.
Finding the right fit depends on your availability, investment capacity, and financial goals.
Best Real Estate Side Hustles
Here’s a quick summary of some of the different best real estate side hustles:
House hacking: Buy a property, live in one unit, and rent out the rest.
REIT investing: An easy way to start investing in real estate with less capital.
Airbnb rentals: Rent out a spare room or an entire property on a short-term basis.
Property management: If you’re organized and good with people, managing properties for others could be a perfect fit.
Long-term rentals: Becoming a landlord can generate steady cash flow.
Fix and flip: Buy properties that need work, renovate them, and sell them for a profit.
Below, you will read the full list and learn more about each one.
1. House flipping
Flipping houses can be a good real estate side hustle if you like real estate and enjoy fixing things up.
When you flip houses, you’re basically buying homes, making them better with repairs and upgrades, and then selling them to make more money.
The first thing to do for a successful house flip is to find a property that can be made better, such as by looking for homes in neighborhoods that are getting better or have room to grow. Think about things like where it is, what the market is like, and the condition of the property.
Before putting money into anything, it’s important to carefully look at the finances. You’ll want to figure out how much it will cost to buy, fix, and keep the property, and think about things like the cost of materials, paying workers, getting a loan, and the costs while you’re fixing things.
To flip a house well, you need to make smart changes that make the property better, without spending too much, by concentrating on important areas like the kitchen and bathrooms, and fixing any big problems with the structure or safety.
Recommended reading: 10 Best Books on Flipping Houses To Make Money
2. Investing in REITs
Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-generating real estate. They are a way for you to invest in real estate without directly managing or owning properties.
An REIT is like a company that owns and takes care of real estate that makes money. They sell shares of this company to people, kind of like how stocks work.
When you invest in REITs, you can earn money from the real estate world without actually owning any property. So, if you don’t want to deal with being a landlord, this could be a good option. It’s way less work than owning property and handling it yourself.
You can even spread out your money and invest in different kinds of properties with REITs, like houses, offices, factories, and stores.
3. Getting a roommate
Getting a roommate in your home, whether that be a full-time roommate or renting out an extra room in your home short-term on Airbnb, can be a great real estate side hustle that doesn’t require very much work from you.
The earnings you can make from having a roommate depend on things like:
Where your home is (an expensive area? rural?)
The space you are renting to a roommate (for example, do they get their own bathroom? private entrance available?)
To find a roommate, you can share about it on your own Facebook page, put up an ad on sites like Craigslist, or make a rental listing on Airbnb. There are lots of places where you can let people know you’re looking for a roommate.
I have had many roommates in the past when I was younger and had a home with spare bedrooms. I would rent them out to long-term renters and people that we personally knew (such as friends and my sister).
Recommended reading: Tips For Renting A Room In Your House.
4. Airbnbs and vacation rentals
Turning your property into an Airbnb or other short-term rental can be a way to generate extra income. This is when you rent out your space, whether a full house, an apartment, or just a room, to travelers for short stays.
Before starting your Airbnb side hustle, be sure to:
Check local laws: Make sure short-term rentals are permitted in your area. There are many areas nowadays that are more strict when it comes to short-term rentals.
Understand the financials: Calculate potential earnings against expenses like mortgage, utilities, and maintenance.
Set up your space: Furnish and decorate to create a welcoming environment.
Market your rental: Use high-quality photos and create listings on rental platforms like Airbnb and Vrbo.
The amount you can earn can vary, with some hosts making around $5,000 to $10,000 a month or more, but this depends on factors such as location, rental type, and occupancy rates. Always plan for occupancy ebbs and flows – it’s part of the short-term rental business.
5. Real estate photography
If you’ve ever looked at a house listing and thought that the pictures looked awful, then this may be the real estate side hustle for you.
Real estate agents many times hire out for the photography side of selling a house, as they know and understand how important good pictures are.
Real estate photography is all about taking pictures of houses and spaces to grab the attention of people who might want to buy them. Real estate photographers might take pictures of the outside of a house, the backyard, the living room, attic, bathroom, and more.
You can start with the equipment you likely already have, like your smartphone, which can work well because phones these days have great cameras.
How you show a property can really impact a client’s chance of selling it. Your photos are not just pictures; they’re an important part of how the property gets advertised.
As you continue with this real estate side hustle, you might think about getting better equipment (like a real camera!), but for now, practice paying attention to details and getting better at taking pictures.
If you’re thinking about doing something extra to earn money in real estate, photography could be a great choice.
Recommended reading: 18 Ways You Can Get Paid To Take Pictures
6. Real estate drone photography
Drone pilots sell real estate photography services to help real estate agents showcase the properties they are selling.
When property listings include pictures from various angles and heights, it gives a different perspective compared to regular photos. This helps show aspects of real estate that traditional pictures might miss.
When you sell property photography services using your drone, you’re providing a valuable service to real estate companies that want to stand out in a crowded housing market.
Homes are increasingly being sold using drone photos, and it’s understandable because they can showcase the surroundings of a home. Also, potential home buyers can see the entire property and house through a drone picture, giving them a better understanding of what the home includes.
Recommended reading: How To Make Money With A Drone
7. Long-term rentals
A long-term rental is when you rent out a property for a long amount of time, usually six months to a year or even longer. An example would be renting out an apartment or house to a family to live in full-time.
Long-term rentals are different from short-term rentals like vacation homes or Airbnb listings. They are meant for people or families looking for a longer place to live.
A benefit of long-term rentals is the reliable and steady income they can give you. When you rent your property to tenants for an extended period, you set up a regular cash flow of rental payments. This stability can be especially nice for people who are looking for a dependable source of passive income.
Plus, it’s usually less work than a short-term rental, because you don’t have to clean the home every few days or find new people to rent out to.
Recommended reading: How This 34 Year Old Owns 7 Rental Homes
8. Buy and hold for long-term wealth
If you want to grow wealth through real estate, the buy-and-hold strategy is a way to achieve lasting growth. This means buying a property and keeping it for an extended period, benefiting from both its increasing value over time and the rental income it makes you over the years.
Some positives to think about with a buy-and-hold real estate side hustle include:
Appreciation: Over time, real estate often increases in value.
Rental income: It can provide a steady cash flow each month.
Tax advantages: Possible deductions can reduce your taxable income.
The buy-and-hold strategy requires patience and a willingness to handle market changes. It’s a long-term approach, not a quick one, but if you stay persistent, you can create an investment portfolio for future financial stability.
9. Notary services for real estate
If you want to get more into the real estate world without becoming an agent or broker, becoming a notary public can be a way to make extra money.
Many documents, including deeds, mortgages, and power of attorney, require notarization to be legally binding.
With a notarization license, you can provide an important service required for different real estate transactions.
Notaries are important because they help make sure that the people signing documents are who they claim to be to prevent fraud.
10. Rental arbitrage
Rental arbitrage is a way to make extra money in real estate without owning a property. You rent a place for a long time and then sublease it as a short-term rental using platforms like Airbnb.
Here’s how to get started:
Check local laws: You’ll want to make sure your city or state allows for short-term rentals.
Make sure the rental allows for you to do this: Not every rental will be okay with you renting it out. You will want to read your rental contract carefully.
Do market research: Understand the demand for short-term rentals in your target area, such as by looking for locations with high tourist traffic or business conferences.
Potential Benefits
Considerations
+ Strong cash flow potential
– Initial setup and furnishing cost
+ Low startup costs compared to buying
– Dependence on short-term rental market stability
Making money in rental arbitrage comes from the difference between the cost of the long-term lease and the income from short-term rentals. The bigger the gap, the more potential for profit. But remember to factor in the expenses of running the rentals, like cleaning and maintenance costs.
11. House hacking
House hacking is a strategic approach to real estate where you purchase a property with multiple units and live in one unit while renting out the others. This is a side hustle because it can help offset your living expenses through the rental income.
House hacking can be an easy starting point if you want to dip your toes into real estate investing with the added perk of reducing your personal living expenses.
Back when we were living in a traditional house, we house hacked for a little while and had a few different roommates live with us. The monthly rent we collected allowed us to lower our house payments and put more money in savings.
We house hacked with our first house, and it was really great for us. Being able to set more money aside even helped me get ready to quit my job to become a full-time blogger.
If you are looking for a good book on the subject of house hacking, then I recommend reading The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom by Craig Curelop.
Recommended reading: What Is House Hacking & How To Live For Free
12. Real estate agent
A real estate agent is a person who helps people, like you and me, find real estate to buy or sell. They usually earn their income through a commission, which is a percentage of the property’s sale price.
To become a real estate agent and start this real estate career, you only need a high school diploma and a professional license. As of 2021, the median pay, according to the U.S. Bureau of Labor Statistics, is $23.45 per hour, or $48,770 per year.
And, there are tons of real estate agents who make a lot more money than this.
13. Crowdfunding and peer-to-peer lending
If you want to learn how to make extra money in real estate, then crowdfunding and peer-to-peer lending are areas to look into.
Crowdfunding platforms allow you to invest in real estate deals with a smaller amount of money compared to purchasing property outright. This can provide you with passive income through rental returns or potential property value appreciation.
Peer-to-peer lending platforms enable you to lend money directly to borrowers. You can potentially earn higher returns compared to traditional savings accounts, but there is always the risk of a borrower not repaying the loan.
Both crowdfunding and peer-to-peer lending utilize technology to connect investors with individuals seeking funding.
14. Bird dogging
Bird dogging in real estate can be a side hustle where you help find potentially profitable properties for investors. Your skill in spotting undervalued or distressed properties is important.
Here’s what you usually need to do:
Conduct market research to locate properties that are flying under the radar.
Build a network with local real estate investors who are looking for deals.
Learn to use the Multiple Listing Service (MLS) to spot opportunities.
Typically, you’ll be on the lookout for foreclosures, bank-owned properties, and distressed homes due for a quick sale.
As a bird dog, your compensation usually comes from a referral fee after the investor decides to move forward with your find. Importantly, to perform this role, you don’t necessarily need any initial capital, just the time and skill to identify promising investment opportunities.
15. General contractor
General contractors handle the day-to-day activities on construction sites, overseeing tasks from residential remodels to constructing new homes.
This is typically more of a full-time job, but this can sometimes be done as a real estate side hustle.
As a general contractor, you can choose projects that match your schedule and interests, providing flexibility. Despite the responsibilities, this role allows you to play a central role in turning plans into actual buildings, giving you the potential to make extra money.
16. Flip raw land
Getting involved in raw land flipping is when a person finds and buys undeveloped land to sell later at a profit.
The main benefits include a lower initial investment and less complexity compared to traditional real estate investments, as it doesn’t involve renovation or improvements. There are no buildings, instead it may be a lot or acres of land.
Here’s a step-by-step guide on how to start:
Find raw land – Research areas with potential growth or upcoming developments that could boost land value.
Due diligence – Perform thorough checks on land titles, zoning laws, and road access to avoid legal issues.
Pricing strategy – Your selling price should be attractive enough for buyers yet ensure you make a reasonable profit margin.
Sell and negotiate – Use online platforms to reach potential buyers and negotiate the best deal.
17. Rent out your storage space
If you have unused land or space in your home, renting it out for storage space can be an easy way to make passive income.
People have a lot of stuff, and they will pay you to store their stuff in your unused spaces.
You can sell storage solutions for vehicles, boats, personal belongings, and more. You can rent out your parking space, closet, basement, attic storage, and more.
A site where you can list your storage space is called Neighbor and you can earn $100 to $400+ each month. This depends on the demand in your area and the type of storage space you are renting out.
Recommended reading: Neighbor Review: Make Money Renting Your Storage Space
18. Property manager
A property manager side hustle can be a great way to make extra money.
A property manager is a real estate professional who finds and oversees tenants, collects rent, and handles repairs and maintenance activities. It’s a side hustle that property owners pay for because they may not have the time or skills to effectively manage their own property.
Property managers can manage long-term rentals like apartments, short-term rentals like Airbnbs, and even commercial spaces as well.
I have a friend who is a property manager on the side of his full-time construction job – he manages many different types of properties, from second homes to vacation rentals to someone simply being out of town. He checks on their properties to make sure that everything is running smoothly.
19. Home stager
If you’re passionate about real estate and design, starting a side hustle as a home stager could be profitable for you. As a home stager, your job is to improve the appearance of a home before it’s listed for sale.
This often results in faster sales and higher prices, making your service valuable to sellers.
You can start by staging homes for friends or family, if possible, to build a portfolio. Before and after photos are powerful tools to showcase your work.
You can even provide consultations to homeowners who prefer to do the actual staging themselves. In such cases, your design style can be a more budget-friendly option for a do-it-yourself homeowner.
20. Home inspector
We recently bought a house, and our home inspector was actually a home inspector on the side – this was his real estate side hustle! I think he was a city inspector (or something similar) full-time, so he was very knowledgeable in the area.
Home inspection as a side job can be a strategic move if you’re interested in real estate. This job allows for flexibility since you can set your hours, such as by completing home inspections on the weekends or before or after your day job.
You’ll need to invest in proper training and get licensed, which is a process that can be completed relatively quickly.
The responsibilities of a home inspector include:
Inspecting homes for possible problems, like a leak or bad wiring.
Creating and delivering reports based on what you find during the inspection.
21. Real estate appraiser
Real estate appraisers determine the fair market value of a property, and this process is important in transactions, such as home sales and refinances.
Appraisers assess property values by taking notes on unique characteristics and comparing them with similar properties that have sold recently.
They then prepare reports, detailing findings and providing a valuation that banks and other institutions depend on for loans.
22. Real estate wholesaler
Real estate wholesalers are middlemen who find properties under market value, contract them with the seller, and then sell the contract to a buyer, often an investor. Their profit comes from the difference between the contracted price with the seller and the amount the buyer pays.
Here is a quick summary of what a wholesale real estate side hustle is:
Find a distressed property – Search for properties that can be bought below market value.
Evaluate the property – Determine the After Repair Value (ARV) and estimate repair costs.
Secure under contract – Enter into a contract with the seller, giving you the right to purchase.
Find a buyer – Locate an investor interested in buying the contract.
Assign the contract – Transfer your purchasing rights to the investor for a fee.
By becoming skilled at finding good deals and building connections with trustworthy investors, real estate wholesaling can become a profitable real estate side hustle.
23. Start a real estate blog
Starting a real estate blog (or even a real estate YouTube channel or social media account!) can be a good way to make extra money without having to spend a lot of money.
With a real estate blog, you can write about local market insights, home buying and home selling tips, property investment strategies, home improvement and DIY projects, and more.
I have been a blogger for years, and I really love it. I am able to create my own schedule, decide how I make money online, travel whenever I want, and more. And, it all started on the side of my day job – so I definitely think that a real estate blog can be started as a side hustle.
Learn more at How To Start A Blog FREE Course.
Frequently Asked Questions
Below are answers to common questions about real estate side hustles.
Can real estate be a side hustle? Is real estate a good side hustle?
Yes, real estate can be a lucrative side hustle. Many people do real estate activities on a part-time basis, which can include short-term rentals, getting a roommate, and more, with lower time commitments.
Is real estate worth it as a side hustle?
Real estate as a side hustle can be worth it if you are looking for more income streams and have an interest in the housing market or real estate. As you probably noticed above, there are many different kinds of side hustles, so the amount of money you can earn or the amount of time you will spend will just depend on the gig you choose.
How can realtors make extra money?
Realtors can make extra money by managing rental properties, taking part in real estate crowdfunding, selling real estate photography services, and more.
Is real estate a good side hustle for teachers?
Yes, real estate can be a good side hustle for teachers. There are many options that may work for a teacher.
For example, some teachers work as real estate agents on the side. This is possible because you can handle listing and selling homes during weekends, breaks, evenings, and over the summer. However, keep in mind that selling homes might pose challenges, as clients may require your full attention during the day, which could clash with your teaching commitments.
You can find more ideas at 36 Best Side Jobs for Teachers To Make Extra Money.
Which licenses might be required to pursue a side hustle in the real estate field?
Depending on the side hustle, certain licenses like a real estate license may be required. For example, to become a real estate agent or home inspector, you’ll need a specific license. However, if you’re looking into just getting a roommate, then you may not need a license. It all just depends on the real estate side gig you are interested in.
How to make money in real estate without ever buying any property?
As you learned above, you don’t need to personally buy or own real estate in order to make money in real estate. You can invest in REITs, become a notary for real estate transactions, include affiliate marketing for real estate products on a blog, and more.
Real Estate Side Hustles – Summary
I hope you enjoyed this article about real estate side hustles.
Picking the right side hustle gig in real estate might feel overwhelming because there are many choices.
Some people might like jobs where you have to do more, like fixing up houses or taking care of Airbnb rentals. Others might prefer making money without doing much, like through REITs or renting out a spare room.
Whatever you’re into or however much money you have to invest, there are probably real estate side business ideas that fit with what you have and what you want to achieve.
What do you think is the best real estate side hustle?
Imagine your tenant is navigating the process of applying for a driver’s license, securing a new job or proving residency within a school district for their children. In these situations, they might turn to you for assistance in crafting a proof of residency letter so they can prove residency. Let’s break down what residency letters entail and what’s required in an official proof of residency letter.
What is a proof of residency letter?
Also referred to as an affidavit of residence, a proof of residency letter is a straightforward statement confirming that a person resides at a specific address. No need for elaborate details or commentary on your tenant’s qualities; simplicity is key. While you can involve an attorney, drafting one yourself can save on residency letter legal fees.
Who can request a proof of residency letter?
Typically, your tenant initiates the request to establish residency for various purposes, as mentioned earlier. However, there are instances where a third party might seek proof of residence regarding your tenant.
As a landlord, safeguarding personal and credit information, you must obtain your tenant’s written consent to disclose such details to a third party. A tenant release form, including specific authorization language, can be used for this purpose.
What to include in a proof of residency letter
Start by understanding why your tenant needs the letter. Depending on the situation, you may need supporting documents like the lease or details about your tenant’s lease agreement. Keep it simple and factual. Begin with your legal name, address and date. Follow with a salutation and proceed with the main body of the letter.
Declare your full legal name and title, confirming your tenant’s residence at a particular address since the lease start date, along with rent payment details. Mention any other individuals residing with the tenant.
Include a line affirming the truthfulness of the document, and be prepared to sign it in front of a notary, possibly with an additional witness. Having the letter notarized is not always required, it fully depends on the requesting party for the letter.
Proof of residency letter template
[Landlord’s Name] [Landlord’s Street Address] [Landlord’s City, State, ZIP Code] [Date]
To Whom It May Concern,
I, [Your full legal name], am the landlord of [Name of your resident]. I’m writing to acknowledge and confirm that [he/she] resides at [Street address, City, State] and has done so since [Day/Month/Year] as my tenant.
[Tenant’s name] lives in the home with [Names of other residents who live with the tenant]. [Tenant’s name] pays me [Rent amount] each month on [Date].
I swear and affirm under penalty of perjury that the facts outlined in this statement are true and accurate.
If you have any questions or concerns, contact me at [Your phone number].
Sincerely,
[Your signature]
To make things smoother, keep a sample copy on file to quickly fulfill your tenant’s request, particularly if you manage multiple properties. This proactive approach will undoubtedly be appreciated by your tenants.
FAQs: Proof of residency letter
Writing a affidavit of residence doesn’t have to be difficult, however, since it’s one of a landlord’s official documents it’s important to write it correctly. Here are some common questions asked in the residency letter process.
Why might a tenant need proof of residency?
Tenants may require a proof of residency letter for various reasons such as applying for a driver’s license, securing employment or verifying their residence within a specific school district. It serves as official documentation confirming their address.
Can a proof of residency letter be requested by government agencies?
Yes, government agencies may request a proof of residency letter for various purposes, including eligibility for certain benefits or programs. Ensure you are aware of the specific requirements and provide the necessary information.
Is a proof of residency letter the same as a lease agreement?
No, they are different. A lease agreement outlines the terms and conditions of the rental arrangement, while a proof of residency letter is a statement affirming that a person resides at a particular address. The proof of residency letter complements but does not replace, the lease agreement.
What backup documents might be needed when drafting this letter?
Depending on the situation, you may need supporting documents such as a copy of the lease, details about the date the tenant signed the lease or information about rental payments. Be prepared to gather and provide additional documentation as required.
Can I refuse to provide a proof of residency letter if requested by a tenant?
As a landlord, you have the right to evaluate and fulfill requests for proof of residency letters based on legitimate reasons. However, it’s important to understand your responsibilities and legal obligations to ensure fair and consistent treatment of all tenants.
How long is the letter valid?
The validity period may vary based on the purpose for which it is requested. Some entities may have specific timelines, so it’s advisable to check with the requesting party. Keeping records of when the letter was issued can also be helpful.
Can I customize the affidavit of residence template provided?
Yes, the template provided serves as a guide, and you can customize it based on specific requirements or additional information needed by the requesting party. Ensure that any modifications still adhere to legal and factual accuracy.
Navigating the affidavit of residence
In the realm of rental management, understanding and providing proof of residency letters can greatly benefit both landlords and tenants alike. Whether your tenant is embarking on obtaining a driver’s license or confirming residence within a school district, the affidavit of residence stands as a crucial document.
By embracing the insights shared in this article, landlords can navigate proof of residency requests with ease, providing valuable support to tenants as they navigate life’s milestones and obligations. Ultimately, fostering a transparent and cooperative environment enhances the overall rental experience for both parties involved.
Interested in becoming a landlord? See how you can create passive income with less hassle by listing your property with us.
I have owned rental properties for more than 13 years and being a landlord was one of the best choices I ever made but it is not easy. There are many aspects to owning rentals from finding good properties, to financing them, to managing them. Many people may think the hardest part of being a landlord is unclogging toilets at 2 am but I have never done that and never plan to. There is a lot that goes into owning rentals but you don’t have to do all of it yourself and owning good rentals will give you the income to pay for help. Good rentals can also build a tremendous amount of wealth!
How hard is it to become a landlord?
Being a landlord means many things and how hard it is depends on what tasks that landlord chooses to do. Sometimes landlords do all or most of the work on the properties they own, and sometimes they do very little if any work on them. The hardest part of becoming a landlord for most people is finding good properties and finding the money or financing to buy them. Not every property will make a good rental, in fact, many properties will lose money if you buy them at retail value and use an investment loan for the financing.
Here are the basic steps to becoming a successful landlord, not just owning rentals that may or may not make any money.
Find a market or type of rental property that makes money. Many single-family homes will not make any money as rentals. It is important to choose a market with good rent-to-value ratios. You may also consider multifamily or commercial rentals which can sometimes have better numbers but may take more work, have more risk, or need more management.
Get the money to buy a rental. Most landlords will use loans to buy properties but even with loans the down payments are usually at least 20 percent of the value of the property. A $200,000 property could require $50,000 or more in cash to buy with a loan after the down payment and closing costs.
Repair and maintain the property. Most properties are not ready to rent right away. You may need to make repairs and you will for sure have to maintain the property while you own it. You can do this work yourself or hire it out.
Find tenants for the rental property. Once the home is ready to rent you will need to find someone who wants to rent it. The home will have to be marketed, tenants screened, leases created, and money collected. The landlord can do this themselves or hire a property manager to do the work.
Keep tabs on the property and tenants. After finding tenants the work is not done. Landlords will have to check on the property, handle maintenance requests, and possibly handle late rent, hostile tenants, or even evictions. Again, the landlord can do this or have a property manager handle these tasks.
Why spend all this money and do all this work to buy rentals?
A lot of people are probably thinking to themselves why do I want to do all of this to own a few rentals? A few rentals may not make you rich, but once you buy a few, it becomes easier to scale and buy more. If you can buy 10 or more rentals it can provide you with a healthy income and a sizeable net worth that will increase with time. My rentals have made me millions of dollars in less than ten years thanks to getting great deals, market appreciation, cash flow, and the tax advantages that come with them.
Why do some landlords work harder than others?
As you can see there is a lot of work that is needed to be done when you own rental properties. Some landlords will try to do almost all of the work themselves, even the repairs. Other landlords will hire out as much of the work as they can. However, there is still work to be done by landlords, and finding and financing properties is often the hardest part of being a landlord.
Doing the work yourself can save money but it also costs you time and often peace of mind. Working on houses is hard and dealing with stressful tenant situations is also hard. Many people underestimate just how much work is involved and get out of the business as fast as they can. However, owning rentals can be very rewarding financially and spiritually knowing you are providing housing or a place to do business.
How much work should the average landlord expect to do?
When I bought my first rentals I managed them myself with the help of my wife but I never did any repairs to them. I hired out all of the maintenance and remodeling work to my contractors since I also flipped houses. Obviously, I had a huge advantage over many new investors since I already had people who could do the work. If I were to start over again not knowing anyone in the business here is what I would do. This strategy would also apply to me buying properties out of state in an area I have no contacts in.
I would decide what kind of properties to buy and where to buy them. This can take a lot of time and work, especially if you are new to real estate. My book Build a Rental Property Empire goes over everything you need to know if you are brand new. It can take months before you have learned enough to pull the trigger. For some, it may take longer but that is okay as this is a big investment.
I would work to find the right financing which can also take a lot of time. Finding local banks where you want to buy is often the best option but there are many other ways to get the money for rentals. You also may need to be saving money or finding a partner if needed. A lot of the time landlords spend on the business is preparing to buy properties.
Once you know where to buy and have the financing lined up, I would have an agent help you find properties but I would not rely on them to do all the work. There are many ways to find deals and getting a great deal is the fastest way to build wealth in real estate. If you had to spend time doing anything, I would learn how to get great deals.
Before you buy a property you should have some idea of who will be managing it and repairing it. If you choose to use a property manager they may also have contacts or in-house people who can repair and maintain the property. If I were buying properties out of my area this is the route I would take. Take your time finding the right company and don’t pick the first one that says yes!
Once you own the property I would have someone else manage it but you will need to check on it once in a while to make sure the people you hire are doing their job. If the property is far away, hire a third party to check on it for you. You don’t need to be the one taking calls from tenants or renting the property, or collecting rent. The property will also need to have accounting set up and tax information collected which property managers can also handle.
You can scale with rentals by refinancing properties or selling them. I think the landlord should be actively looking at their loans, and returns every year on the properties they own. A lot of landlords have trouble scaling but a refinance or selling properties or using a 1031 exchange can increase the portfolio and ROI.
I think most of the work a landlord does should be in the beginning finding and buying deals. If you want to scale and make the most of your time, leave the management and maintenance to someone else. Focus on the most important tasks and remember to look at the big picture.
Why do I have my property management in-house?
I just told people I think they should hire a property manager but I don’t do that myself, why? I own a real estate brokerage (Blue Steel Real Estate) and my staff manage my properties. I am not the one showing properties (unless they are big commercial properties), and I am not collecting rent, or taking any calls from tenants. I have my own property management company in-house that can handle that for me and I focus on the big picture.
Conclusion
Buying rentals has made me many millions of dollars but it is not easy and it takes work. If landlords focus on the right work it can be a great business. Once you learn how to buy the first properties, the next purchases get much easier. If you are willing to put in the work to buy the right properties and hire the right people to take care of them it is a wonderful business/investment.
Have you heard of house hacking? With house hacking, you may be able to learn how to live for free!
If you’re new to house hacking, it’s finding ways to make money while you live in your house. You hack your costs to possibly live free and maybe even make money.
House hacking can be a great way to save money on your monthly living costs and even build equity in the property that you own.
After all, your housing costs are probably one of your highest monthly bills, if not the highest. Most homeowners spend around 30% of their monthly income on housing costs, which is a lot!
So what if you could find a way to lower your housing costs or use being a homeowner to your advantage?
Now, perhaps you recently put a down payment down on an investment property with the sole intention of house hacking it in order to better afford your monthly mortgage payment. Or maybe you are currently looking for ways to lower your monthly mortgage payment and you have some spare bedrooms that you could rent out.
Whatever your reason may be, as a homeowner, you may be able to save a lot of money and start house hacking.
Back when we were living in a traditional house, we house hacked for a little while and had a few different roommates live with us. The monthly rent we collected allowed us to lower our house payment and put more money in savings.
We house hacked with our first house, and it was really great for us. Being able to set more money aside even helped me get ready to quit my job to become a full-time blogger.
I only house hacked for a short amount of time, but it was such a great experience, and I’ve heard the same thing from many other house hackers.
Because house hacking can help you save money, make money, offset your mortgage payment and other housing costs, I wanted to create a post that explains what house hacking is and how to get started.
So if you are interested in house hacking, then please continue reading this article. Today, I will answer some of your common questions so that you can get started as soon as possible as a house hacker.
Related content on house hacking:
Guide to House Hacking for Beginners
What is house hacking?
House hacking is when you find ways to make money from your home. You can do it with a multi-family property, house, apartment, additional dwelling unit, and so on.
Typically, house hacking means that you live in one room or unit, and then you rent out the other rooms/units and put that money towards your mortgage.
Depending on the situation, you may be able to earn enough to completely cover your monthly mortgage payment (plus more), or you may choose to earn just enough to cover some of your monthly housing bills. Whatever you decide to do, as a house hacker, you are lowering your monthly housing expenses and freeing up more of your money.
Is house hacking profitable?
Yes, house hacking can be very profitable!
From house hacking, you may earn a little bit of extra money to help pay down your mortgage, enough to cover your entire monthly housing costs, and perhaps even more so that you are able to save some money on top of paying down your mortgage.
Because there are so many different ways to house hack, it would be hard to say exactly how profitable it will be for you.
If you decide to start house hacking, I recommend starting an emergency fund as soon as possible.
An emergency fund is exactly what it sounds like – it’s money you set aside in case of an emergency. Because house hacking means you’ll have other people living in your house, there may be a greater chance of repairs, and it will be your responsibility as the landlord to deal with them as quickly as possible.
Having an emergency fund can help you cover any unexpected expenses that may come up, such as rental property repairs or even needing to replace appliances. While house hacking can be profitable, it can also be expensive if you are not careful.
Is house hacking legal?
The rules for house hacking depend on where you live.
House hacking is legal in many places, but there may be simple rules that you need to follow, these may be city or even subdivision specific.
For example, some cities or neighborhoods may not allow Airbnbs and other short-term rentals, or they may have occupancy limits. You need to find out what the local laws in your area are before you start.
That being said, many people house hack all over the world, so it is likely that you will be able to find a way to make it work for you while also staying legal and following the rules.
Plus, you will have to comply with federal and state housing laws. The Fair Housing Act prohibits discrimination in housing because of race, color, national origin, religion, sex, familial status, or disability. You can learn more about this here.
What is a good house hacking book?
If you are looking for a good book on the subject of house hacking, then I recommend reading The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom by Craig Curelop.
This is a great book on house hacking and teaches you many different house hacking strategies, how to start house hacking for beginners (even if you don’t have much money), how to find the best property to house hack for your situation, and much more.
There is a lot of information packed into this book, making it a must-read if you’re interested!
Pros and cons of house hacking
Of course, like with anything, there are pros and cons. This is your home after all, and you want to make sure that you are fully prepared for what the reality of house hacking will be like.
You may have never lived with roommates before or have been a landlord, and that will affect your experience, so let’s talk about the advantages and disadvantages.
Benefits of house hacking include:
You can build home equity.
You can lower your housing costs significantly.
You can earn extra money and improve your cash flow.
You can have more freedom because your housing costs are covered. Perhaps, you’ll feel more free and flexible to pursue a passion project now?
Now, I will admit that I am a little biased because I had such a great experience.
But there are reasons why you shouldn’t house hack, and it definitely is not for everyone.
Here are the most common disadvantages to house hacking:
You will likely lose some privacy, especially if your situation involves renting out a room in your home.
Being a landlord can be incredibly stressful for some people.
There will be more wear and tear on your property.
When I was house hacking, I thought privacy would be more of an issue than it was. Fortunately, we had a basement to rent out that had a bathroom in it, and for the most part, our spaces felt very separate.
However, if you are in a situation that involves sharing a bathroom or other living spaces, such as a kitchen or living room, that can be too much for some people. If you like your privacy, then this is a big thing that you should think about before you rent out space in your actual home, and you may want to look into owning something like a multifamily property instead. This could make the experience far better for your personal situation.
As far as being a landlord, you will have to deal with problems with tenants. This may include covering the costs if something on your property breaks.
Keep all of those things in mind before you get started!
House Hacking Ideas
There are many different house hacking strategies that you may be interested in, and below are some house hacking examples.
1. Rent out rooms in your home
If you’re not interested in purchasing new real estate in order to get into house hacking, then the easiest way to get started may be to rent out rooms in your single-family home.
Yes, this means getting roommates.
So if you have a three bedroom home, you can decide to rent out the other two bedrooms, and then live in the third bedroom yourself. If you are renting out the home that you live in, then it means you may be sharing your kitchen, bathrooms, living room, and other spaces with someone who is a stranger at first.
Another option you might consider is to rent out rooms in your home on a short-term basis, such as through Airbnb or VRBO.
If you don’t currently have an extra bedroom or living space, you may need to convert a space into an accessory dwelling unit (ADU) such as a basement, a room above a garage, building a guest house, and more. You may decide to add a kitchenette or even a full bathroom in order to get a higher monthly rent from your tenants.
You can learn more about this at What You Need To Know About Renting A Room In Your House.
2. Multi-family home
A multi-family home can be a duplex, triplex, or apartment building. It simply means that it’s a structure built for multiple families to live in separate units. As far as house hacking, you would buy the whole building with the intention of living in one unit and renting out the other units.
One positive of this situation is that you would not be sharing personal space with anyone else. You would have tenants, and you would be their landlord.
The money that you earn from your tenants may be enough to cover your monthly mortgage payment for the whole building that you own, which means that you may be able to live for free. That’s a major perk!
Some people like to house hack this way because they are close to their tenants and can keep an eye on the building they own, but they are still able to maintain their own private and personal space. Not having to share common areas, such as your kitchen and bathroom, can be a great thing after all.
3. Rent out an RV on your property
Another possible form of house hacking is to rent out an RV that you have on your property or rent it out to others to travel in.
If you have an RV that you aren’t don’t use all of the time, then you may be able to earn $100 to $300 a day, or more, by renting it out to others through RVShare.
RVshare is like Airbnb for recreational vehicles.
You can rent all kinds of RV on the RVShare website, such as:
Camper vans
Travel trailers
Pop-ups
Class C Motorhome
Class A Motorhome
Toy hauler
RVshare has a secure payment system to accept payments from those renting out your RV and then securely releases the funds to your bank account one business day after the start of each rental.
The money that you earn from renting out your RV can help you lower your housing costs, which can be quite easy if you have an RV that you aren’t using all the time. Or perhaps the RV you rent out just covers your RV payment, which would be like “RV hacking” instead of house hacking, and you can then pay off your RV much faster in this scenario.
Related: Have an RV that you want to rent out? Check out How To Make Extra Money By Renting Out Your RV.
4. Closet, driveway, storage space
Do you have unused storage space? If so, you may be able to earn money with it.
Neighbor is a peer-to-peer rental platform and is like the Airbnb of storage space.
With Neighbor, you would not be renting out space for someone to live in, instead you are renting out your space so that people can store their stuff!
You can use Neighbor to list your unused space for rent and earn up to $15,000 per year. With Neighbor, you can rent out your garage, driveway, basement, or even an unused closet that you have. You can even rent out parking spaces, a shed, or room in your backyard.
You can set your own prices and decide for yourself what storage reservations you want to approve. You also reserve the right to know what the people are storing in your house and approve it before they rent space from you.
Because so many people pay to store their stuff, so this can be an in-demand business to get into. It’s also generally more affordable than traditional storage units, making it more appealing to renters.
You can sign up for Neighbor for free here.
You can also learn more in my Neighbor Review.
How to know if house hacking is right for you
Before you start renting out space in your house to save money or pay off your mortgage, there are a few questions I recommend asking yourself. It’s a big decision, and these questions will help you decide if this is the right choice for you.
What to ask yourself before house hacking:
What is my short-term goal for house hacking? Do I hope to make enough to pay my monthly mortgage? Or do I want to make a little extra each month to save or offset some housing expenses?
What is my long-term house hacking goal? Do you want to own rental properties one day?
Do you currently have extra space in your house to rent to someone? Or will this require purchasing a new property?
Are you in a good spot financially to start house hacking? At the very least, you will need to have an emergency fund. But if you need to purchase another property, consider all of the costs associated with that.
Will your house hacking plans require that you sell your current property? Some people may decide to keep their current home and rent it out as well. But if you are selling, what are the steps and costs associated with selling your house?
How do you feel about having roommates? Do you know anyone who would be a good fit, or would you be okay living with a stranger?
How do you feel about becoming a landlord? This involves collecting rents, repairing things, replacing things, and more.
How you answer those questions will help you decide if house hacking is the right choice for you overall.
Is house hacking possible? Is house hacking worth it?
Yes, house hacking may be possible for you, and you may find it to be well worth it.
If you already own a home, then one of the easiest ways to start house hacking is by renting out spare space that you already have in your home. That could be to store other people’s stuff or like a bedroom for someone to stay in.
House hacking is a real estate investment strategy that can allow you to lower your expenses, improve your cash flow, and save money.
The rental income that you earn from your tenants as a house hacker can help you to pay down the mortgage on your primary residence, retire early, and possibly even allow you to purchase another rental property (if that’s a goal of yours – if not, you can simply just save more money!).
Through house hacking, you can live for cheaper or even free by simply using your owner-occupied investment property to your advantage. This may allow you to better afford the purchase price of a home, as well as lower your risk.
Who knows, maybe house hacking will even allow you to save enough money to put a down payment on your next investment property as well. This could put you on the right path to reaching your goal of becoming a real estate investor.
Are you interested in house hacking? Why or why not?
If you visit personal finance or investing blogs on a regular basis, you’ve probably read countless articles on the virtues of passive income. After all, many personal finance experts believe that passive income is the key to early retirement, financial independence, and permanent wealth. But, what is it exactly?
A Definition:
Investopedia describes passive income as “earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved.”
In addition to rental property, typical sources of passive income can include money earned from investments such as mutual funds, dividend-paying stocks, Real Estate Investment Trusts (REITs), and asset-backed securities. Unconventional forms of passive income can include earnings from copyrights, patents, and licenses or even royalties. The birth of the Internet also created a generation of entrepreneurs forging their own path toward passive income via the Internet, including Pat Flynn from Smart Passive Income. Except, according to Flynn, blogging is just part of the game.
“Although a blog isn’t passive in nature, it’s one of the best platforms for launching other passive income opportunities.“
-Pat Flynn
Simply put, passive income is the opposite of active income. The money you earn at your 9-to-5 job is not passive income, nor is the money you earn through your side hustle or garage sale. Real passive income is earned in your sleep and regardless of the amount of effort you put into it. And that’s why the idea of passive income has always been so popular. J.D. even wrote about passive income back in 2006, which seems like a lifetime ago.
“Passive Income is money that you earn without having to work for it. When you earn interest on a savings account, you are earning money passively; it accrues whether you’re working or not.”
-J.D. Roth
The pursuit of passive income through rental property: Is it the right time?
One of the most popular ways to generate passive income is to buy (or finance) an income-producing rental property and become a landlord. And, according to a recent study from the Joint Center for Housing Studies at Harvard University, now may be the perfect time.
According to Harvard researchers, the percentage of households that rent is on the rise, up from 31 percent in 2004 to 35 percent in 2012. That may not sound like a giant surge, but it is when you’re dealing with the entire population of the United States. To keep things in perspective, the Harvard study claims that the total number of renting households surpassed 43 million in 2013.
Researchers blame the increase in renters on a convergence of factors, including a record number of foreclosures in 2008 and economic troubles caused by the Great Recession. However, it also points to certain benefits that make renting a popular option. Some of the benefits of renting named in the study: greater mobility, protection from fluctuations in the housing market, and freedom from home maintenance and repairs.
The fact is, renting has simply become the best option for many. In fact, recent reports show that rents have skyrocketed in many parts of the country due to increased demand, so much so that the cost of renting has moved out of reach for many middle-class families. And while that’s bad news for those who simply want an affordable place to call home, it’s a real estate investor’s dream.
My Experience as a Landlord
Becoming a landlord might sound tempting, but — trust me — it’s not as glamorous as it seems. It’s also not nearly as passive as many think it to be, despite what Investopedia or others claim. As someone who has owned and managed two single-family rental properties for almost a decade, I must confess that the income I’ve earned has been anything but effortless. The truth: It’s actually been a lot of work.
For example, we’ve spent far too many weekends painting and cleaning our properties in between tenants. We’ve driven to and arranged countless meetings to discuss remodeling projects and repairs. We’ve had to deal with a whole host of random issues such as late rent payments, feuding neighbors, and secret pets. Once, one of our properties was even left in total shambles — with oil-stained carpet, missing doors, busted windows, and broken everything.
Using Passive Income for Early Retirement and Financial Independence
On the other hand, we do expect all of our hard work to pay off sooner or later. The fact is, both of our properties should be completely paid off in about 12 years. By then, we’ll be 46 years old and (hopefully) on the homestretch of our journey to retirement. Since we’ll have two children nearing college around that time, we plan to use our monthly rental income to help pay for their higher education. After that, we’ll keep it for ourselves and use the earnings to supplement our own income and early retirement plans. Our properties currently rent for around $1,800 total, but that’s only because I’ve promised not to raise rent on either of our long-term tenants. But they’ll move out eventually. And when they do, we hope to pull in at least $2,200 per month or more.
Want to Become a Landlord? Consider This
Since real estate markets are vastly different in different parts of the country, I couldn’t possibly write something that applies to everyone. On the other hand, if you’re considering purchasing an income-producing property to secure your own stream of passive income, there are certain things you should know:
You need plenty of cash — Banks have tightened lending standards significantly over the last decade, which means that a down payment of at least 20 percent is almost always required. If you can’t afford to come up with the down payment, then you probably can’t afford to own rental property in the first place.
You are taking a risk — Many people think owning rental property is always a money-making endeavor. However, that couldn’t be further from the truth. Investing in rental property has plenty of risks including nonpayment, property damage, prolonged vacancies, and more.
Bad things do happen — When you’re a landlord, “no news” is typically good news. However, there’s a reason why so many people are hesitant to get into the game. We’ve all heard rental horror stories and the fact is that many of them are true. You’d be amazed at the kind of damage people can leave behind, and how much of a headache it can cause. You know the saying, “Hope for the best, but prepare for the worst.”
Before you jump in head first, it’s important to understand what you’re getting into. That typically means researching the rental market in your area and gaining an understanding of current and past trends in rents and occupancy.
It’s also important to figure out what you need to earn in order to cover your expenses and turn a profit. And if you don’t like dealing with people or doing repairs, you can also research property managers in your area. For a monthly fee, they’ll do most of the heavy lifting for you — including finding tenants, hiring out repairs, and more.
Becoming a landlord isn’t for everyone, but it is a great way to earn (somewhat) passive income. And if early retirement, money for college, or financial independence are your goals, it’s just another way to make them happen.
Have you ever considered buying rental properties as a source of passive income? If so, why? If not, why not?
Real estate is a popular investment for several reasons, including the ability to generate online cash flow through rental income and the possibility for appreciation to increase the value of the investment over the long run.
When you think about investing in real estate, you probably think about owning rental properties and becoming a landlord.
Unfortunately, managing rental properties can require a lot of work and headaches, so many people choose not to go down this path.
Thankfully there are other ways to invest in real estate and get the perks without requiring you to become a landlord.
These hands-off real estate investments can be perfect for adding some diversification to your portfolio, or for serving as an introduction to the world of real estate investing.
If you’re interested in real estate as an investment but you don’t have the time or desire to manage properties and deal with tenants, here are 4 options that you can consider.
1. REITs
Through a real estate investment trust (REIT), investors can buy shares in real estate portfolios. REITs may own office buildings, retail properties, apartment complexes, hotels, and any other type of property. Most REITs specialize in a particular type of property, so there is a great deal of variety that is available to investors.
The REIT collects rent from tenants and then distributes the income to shareholders in the form of dividends.
REITs can be:
Publicly traded – listed on a national securities exchange where shares can be bought or sold, and regulated by the SEC.
Public but non-traded – not traded on a national securities exchange, but registered with the SEC.
Private – not traded on a national securities exchange and not registered with the SEC.
There are some significant differences between these types of REITs. One of the most important issues to consider is liquidity. Publicly traded REITs can be bought or sold easily, so liquidity is not an issue. However, non-traded REITs lack liquidity and you may need to hold the investment for at least few years. The specifics will vary from one REIT to another, but liquidity is something that should be considered when you are researching your options.
Although non-traded REITs may lack liquidity, they can make up for the lack of flexibility with higher returns. Of course, the performance will vary from one REIT to another, but the main reason to consider a non-traded REIT over a publicly traded REIT would be for the possibility of higher returns.
If you decide that a REIT may be the right type of investment for you, you’ll have plenty of options. See this list of the best REITs for 2019.
2. Real Estate Crowdfunding
Real estate crowdfunding was made possible by the passing of the JOBS Act in 2012. Like investing in a REIT, investing through a crowdfunding platform allows you to get many of the perks of real estate investing without the responsibilities of owning or managing property.
There are many different types and varieties of crowdfunding platforms, but they all allow investors to have an ownership interest with much smaller investments as compared to buying properties on your own.
Many crowdfunding platforms are open only to accredited investors, but there are several that are open to all investors.
To qualify as an accredited investor, you will need an annual income of at least $200,000 ($300,000 for joint filers) or a net worth of at least $1 million, excluding your primary residence.
It’s important to know if you qualify as an accredited investor because it will determine which crowdfunding platforms are available to you. But don’t worry if you’re not an accredited investor, there are still several good options, and we’ll look at them in just a minute.
Like REITs, crowdfunding platforms also tend to specialize, and there are platforms for all different types of real estate.
Some crowdfunding platforms allow you to invest in individual properties, where you can choose the specific investments, and others involve investing in a portfolio of properties.
Here are some of the leading real estate crowdfunding platforms.
Fundrise
Fundrise is one of the most popular crowdfunding platforms and it is open to all investors, regardless of whether you are accredited or non-accredited.
There is a minimum investment of $500, and it’s very quick and easy to get started. With the $500 investment, you can invest in their Starter Portfolio, which includes investment in apartment complexes, single-family rental homes, and commercial properties. Some of their projects are renovations and others are new construction.
Aside from the Starter Portfolio, Fundrise also offers 3 different Core Plans: Supplemental Income, Balanced Investing, and Long-Term Growth.
Fundrise lists historical annual returns of 8.7% – 12.4%.
Learn more in our Fundrise review.
Groundfloor
Groundfloor is a very unique platform. It is one of the only options for non-accredited investors to invest in individual projects, as opposed to the portfolio approach used by others, like Fundrise.
Groundfloor allows house flippers to get loans in a peer-to-peer lending style. As an investor, you can choose the exact projects that you want to invest in.
The investments through Groundfloor are short-term, typically 6-12 months, and they claim to produce 10% returns on average.
The minimum investment is just $10, which makes it accessible to anyone. All you need to do is pick the projects that you want to invest in, and get started.
You can view the details of each project, like the grade, interest rate, projected term, and loan to value.
To learn more, see our Groundfloor review.
DiversyFund
DiversyFund provides investors with the opportunity to diversify their holdings into a sector that has traditionally done very well, commercial real estate.
The minimum investment is only $500, and the fact that non-accredited investors can invest with them is a definite bonus.
DiversyFund is different from most other real estate crowdfunding platforms in that their REIT actually owns the multi-family apartment properties held in the trust. They buy, manage – and when necessary – sell properties in the trust.
You can expect a 7% preferred return before DiversyFund receives any profit split. Then investors earn 65% of the cash flow profits above the 7%. Once investors have made 12% per year, any remaining profits are split 50/50 between investors and DiversyFund.
To learn more, read our full DiversyFund review here.
RealtyMogul
RealtyMogul offers a few different types of investments, including individual properties and public non-traded REITs.
You’ll need to be an accredited investor in order to invest in the individual properties. These investments typically range from 3-7 years and require minimum investments from $15,000 – $50,000.
However, the REITs are open to all investors, but they do require a minimum investment of $5,000.
To learn more, see our RealtyMogul review.
Rich Uncles
Rich Uncles may be a great option for getting started with real estate because it is open to all investors, and because they have an incredibly-low minimum investment of just $5.
Like Fundrise, Rich Uncles takes a portfolio approach. You can invest in Rich Uncles through one of their REITs. They currently have two different REITs available, the BRIX REIT (student and multi-family housing, restaurants, convenience stores, and fitness centers) and the NNN REIT (single-tenant office, industrial and retail properties).
The BRIX REIT has an estimated annualized dividend of 6% and the NNN REIT has an estimated annualized dividend of 7%.
PeerStreet
Unlike the other platforms we’ve covered so far, PeerStreet is available only to accredited investors.
PeerStreet allows you to invest in private real estate loans with historical returns at 6-9%, with 6-36 month terms.
You’ll be able to pick the specific loans that you want to invest in, and you can invest a minimum of $1,000 per note.
To learn more, see our PeerStreet Review.
EquityMultiple
Like PeerStreet, EquityMultiple is an option only for accredited investors. Through EquityMultiple, you will be able to invest in commercial properties, and you’ll choose the specific projects that you want to invest in.
The investments will be in commercial real estate, with a minimum investment of $5,000. You can invest in syndicated debt, preferred equity, or equity.
Read our full review of EquityMultiple.
FarmTogether
FarmTogether is also only for accredited investors. It’s a bit different from the others in that it allows you to invest specifically in farmland properties.
Based in San Francisco, California, the company is relatively new but already has over $1 billion invested in farmland through their platform.
Farmland is a true alternative investment, one that is an actual physical commodity and that is an uncorrelated asset. It often maintains it’s value while stocks, bonds and real estate show sharp drops. Since 1972 it has outperformed every other major asset class!
FarmTogether aims to have annual returns of between 8%-15%, including yearly cash payouts of between 3%-9%.
The investments in farmland have a minimum investment of anywhere from $10,000-$25,000.
Read our full FarmTogether review here.
For a more in-depth look at the subject of real estate crowdfunding, please read Kevin’s Ultimate Guide to Real Estate Crowdfunding.
Crowdfunding Site
Fees
Account Minimum
Accredited Investor
Review
* Groundfloor
None
$10
No
Review
* DiversyFund
None
$500
No
Review
* Fundrise
1%/year
$500
No
Review
* RealtyMogul
0.30% – 0.50%/year
$5,000
No
Review
* stREITwise
3% up front fee, 2% annual management fee.
$1,000
No
Review
* FarmTogether
Intake fee of between 0.5% and 1.0%. 1% annual management fee.
$10,000
Yes
Review
CrowdStreet
None
$10,000
Yes
Review
Yieldstreet
1-4%/year
$2500
No
Equity Multiple
0.5% service charge + 10% of all profits
$5,000
Yes
Review
PeerStreet
0.25% – 1.0% setup fee
$1,000
Yes
Review
Sharestates
0-2% setup fee
$1,000
Yes
Patch of Land
0-3% of loan total
$1,000
Yes
Modiv
None
$1000
Yes
Review
RealCrowd
None
$5,000
Yes
Cadre
Intake fee of between 1-3%. 1.5-2% annual management fee.
$25,000
Yes
Review
3. Mutual Funds And ETFs
While REITs invest in real estate, there are mutual funds and ETFs that invest in REITs, which essentially allows you to spread your investment across several different REITs.
Likewise, there are also ETFs that invest in REITs.
Because mutual funds and ETFs are quick and easy to buy and sell, this presents a very easy option for getting started quickly. If you already have account somewhere like Vanguard or Fidelity, you can easily find a number of options.
This article covers a number of the best real estate mutual funds, and this article covers the best real estate ETFs.
4. Invest In The Industry
The last option that we’ll look at is to invest in the industry. This may be considered an indirect way to invest in real estate, but it could be a good option, depending on your situation.
You can buy stock of business in construction and other real estate types of industries. It’s a different approach than investing in rental properties or commercial properties, but your investment will be influenced by the real estate market as a whole.
There Are Lots Of Real Estate Investing Opportunities
Real estate presents plenty of different investment opportunities.
If you’ve never really considered investing in real estate because you don’t want to own rental properties or be a landlord, you may want to look at these options discussed in this article.
The options listed can provide an excellent introduction to real estate without putting any extra burden or commitments on yourself.
This is a guest post by Hank Coleman who writes about personal finance, investing, and retirement on his blog, Money Q&A. Hank shares his story about how he and his wife decided to become landlords.
I will tell you that I don’t know the first thing about this topic, so I would encourage anyone that is considering it, to read this first before becoming a landlord. I know there are pros and cons into becoming a landlord, so weigh all your options before diving in. Enter Hank…..
Many corporations in America require their employees to move every so often in order to give them with career progression, new opportunities, and challenges as they move up the ranks.
My employer is no different and recently told me of an impending move.
Like many Americans, I’m faced with a daunting choice.
Do I try and sell my home or become a reluctant landlord?
The anxiety of losing large sums of money or equity is one of the greatest fears for most homeowners with an impending move. I wanted to share with you some of my family’s thought process as to how we came to our decision to become landlords for the first time instead of selling.
It wasn’t an easy decision, and everyone’s situation is different. You have to look at it almost like a business and weigh the cost and benefits of your decision before taking the leap.
The Drawback Of Selling Our Home
There are several drawbacks to selling our home. Even though my wife and I live in an area of the country that has not seen the dramatic nosedive in real estate values, we have not seen any appreciation in our home’s value either. We could sell our house for pretty much the exact same price that we purchased it for four years earlier. The real problem with that scenario is that it is dramatically still a buyer’s market when it comes to buying and selling a home.
The buyers call all the shots, and they can make a lot of demands. Most sellers can expect to pay most if not all of the closing costs for both parties. They can also see demands for fixing up the home or even large price reductions. Trying to negotiate with a buyer will not do much good either because there are so many houses still currently on the market. A buyer can literally go down the street in most cases and find a more accommodating seller who needs to close in a hurry.
The Benefits Of Being A Landlord
Now, you may be thinking to yourself that you don’t want to be a landlord. I really don’t want to be one either and have to deal with finding tenants, evicting them when they don’t pay, checking credit reports, fixing broken toilets, showing my house to potential renters, and all of that other garbage. That’s why I hired a property management company to do all of that for me. But, I do want to increase my family’s net worth over the long-term, and owning real estate even if it is just adding one house every few years or so is one way to continue to build wealth.
There are other financial benefits of being a landlord too that many people may not immediately associate with the job. Like any homeowner, landlords enjoy many tax breaks.
In fact, there are more tax breaks for rental real estate owners than regular homeowners. Landlords are eligible to deduct their costs of operating their new rental business from their taxes.
You can deduct the cost of things like your property manager’s fee, maintenance costs, insurance, mortgage interest, home warranties, and a host of other expenses that start eating into your profit.
Renting Our Home At A Loss
Even renting out your home at a loss may be a better option than selling it outright. Of course, most of these calculations depend on your individual situation, your mortgage, how much down payment you used, and a host of other factors. For my wife and I, the comparables for renting a home like ours was $1,300 per month in rent. Currently, our mortgage, PMI, insurance, and property taxes cost $1,350 per month.
Additionally, we chose to use a property management company to help us rent our home, and they charge 10% of the monthly rent ($130 in our case). So, right off the bat, we have a negative cash flow of $180 that we are paying out of pocket every month. But, I’m very happy doing so, and I will tell you why.
Using a closing cost calculator, I can estimate that it will cost me about $14,000 or more in real estate brokerage commissions and fees to sell my $200,000 home. If I am losing $180 per month or $2,160 per year, it would take me about six and a half years to equal that $14,000 upfront cost. It is the difference between dying a thousand cuts or getting my head chopped off in one fell swoop. I’ll wait the market out. Eventually, home values in America will start to rebound…eventually.
Just like home values, rents will not stay low forever either. In fact, rents in American a rising year after year. There is nothing holding me back from raising the rent on my home in a few years and generating positive cash flow later. Almost anything is better in my book than losing $14,000 upfront and watching almost every penny of my equity disappear by selling.
According to the US Labor Department, rents across America have been rising 2.4% year over year, and that data is not even adjusted for inflation. At that rate alone, I could raise the rent on my to $1,500 over the next six years just to keep up with the times.
Eventually, your home could become a mini pension fund during retirement. At our current rate of repayment, my wife and I will have our home paid off thanks to the help of our renters at about the same time that we will be retiring to play golf and live on the beach. Even if I still charged $1,300 per month at that same house 26 years from now, the $1,170 after paying the property manager will be pure profit every month straight into our pockets.
A few more homes providing passive income like that would allow me to completely replace my pre-retirement income. While becoming a landlord is not a dream occupation that everyone aspires to, it is not something to be completely dismissed before you even consider it. There are great opportunities to choose something other than simply selling your home, taking a big financial hit, and moving on.
Pros Cons Becoming a Landlord
Everyone’s situation is different. Some people thrive being their own landlord, finding tenants, and are handy with a hammer. Some people want to get out of a house or an area at all costs and do not mind eating the closing costs in order to do so. Everyone has to make their own choices in the best interest of their family, but I wanted to let everyone know that they should not feel backed into a corner.
There are other options out there rather than simply succumbing to a realization that you have to lose money in order to move to a new home or a new city. All it may take in your situation is a little bit of cost benefit analysis on which course of action is right for you and your family’s well-being.
Hank Coleman is currently an officer in the US Army and also spends his free time as a finance writer who has written extensively for many financial websites and publications in addition to his own blog, Money Q&A. Hank has a Master’s Degree in Finance, a Graduate Certificate in Personal Financial Planning, and is currently studying and constantly putting off taking the Certified Financial Planner exam. His dream is to one day retire from the Army, open his own financial planning firm, and try to be just like his CFP® Idol, Jeff Rose.
Save more, spend smarter, and make your money go further
Making your money work for you is an important step on the road to financial security and independence. Earning money by trading your time is important, but it’s just as important to find a way to make money without having to be actively involved. While you might dream of being able to make money while you sleep, there are plenty of steps you can take that will help put your money to work.
Pay Down Your Debt
The most important thing that you can do to make your money work for you is to pay down and eliminate your high-interest debt. This includes things like credit card payments, some auto loans, and other types of consumer debt. You may be paying up to 20% or more in interest — which means that when you put money towards paying off that debt you’re getting a 20% return on your investment. It’s hard to beat that kind of guaranteed return.
Start a budget, figure out your income and expenses and start paying down that debt. The exact debt repayment strategy that you use is less important. What is important is that you make a plan and start sooner rather than later. Once you have eliminated your high-interest debt, you can start with the other suggestions in this article.
Open a High-Yield Savings Account
One place to start can be to open up a high-yield savings account that is separate from your checking account where you keep the money to pay your regular monthly expenses. This is important for two reasons. The first is that keeping your savings separate from the money you use for your regular savings helps keep you from raiding your savings to pay your bills.
The second reason is that a savings account may offer slightly higher interest rates than a checking account. Currently, interest rates are at historical lows. That is great for refinancing or taking out a mortgage, but not great for savings accounts. Still, a high-yield savings account is a great place to put your emergency fund money. For anything more than that, you’ll want to look at investments that offer higher returns.
Grow Your Wealth Through Investing
If inflation hovers around 2-3% every year, any investments you have should make at least that much. Otherwise, while you may have more money, that money will be worth less than it was the year before. If all of your money is in a savings account earning 1% interest or less, then you are actually LOSING money to inflation each year. There are many ways to earn residual income, and you’ll want to pick the one that makes the most sense for you. As one example, Investing in the stock market has historically returned around 7% per year.
Take Advantage of Credit Card Rewards
Another way to make your money work for you is to take advantage of credit card rewards. Many credit cards offer rewards of up to 5% back or more in certain spending categories. There are also several cards that offer initial welcome bonuses that are worth $1000 or more. Taking the time to strategically use credit cards can be a worthwhile investment. Check out our list of the best rewards credit cards to see if one of them might make sense for you.
Start a Passive Income Stream
The holy grail of financial independence is passive income. Passive income is income that continues to make money with little to no day-to-day involvement on your part. There are many different ways to generate passive income. A few passive income ideas might be creating and selling crafts, writing a guide or book, starting a blog, or investing in the stock market.
Investing time and money in real estate can also be a way to earn (relatively) passive income. While rental real estate is not without complications, when it is all working, each month you earn rental income. That helps pay down your mortgage balance, hopefully with some extra left over each month. If you think that becoming a landlord is not for you, another way to invest in real estate is through a Real Estate Investment Trust (REIT). REITs combine some of the best parts of real estate and investing in the stock market.
The Bottom Line
There is an important difference between earning money and having your money work for you. While earning money through a job is important, the real key to financial security is earning passive income. Pay down your debt, start investing and watch the returns come in. You may not make money while you sleep, but following these tips will help set you on the right financial path.
Save more, spend smarter, and make your money go further
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Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller
There’s no easy answer to the question “Should I rent or buy a house?” It depends on so many factors: your age, your finances, your neighborhood, your future plans, the current real estate landscape, and the mortgage market, to name just a few.
Being a landlord requires a lot of responsibility and quite the investment. But it also comes with a great set of benefits, including becoming your own boss and gaining more control over your time — and earning.
If you’ve ever wondered if it would be worth it to become a landlord (and what exactly that entails), keep reading.
Entire books have been written about finding a good rental property. So much text has been dedicated to the topic because of its critical importance. Buy too expensive a place, and you’ll never make money. But trying to snag a bargain can be troublesome too.
Buying a fixer-upper requires that you have the skills, time, tools, and cash to make the necessary repairs and renovations. But here are some of the biggest concerns you should have before embarking on the journey to becoming a landlord:
Do you have enough in savings?
Let’s just say that your tenants can’t make the rent, but they are not going to move out without a fight.
Before you buy a rental, you need to amass an economic cushion amounting to at least six months of housing expenses, plus a few thousand dollars to pay attorneys. That gives you the staying power required to manage most worst-case scenarios.
Are you handy?
If you’re a handy person who likes doing your own work around the house, light plumbing, perhaps some construction, yard work, and so on, you might be a good candidate for becoming a landlord.
If you’re just starting out, it may be too expensive to handle outside contractors if you expect to turn your rental income into profit. Doing the work yourself saves money.
Are you available for 24-hour responsibility?
Hiring a company to manage your properties is an expense that cuts into your profit. Depending on the location, you may be able to afford this from just your rental income. If that’s the case, work with a professional property management company who will answer the phone at any hour to fix any household problems that arise.
Otherwise, be prepared for calls in the middle of the night. If you’re starting your adventure with rental properties while working at another job, you will find yourself with competing priorities often. Usually, a good idea is to start out small, and see whether being a landlord truly is a good fit for you — before embarking on bigger projects, with many units.
Another question you need to answer is: Are you old enough? You can legally buy a house as young as 18. But bear in mind that, on top of the financial responsibility that comes with a purchase, you will also have to account for the property in the eyes of your renters.
Can you keep tenants happy?
Of all the costs associated with being a landlord, the biggest one is a vacancy.
Every time a tenant moves out, you’re going to spend money, probably quite a bit of it. That means finding and keeping good tenants is the heart of successfully investing long-term in real estate.
Happy tenants are critically important. They’re your customers. And the way you keep them happy is by keeping the property in good shape and treating them with respect.
This means being a landlord also comes with a great deal of hospitality and marketing tasks that you probably haven’t factored in before, but that are crucial to your long-term success.
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