Investing in real estate has long been a popular way to earn passive income. Unlike active investing, passive investing allows investors to make money with minimal involvement. In real estate, this can be done in several ways, including directly investing in investment properties, REITs (real estate investment trusts), and crowdfunding. In this blog post, we explore the different ways to earn passive income through real estate investments and provide tips on how to get started. A complete guide on investing in real estate with a small deposit can be found here.
What is passive income in real estate?
Passive income is the income you receive without having to put much time or effort into it. This means you generate income while performing no (or almost no) activities. Passive income is therefore a constant and stable cash flow coming in. It is not value appreciation. You only realize that when you sell your investment, so it’s not a continuous cash flow.
In real estate, passive income is the rent you receive from tenants, the dividend you receive from the real estate fund, or the interest you earn on your loan.
1. Investing in an investment property
Investment properties are real estate objects specifically purchased for investment purposes. These include apartments, office buildings, shopping centers, and hotels. Investors invest in investment properties to generate income from rent or sale.
There are several reasons why investors choose investment properties, including:
- Stable income: Rental properties can generate regular and stable income from rent, making it an attractive option for investors looking for a solid investment.
- Inflation protection: Real estate is considered a hard asset and is therefore less sensitive to the effects of inflation. This makes it an attractive option for investors wanting protection against inflation.
- Value appreciation: Real estate tends to increase in value, especially in the long term. This makes it an attractive option for investors seeking growth and appreciation of their investment.
- Diversification: Investing in investment properties can help diversify your investment portfolio, which reduces risk.
There are some disadvantages to investing in a rental property that should be considered before deciding to invest:
- Landlord responsibilities: As the owner of a rental property, you are responsible for the maintenance and repairs of the property, as well as finding and renting the property to suitable tenants. This can be time-consuming and costly.
- Regulations: Many rules and laws apply to rental properties, including rent control limits and tenant rights. It is important to know and follow these rules and laws to avoid getting into trouble.
- Capital intensive: Purchasing a rental property requires a significant capital investment, meaning it is not suitable for everyone looking for an investment with little starting capital.
- Risks: There is always a risk of encountering problems such as late payments, damage to the property, or issues with tenants. It is important to consider this when making investment decisions.
2. Investing in investment properties with BRXS
There are many advantages to investing in an investment property, but also many disadvantages, making it unsuitable for everyone to start entirely on their own. That’s why BRXS exists, making real estate investing more accessible and low-threshold. On the platform, you can invest directly in rental properties of your choice starting from €100, receive your share of rental payments quarterly, and also share in the property’s long-term value appreciation. Read more about how to start with BRXS.
3. Real estate funds or REITs
Real estate funds are investment funds that focus on investments in real estate, such as offices, shops, apartments, and hotels. Below is an overview of the pros and cons of investing in real estate funds.
Advantages:
- Convenience: Investing in real estate funds is a simple and accessible way to invest in real estate without the worries and responsibilities of owning physical property.
- Diversification: Real estate funds offer investors the opportunity to diversify across different real estate sectors and locations, reducing risk.
- Professionalism: Real estate funds work with professional managers who have specific expertise and experience in real estate investing.
- Average stable returns: Real estate funds have historically shown average stable returns, which can be an attractive advantage for investors looking for a stable investment.
Disadvantages:
- Higher costs: Real estate funds are often associated with higher costs, such as management fees and administrative charges.
- Slower growth potential: Real estate funds sometimes have slower growth potential than other investment categories, such as stocks or commodities.
- Limited liquidity: The liquidity of real estate funds may be more limited than other investment categories, meaning it might be harder to sell your investment when you want to.
4. Crowdfunding
Real estate crowdfunding is a way to invest in real estate where investors collectively invest money in a real estate project via an online platform. Below is an overview of the pros and cons of investing in real estate via crowdfunding.
Advantages:
- Access to real estate investments: Real estate crowdfunding offers investors access to real estate investments that might otherwise be inaccessible, such as smaller real estate projects or specific niche markets.
- Lower threshold: Crowdfunding in real estate allows investors to invest in property with relatively small amounts, making real estate investing more accessible.
- Transparency: Real estate crowdfunding platforms provide investors with transparent information about the projects they can invest in, including financial data and project updates.
Disadvantages:
- Higher risks: It’s important to realize that investing via real estate crowdfunding often involves higher risks than traditional real estate investments, such as the risk of bankruptcy or project delays.
- Limited regulation: Crowdfunding in real estate often falls under less strict regulation than traditional real estate investments, meaning investors may be less protected.
- Limited liquidity: Investing via real estate crowdfunding can mean investors have less liquidity than with other investment categories, making it potentially harder to sell your investment when desired.