Creating passive or residual income

Creating passive or residual income is the ultimate investment dream for many, and it can be achieved Investing in real estate. In fact, savvy investors have been using real estate as a way to create residual income for decades. Residual income Simply put, is income that continues to be generated.

Unlike linear income, which is compensation that comes in the form of wages, commis

sion, or salary, residual income allows you to continue seeing benefits long after the initial “work” has been done. Rental property income is a good example.

If you’re interested in creating residual income through real estate :

Know your real estate investment options

There are several different ways to create residual income opportunities via real estate, and it’s important to research each one to determine what’s best for you and your goals. Consider these options:

Investment properties: An investment property is one purchased with the sole purpose of earning revenue. It could be a commercial space you’ll lease out or a residential rental unit. Not only will this type of investment provide potential appreciation over the long term, but it can also provide residual income in the form of rent (after expenses).

Real estate investment trusts (REITs): These are primarily large portfolios of income-producing real estate, which are required by law to distribute 90 percent of their earnings to investors each year. There are both traded and nontraded REITs, with traded tending to correlate with market activity. REITs produce dividends similar to stocks.

New opportunities: Advances in technology have led to a wide assortment of online options for real estate investment. Similar in many ways to REITs and PE funds, these options have a crowdfunding element.

Be smart about residual income

As you start out, be smart about the programs and types of investments you choose. If you decide to purchase a few investment properties, for example, be sure to research and use state and local incentive programs. You should also consult with real estate professionals.

Identify who will manage the property.
The premise of residual income is that you have little to no work to put in after the initial investment. If you choose REITs , then you’re all set. But what if you choose investment properties?

Although most of the work will happen initially (making updates to the property, etc.), with real estate, there are always a few things that need to be taken care of here and there. Who will collect the rent? How will tenant issues be taken care of? Who will repaint when a tenant moves out?

From the beginning, be sure to determine how this work will be taken care of. Will you do it yourself? Will you hire a property manager? Calculate these costs when you’re evaluating your investment options.

Putting it together
Regardless of how you choose to pursue earning residual income, the most important aspect of investing in real estate is the calculation and evaluation of every opportunity that comes your way. Figure out which approach makes the most sense for your situation and come up with residual income goals that are attainable.

Diversification into different types of assets is one of the most efficient ways to build a portfolio that will bring in the residual income you desire.