Busting 5 Myths About Generating Passive Income in Real Estate

Posted by Chris Clothier on Thu, Nov 12, 2015

real estate investingGenerating passive income sounds amazing in concept, doesn’t it? Income. Passive. Knowing that without expending too much time, effort, and energy, you could be racking up the cash to cover your retirement, or that trip to the Bahamas you’ve been dreaming about. Passive income comes in many shapes and sizes. Now more than ever, there are a million different ways to start generating passive income.

And real estate investment, in certain forms, is one of them!

It all depends on how you choose to invest. Investing in real estate can be a great avenue to financial security and freedom, but would-be investors need to be wary of the myths and misconceptions surrounding earning passive income through real estate.

Busting 5 Big Myths on Passive Income in Real Estate Investment

Myth #1 — It’s Literally Passive

Truth: You have to get started first.

No matter what kind of real estate investor you are, there’s going to be some legwork involved, especially in the beginning. It’s going to involve a lot of time and energy, all towards research, education, and connecting. You have to find properties and make deals or, ideally, find a reputable turnkey real estate company that you can trust. Investing in real estate can be incredibly passive. But not entirely. Your level of involvement is really up to you—but the best in the biz know that there’s hard work involved to get the ball rolling.

Myth #2 — Cheap Properties Are Best

Truth: You get what you pay for.

Spending less seems like it’s the best strategy, doesn’t it? Snatch up a bunch of cheap properties, set a good rental cost, and your ratios will be looking pretty sweet. But don’t be fooled! Cheap properties can be signifiers of a lot of things: a bad neighborhood, serious property problems, or other less-than desirable qualities. You may find yourself up to your ears in renovations, having find difficulty getting tenants to stick around, or even contending with dangerous conditions. Don’t be dazzled by bargain bin properties. They’re almost never worth it.

Myth #3 — Keeping Costs Down is Most Important

Truth: The premium is worth it in the long run.

Logically, the less you spend, the more that ends up in your pocket at the end of the day. But truth be told, the old adage is right—you’ve got to spend money to make money. Do you want the property manager that you pay less for subpar performance, squeaking by on the bare minimum of service, or do you want to pay more for one who will do their job and do it to the best of their ability?

turnkey real estate investing

Don’t be shortsighted. Doing proper repairs, sensible renovations and, most importantly, hiring a top-notch property management company will serve you far better in the long run.

Myth #4 — Always Go for “Hot” Markets

Truth: Gems can be found all across the country.

It’s tempting to be dazzled by the big-ticket markets. LA. NYC. These markets are often coveted by investors because they’re just glamorous. But really, they’re not for everyone. Your average investor won’t often find a ton of success with fancy beach houses and big city lofts. Don’t overlook opportunities elsewhere! More unassuming (but stable) markets have gems just waiting for real estate investors that don’t come with such stiff competition and big price tags. Don’t be afraid to branch out and try smaller markets.

Myth #5 — It’s More Profitable If I Handle It All Myself

Truth: A solid team is the best route to passive income success.

Understand that hiring other people to take care of things isn’t the hassle is seems, and it definitely isn’t the hassle of taking it all on yourself. Hiring can seem counter intuitive, as you’re paying for it. But it’s not, when you hire the right people that can streamline your investments and boost your capacity.

Want to be a passive investor? Learn to let go of some of the details. If you’re with a team that you trust, if you have a solid set up with a property management company, don’t over think it. Pay attention, yes. Keep up with things, yes. But if you truly want to be a passive investor, you’ve got to work to set up all those behind-the-scenes systems and people that can keep things running smoothly for you.

What misconceptions did you used to have about generating passive income? Share what experience has taught you in the comments.

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image credit: TaxCredits.net

Topics: passive income, investing in real estate, passive investing