In this article, we'll go over the best ways to make real estate investments in 2023 while minimizing financial risks. We will investigate the various types of investments and the market to determine why investing in real estate in 2023 is a wise decision and discuss how TenantCloud can help you navigate obstacles and effectively invest in real estate.
Here are the most effective real estate investment techniques investors may use to minimize risk and increase return on investment.
What is passive real estate investing?
Passive real estate investment is a strategy where investors put their money into real estate ventures without actively managing the property. Passive real estate investors typically invest in real estate investment trusts (REITs), syndications, or residential properties.
- How does passive real estate work?
Passive real estate investing allows investors to pool their money to purchase properties. Then, properties can be managed by a property management company, and the generated income will be distributed among the investors. Property management software allows property managers to supervise all the properties in one place, streamline the process, keep track of the business, screen potential renters, and collect online payments.
Passive real estate investors can also invest in REITs. By investing in a REIT, an investor can gain exposure to a diversified portfolio of properties and earn dividends from the rental income.
- How to invest in real estate for passive income?
To invest in real estate for passive income, you can look into REITs, syndications, or turnkey properties. Real Estate Investment Trusts (REITs) are publicly traded companies that own, operate, or finance income-producing properties. As we previously wrote, REITs allow investors to gain exposure to a diversified portfolio of properties and earn dividends from the rental income.
Syndications are when a group of investors pool their money together to purchase a property and share in the income generated.
Turnkey properties are rental properties that already generate income and are managed by a property management company. Leading a property manager's team can be challenging, but with the help of the TenantCloud team management feature, managing the responsibilities of your team members, assigning properties to sub-administrators, and overseeing their progress becomes effortless and seamless.
An unpopular option for investors is a crowdfunding platform that allows individuals to invest in real estate projects, often starting with small amounts. It can be a great way to get started with real estate investing and earn passive income.
It is important to note that investing in real estate for passive income does come with risks, such as changes in market conditions, property management issues, and tenant turnover. Therefore, it's crucial to do your due diligence and research the many options available before making any investment decisions.
Active vs. passive real estate investing?
Active real estate investing refers to directly buying and managing properties, such as rental properties, in order to generate a positive cash flow income. Active real estate investing usually involves the investor finding and purchasing a property, then managing the day-to-day responsibilities of being a landlord, such as finding and screening tenants, collecting rent, and maintaining the property. Property management software makes these tasks easier and allows landlords to scale up their businesses by streamlining the process.
Active real estate investors can also use the BRRRR method or flip properties by buying and renovating them to sell for a profit. However, managing properties can be time-consuming and demanding, as the famous real estate investor and author Robert Kiyosaki said: "It's not about the property, it's about the management." TenantCloud property management software can help landlords handle properties easily and efficiently, by automating tasks such as rent collection and communication with tenants and providing access to detailed analytics, reporting, and more. Property management software can help landlords reduce operational costs by up to 25%.
Passive investing in real estate, as discussed earlier, is a strategy where investors put their money into real estate ventures without actively managing the property. Passive real estate investors typically invest in real estate investment trusts (REITs), syndications, or turnkey properties. Passive investing allows them to earn a steady income without the day-to-day responsibilities of being a landlord. However, even in passive investment, using property management software like TenantCloud can help owners keep track of their investments and gain insights into the performance of their properties without the need to manage them directly.
What is the golden rule for real estate?
The golden rule for real estate investing is "location, location, location." This phrase emphasizes the importance of location in determining the value and potential return on investment for a property. Properties in prime locations, such as those in desirable neighborhoods or near major transportation hubs, tend to have a higher value and generate more rental income than properties in less desirable locations. The location also plays a key role in the resale value of a property, which is why it's considered the most important factor when investing in real estate.
What is the 80% rule in real estate?
The 80% rule in real estate refers to a general guideline that states that an investor should not pay more than 80% of an after-repair value (ARV) of a property when buying it. This rule ensures an investor can resell the property for a profit after making any necessary repairs or improvements. The 80% rule can be used as a quick way to determine if a property is a good investment or not.
What is the 2% rule for an investment property?
The 2% rule for an investment property is a guideline that states that an investment property should generate a monthly rental income that is equal to or greater than 2% of the property's purchase price. This rule ensures that the property will generate enough income to cover its operating expenses, including mortgage payments, property taxes, insurance, and maintenance.
TenantCloud can help landlords to follow the 2% rule by providing various tools that can help to minimize expenses and maximize the income from the properties. For example, landlords can easily handle maintenance and repair requests from tenants, track the income and expenses with the accounting feature and track the performance of the properties with the reports feature. Make informed decisions and increase the profitability of your investments easily and daily with specialized property management software.
What is the 30% rule in real estate?
The 30% rule in real estate is a guideline that your rental income should be at least 30% more than your total monthly expenses for the property. The 30% rule ensures that the property will generate enough income to cover its operating expenses and provide a positive cash flow. This rule is known as the cash flow rule and is used to determine whether a property is a good investment.
Top 3 Real Estate Investing Tips
Real estate investing is a great way to build wealth and generate passive income, but it can also be risky. It's helpful to have a solid strategy in place and to be aware of some tips to assist you and prevent these risks. Here are three tips that can help you achieve success as a real estate investor:
- Location: Location is 99% of success when it comes to real estate investing. With the impacts of the great resignation and the COVID-19 pandemic shut downs, it's essential to search and find desirable areas in high demand with a strong economy and a good job market.
- Due Diligence: Due diligence means thoroughly researching the property, neighborhood, market conditions, and potential for appreciation or depreciation. Get an accurate understanding of the market, including vacancy rates, real estate trends, and market saturation, with the help of a rentability report.
- Diversification: Rather than putting all of your eggs in one basket, consider investing in different types of properties, markets, and strategies. For example, you might invest in long-term rental properties, BRRRR, or REITs. Consider investing in different asset classes, such as single-family houses and multifamily properties.
By following these tips, you'll be on your way to success as a real estate investor. Remember to be patient and keep an eye out for opportunities to grow your portfolio and generate passive income. Have a plan for managing and maintaining the property, whether you want to do it yourself with property management software or hire a property manager.