Creating multiple sources of income is essential when it comes to creating wealth and achieving financial freedom and passive income allows you to do this without having to trade more of your time. In his recent article “How to Earn Passive Income From Real Estate,” personal finance expert Dave Ramsey dives into the world of real estate investing and discusses the various ways individuals can generate passive income through property ownership. While many people associate real estate investing with being a landlord, Ramsey points out that there are several other options available for those seeking to benefit from the real estate market without the hassles of property management.
Why Real Estate for Passive Income?
Ramsey emphasizes that real estate has provided generations of investors with wealth and for good reason. He notes that real estate investments often have the potential for passive cash flow, and the income generated is not necessarily correlated to the time spent working.
However, Ramsey also acknowledges that owning and managing your own rental property isn’t truly passive. Being a landlord comes with a host of responsibilities, including property maintenance, tenant screening, and dealing with potential issues like late rent payments or property damage. For those looking to invest in real estate without the hands-on approach, Ramsey suggests exploring other options.
REITs: A Truly Passive Real Estate Investment
Real Estate Investment Trusts (REITs) offer investors a way to benefit from the real estate market without the need to own and manage physical properties. REITs are companies that own and operate income-generating real estate, such as apartment complexes, shopping centers, and office buildings. Investors can purchase shares in these companies, much like they would with stocks, and earn a portion of the income generated by the properties.
Ramsey discusses three main types of REITs: publicly traded, non-traded and private. Publicly traded REITs, such as Realty Income Corp O, are popular among investors due to their liquidity and the potential for regular income through monthly dividends. Realty Income Corp, in particular, is known for its high-quality tenant base, which includes many essential businesses like grocery stores and pharmacies, and its impressive track record of dividend growth. Realty Income has declared 646 consecutive monthly dividends and is a member of the S&P 500 Dividend Aristocrats index for having increased its dividend for the last 25 consecutive years.
Private and non-traded REITs, on the other hand, are not listed on public exchanges. While these REITs don't offer the same level of liquidity as companies like Realty Income, they also offer some protection against market volatility. Share prices are based on the value of the REIT's assets instead of the market sentiment on any given day.
One popular non-traded REIT is the Single Family Rental Fund. This REIT allows investors to gain exposure to a diverse portfolio of single-family rental properties without the need to own and manage the properties themselves. It pays monthly dividends and has a low minimum investment of just $100.
Crowdfunding and Syndication: Accessible Real Estate Investing
Crowdfunding and syndication have emerged as popular ways for investors to pool their money together to invest in real estate projects. Ramsey explains that through these methods, investors can gain access to a variety of real estate opportunities, from individual rental properties to larger commercial projects.
For those interested in investing in individual rental properties, Arrived offers a compelling opportunity. This platform allows investors to purchase shares in single-family rental homes, providing exposure to the rental market without the responsibilities of being a landlord. The platform is accessible to a wide range of investors, with low minimum investment requirements and a user-friendly interface. Click here to view properties currently available on the Arrived platform.
For accredited investors seeking to invest in large-scale projects, such as multifamily and commercial real estate, RealtyMogul is another option to consider. RealtyMogul has been empowering investors to build their real estate portfolios for over 12 years, with over $1 billion in capital invested on the platform. The company’s approach blends personalized service, proven business discipline, and data-driven insights to provide investors with exclusive access to select real estate opportunities. As of the end of Q1 2024, fully realized investments on the RealtyMogul platform have generated an average IRR of 19.5%. Click here to view investment offerings currently available on RealtyMogul.
More Passive Real Estate Investment Options
Some passive real estate investments don't exactly fit into the mold of traditional REITs and crowdfunding. One of the more unique and innovative investment vehicles to hit the market is Cityfunds, which has a variety of opportunities available to capture the growth in the residential real estate market.
Cityfunds: Invest in an Entire City’s Real Estate Market
For investors seeking a unique approach to passive real estate investing, Cityfunds offers an innovative solution. Cityfunds allows individuals to invest in a diversified portfolio of Home Equity Investments (HEIs) in some of the nation’s top cities, providing exposure to a city’s entire real estate market.
By investing in Cityfunds, individuals can unlock the potential of the $32.6 trillion home equity market, which has grown by an impressive 211% since 2013. Cityfunds makes this asset class accessible to retail investors, allowing them to benefit from the appreciation of property values and payoffs generated from home sales or refinances.
One of the key advantages of investing in Cityfunds is the diversification it provides. By owning fractional shares of unique homes spread across a range of properties, investors can reduce risk and enhance the stability of their portfolios. Cityfunds also takes a risk-adjusted approach, securing HEIs at 10-15% below market value, ensuring that investors are “in-the-money” from day one.
Click here to see the cities you can invest in through Cityfunds
Cityfunds Yield Fund: Passive Income with Real Estate Backing
For investors specifically interested in generating passive income, the Cityfunds Yield Fund is an option worth considering. This fund targets an 8% APY and provides investors with stable cash flow backed by real estate assets. By investing in a diversified pool of collateralized real estate loans, including home equity-backed notes and short-term mortgage notes, the Cityfunds Yield Fund aims to generate consistent interest income for its investors.
One of the appealing aspects of this fund is its quarterly distribution structure. Investors can choose to reinvest their distributions to compound returns or have them paid out directly to their bank account. With a five-year term and liquidity options available after 12 months, this fund offers a balance between liquidity and long-term growth potential.
Click here to see how much you could be earning with the Cityfunds Yield Fund.
The Bottom Line
Dave Ramsey’s insights on earning passive income from real estate highlight the various ways individuals can benefit from this lucrative asset class without the need to become a landlord. Whether through REITs, crowdfunding, syndication, or innovative platforms like Cityfunds, investors have more options than ever before to gain exposure to real estate and potentially generate passive income.
As always, it’s essential to conduct thorough research and consider your individual financial goals and risk tolerance before making any investment decisions. However, for those looking to diversify their portfolios and tap into the potential of real estate, the options discussed by Ramsey provide a solid starting point for further exploration.
Read Next:
- Investing in real estate just got a whole lot simpler. This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100.
- Miami is expected to take New York's place as the U.S. Financial Capital. Here's how you can invest in the city with as little as $500 before that happens.
- Passive income investments are one of the most trusted methods for riding out a recession, so it's no surprise that people are turning to high-yield real estate notes that pay a fixed 7.5% to 9%.
Image source: Screenshot from Why Owning Real Estate Is NOT Passive Income by The Ramsey Show Highlights on YouTube
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