Hi, my name is Ruy Machado, founder and CEO of Urban Equity Group, an integrated network of companies concentrated on real estate opportunities, including affordable housing. If you desire to start investing in real estate to generate passive monthly cash-flow, but don’t know where to start, this page is for you.
What is Passive Cash-Flow?
LET’S EXPLORE WHAT PASSIVE REAL ESTATE INVESTING IS ALL ABOUT
Just like the popular property trading board game from Parker Brothers© Monopoly©, passive real estate investing is just the same. But instead of collecting paper money when player lands on your property in the game, you receive real money (income) from a tenant who has leased your property. A tenant would usually sign a year lease and pay you, monthly cash-flow income through rent payments.
If you have never played Monopoly, I urge you to purchase your Monopoly board game and sit down with family and friends and enjoy a great board game of property trading.
The goal, is build a real estate rental portfolio/business, which will generate passive cash-flow income, month after month, and allow growth to happen without you doing the work.
In other words, we don’t trade time for money.
Instead, we real estate investors, invest our time searching and scanning for real estate investment opportunities, that could pay us monthly cash-flow. We work hard now to continually reap the benefits of our real estate investments cash-flow now, while constantly increasing our investment equity for later.
3 Common Passive Real Estate Investment Types
WHICH ONE IS RIGHT FOR YOU?
Condos & Townhouses
There are a few characteristics of condos that make them an appealing investment, especially for an entry level investor.
First, they are usually priced lower than your typical single family home. The barriers to entry are substantially lower, which means investor can put their money to work sooner rather than later. For many, saving for the first down payment is the toughest part; with a lower requirement, makes it easier to get started.
Second, they are generally easier to maintain. Since the homeowner’s association (HOA) usually takes care of the grounds and exterior maintenance, a condo landlord is only responsible for the space from the walls in. Depending on the HOA covenants, this may or may not include the heating/AC unit and the hot water heater.
A Townhouse is usually similar, with the main difference being that by owning a townhouse, you own the physical land underneath as well. Again, the HOA will have the last word on what the landlord is responsible for maintaining, but being able to outsource major eventual maintenance items such as the roof, siding, parking, etc. makes it a lot easier to manage.
Lastly, due to the ease of maintenance, they are also generally easier to manage. As a self-managing landlord, it’s helpful to be able to call the HOA manager if I see a piece of siding that has been damaged, for example. At times it feels almost as if I have a property manager without the added expense of 8-10% of monthly rents.
Investment Concerns With Condos
- Landlord Control – Owners of single family and multifamily are free to make decisions as they see fit. Condo owners are subject to condo bylaws and must follow rules that others set for them.
- Rental Restrictions – Too high of a ratio of non-owner occupants is bad for the financing ability of a condo. To combat this recent trend, condo associations have started limiting the number of units in a building that can be used as rentals. I’ve seen a few situations where the waiting list for permission to use a condo as rental, required a wait of 1-2 years. If you purchased a condo as an owner occupant with the intentions of renting it out as an investment down the road, consider the effect a 12-24 month vacancy would have on your return.
- Volatility – There’s plenty of data out there that shows condo values drop more quickly that single family homes and that condos don’t appreciate as well as single family homes. This volatility exposes the condo investor to increased risk as real estate prices fluctuate between cycles.
- Special Assessments – Over time the condo association will need money to make capital improvements like new windows or a new roof and will require each unit owner to pay his or her share of the expenses. Special assessments do improve the property, but can cost anywhere from a few thousand to tens of thousands PER UNIT, which ultimate cuts into your cash-flow.
A single-family property, otherwise referred to as a single-family home (SFH), is defined as a free-standing residential dwelling built on a single lot with no shared walls. Unlike a multi-family home, these properties contain only one unit which is neither attached or built in unison with any other type of structure. In addition, a single-family home will generally include a front and backyard, as well as a garage.
Single-family homes are a great investment vehicle to generate monthly income. With record low mortgage rates and fast-rising rental rates, these investment properties offer an assortment of advantages compared to condo, townhouse and multifamily homes, especially for beginner investors.
One of the more obvious advantages of investing in a single-family property is cost. The price for these real estate investments is generally much lower than multifamily properties, including additional expenses such a down payment and maintenance. Rather than 25-30 percent down, which would be the case for a multifamily home, in some cases investors simply need a 10-15 percent for the down payment. In addition, most rental agreements will require the tenant to pay for the majority of utilities, as well as take responsibility for the landscaping, which makes long-term maintenance costs much cheaper.
For one reason or another, single-family investments tend to appreciate more than other types of properties. It could be a variety of factors, but it mostly pertains to how lenders value each type of investment. Unlike multifamily properties, which are valued on the rents coming in and the condition of property, single-family homes are valued on supply and demand of owner-occupied buyers. If well-maintained and situated in a thriving neighborhood, buyers will always be in demand for single-family properties.
The one aspect many investors fail to consider when investing in real estate is the cost of managing it, which can vary depending on the amount of units. With only one tenant, single-family rentals are much easier to manage. Investors can choose from becoming the landlord and managing the property themselves and hiring a professional management company to oversee the investment.
Investment Concerns With Single-Family
- ROI Decreases with Vacancies – Unlike multi-family properties that contribute more than one source of income, single family homes are vacant the moment that a lease agreement ends. Lost revenue and increased costs to find a new tenant can be common.
- Payable HOA Fees – Only because it is a Single Family Detached, doesnt mean it’s not part of an HOA. Some neighborhoods require monthly payment of fees for property owners. This adds to the expense of owning a property.
- Repairs and Management – Over time the property will need money to make capital improvements like new windows or a new roof and will require for you to cover the entire expenses. Making sure you have good reserves, will assist when these improvements are require, but you have to make sure you are utilizing reserves and preventative maintenance.
A multifamily property, sometimes referred to as a multidwelling unit (MDU), is a type of residential housing with two or more units under one roof or several buildings within one complex. They are generally comprised of many configurations, with the most common examples being duplexes, townhouses, and some types of condos. Each unit tends to have its own living space, a separate kitchen and bathroom. Although the definition differs from situation to situation, a multifamily property will generally consist of owning a combination of the property and the land on one recorded deed. In some cases, it can be owned by one or more parties.
Investing in multifamily properties are an immensely favorable strategy among investors thanks to their additional source of monthly income, along with slow but steady appreciation.
If a single-family property generates a single monthly income, why not invest in a multifamily property producing multiple forms of monthly income? While the allure of investing in multifamily properties is easy to see, these investments represent an innovative opportunity to generate additional income from one investment. In addition, investors may decide to live in one unit, and rent out the others for income. When it comes to passive income retirement investing, a multifamily property can be used in multiple ways.
The more income a property receives, the higher the value is. Because multifamily properties are comprised of more units, which means earning multiple streams of income, these types of investments are generally valued higher than single-family homes, which are dependent on comparable sales as rentals.
One of the underlying benefits of investing in multifamily properties is less risk. How you ask? Because, unlike single-family units, where income is lost when the home is vacant, multifamily properties have numerous units and alleviate the total economic loss for investors.
Scalability, rather than purchasing individual properties and slowly growing your business one transaction at a time, these investments represent the opportunity to acquire multiple properties within one building. They are perfect for those looking to grow their real estate investment portfolio and take their business to the next level, with the option for investors to venture into the arena of mixed-use and apartment investing down the road.
Investment Concerns With Multifamily
- More Expensive – First, multifamily properties typically cost much more to buy than a single-family house. This can be a barrier to entry for many people trying to get started, so multifamily is often not considered until much later in one’s investment career. That said, smaller multifamily properties have some lower down payment financing options, and larger multifamily properties often include raising money from other people.
- More Management Intensive – I’ll be the first to admit it, multifamily tenants cause more headaches than single-family tenants. They are generally more “transitional” and thus have much more drama in their lives. Tenants stay for shorter periods of time, which can add significant expense to your bottom line. They call and complain for more petty reasons, have more difficulty paying the rent on time, and tend to be harder on units because they don’t always feel like the place is their real “home.” That said, as I mentioned earlier, multifamily properties are often managed by third parties, so the owner doesn’t need to be very involved in the management drama.
- Fewer to Choose From – Depending on where you live, there may be a lack of available multifamily properties from which to choose. While single-family homes are plentiful across the world, multifamily properties may be more sparse in your location.
What Passive Real Estate Investing is NOT
Let’s dispel some myths and set realistic expectations before we go any deeper.
Generating real estate passive income is NOT easy and it takes a lot of hard work. Nothing in life comes easy – Making money in real estate is no different. Many internet marketers and online entrepreneurs will try to persuade you to think otherwise. Why? Because they’re trying to make money from false hopes. I’m here to tell you the truth: real estate investing is hard. I’ll do my best to guide you and give you the information you need, but I can’t force you to take action; that’s up to you.
Generating real estate passive income does NOT happen overnight – I don’t live, teach, or believe in get-rich-quick schemes. It takes hard work, dedication and commitment. You can do it too.
Generating real estate passive income is NOT impossible – It just takes commitment. Long time ago, I decided to bet on myself by trying to make my dream a reality. And you know what? The dream came true, and it’s awesome! I get to play real monopoly every day, work when I want, and make my own decisions. This lifestyle is possible, and I want you to experience it too.
Get Started the Smart Way
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The information you will get with your free exclusive consultation. You won’t find it anywhere else. I do that because I believe it’s important to start out with a focused, nurturing experience that rewards commitment.
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