10 Tips for Real Estate Passive Income

I have an embarrassing confession: I’m a great entrepreneurial earner but a terrible investor. As a high-risk angel investor with a long-term payout of 10 to 15 years, I’ve invested in dozens of startups and very few of my investments have produced the passive income or immediate cash flow I was hoping for. Unfortunately, that is the norm.

I was hesitant to get on the real estate train for a long time. I imagined real estate investing would be a huge property management headache. I dreaded a fixer-upper with an unexpected sagging foundation and a middle-of-the-night phone call from a tenant complaining about a malfunctioning HVAC or bad plumbing. Ewwww.

After all, I feared that real estate investing would turn into another full-time job — and as someone who values ​​family life and independence above all else, that was something I didn’t want.

Today, however, I’m embracing real estate. My wife and I are involved in development projects in Mexico, and through our friends Jim and Jamie Shiels, I learned about the build-to-rent investment concept. For a real estate-skeptic investor like me, this is a smart and safe long-term plan, especially given the current demand for residential real estate.

You may have heard that there is a housing shortage in the United States. According to a Article at PewTrusts.org, a 2021 Freddie Mac report revealed that the country was about 3.8 million housing units short and that it could take a decade to reduce this housing shortage. Large funds and private equity firms are moving into build-to-rent investing, but there is also room for smaller investors and entrepreneurs in this market.

For small investors, the end goal of build-to-rent investing is simple: generate enough passive income to have an amazing family life. Having more resources for Family Unity resonated deeply with me, motivating me to learn more about their investment process and strategy.

Here’s some of what I’ve learned about build-to-rent real estate investing.

RELATED: This is the most expensive rental zip code in the U.S. — and it’s not in New York or San Francisco

10 Principles of Build-to-Rent Investments

1. Invest for the long term: The build to rent mentality focuses on steady cash flow and equity growth rather than flipping. It’s about building a solid portfolio to lean on. Smart investors start with three to five new properties. After three to five years of renting, the investor refinances to invest in a new property and uses built equity and the cycle continues.
2. Focus on aspects other than cash flow: Cash flow is important, but added value comes from property appreciation, rent increases, tax benefits, cost segregation, principal reduction and refinancing to put money into other properties.
3. Invest in good areas and neighborhoods: Invest in middle-income priced markets that will have low tenant turnover, better marketability down the road and better overall appreciation.
4. Stick with new builds: Fixer uppers are simply a deferred maintenance nightmare. It is better to own fewer properties of good quality than many properties with potential maintenance problems.
5. Let the experts manage your property: Your goal is passive income so you can make more time for family life. Sub-out property management to third parties. You’re not looking for a second or third job.
6. Rental properties are for cash flow, not charity: This is another reason to use a property management company. It sounds harsh, but it’s easy to become emotionally attached to tenants, some of whom will tell you tales of woe. You can separate your rent and charitable giving in your move with a property manager.
7. Invest in a landlord-friendly state: Some states protect landowner rights more than others. In states that do not offer landlord protections, there may be instances where you cannot collect rent.
8. Plug in to a support team: There’s more to renting than buildings: credit readings, criminal background checks, income verification, building permit pulls and building inspections. If you can plug into an existing build-to-rent investment company, the odds are in your favor.
9. Choose a verified build-to-rent company: Make sure you invest in a company with a profitable track record that has built at least 1,000 properties and survived the cycle. Don’t be the first investor in a company.
10. Don’t stop learning: Keep learning even after you invest your money. Join masterminds, read all you can about investing and trends, and join support groups that provide learning opportunities.
11. Bonus: Get your family involved in your investment. There is more to family time than play. Teach your kids about smart investing. Let your kids sit in on accounting meetings, and if they have money, teach them investing skills.

RELATED: 4 New Year’s Resolutions Every Landlord Should Consider

I wish I had understood these principles earlier, but now it seems a lot less daunting than I imagined. With this strategy and mindset, it turns out that having an ideal family life can be achieved with little effort.