Purchasing real estate can be one of the smartest assets to acquire as a long term investment. There are quite a few ways you can turn that investment into a profit long-term and short-term. Turning your real estate property into a rental property can generate income for you for years to come. Here are 3 Ways Rental Properties Can Make You Income Passively:
- The Property Appreciates In Value
- Tenant Pays Rent Monthly
- Use The Property As An AirBNB
Let’s take a closer look.
The Property Appreciates In Value
The first way your rental property can you make you income passively is if the property appreciates in value.
While it is not a guarantee that your property will appreciate in value as the market value can fluctuate up and down depending on supply and demand and other various factors including loan interest rates, etc, that can influence the market prices, in the long run, properties generally hold and increase in value over longer periods of time.
If you take a look at the prices of real estate from ten years ago and compare it to now, you can clearly see a huge difference in prices. A house that cost $100k – $200k ten years ago is now, on average, worth close to one million dollars or more.
Also, most properties in newly developed communities generally increase in value almost immediately from pre construction to completion, especially in high demand areas.
Therefore, holding on to your property will make you income passively by allowing you to buy low and sell high should you decide to do so in the future.
Tenant Pays Rent Monthly
In the meantime, you can look for tenants to rent your place out to and earn recurring monthly income in the form of monthly rent.
The second way a rental property can make you income passively is of course, by having tenants pay you rent monthly.
As the owner of the property, you can create lease/rental contracts and find someone to live in your property and pay rent as the tenant.
You can rent the property out to the tenant at a higher cost than the mortgage payment and pocket the difference. While the amount may or may not be significant high, the recurring monthly income is still a great source of passive income.
So now let’s take a look at the next way your rental property can make you income passively.
Use The Property As An AirBNB
Renting your property out and receiving a monthly rent is a great source of passive income. However, this third way a rental property can make you income passively takes it to another level.
These days, more and more property owners are turning their place into AirBNBs because of how lucrative it can be.
By charging per night for a stay at your property, the amount you earn monthly becomes significantly more, granted you are continuously receiving bookings to stay at your place.
Most people will stay more than just one night, so if on average you are booked 2-3 nights per week, you can potentially make the same monthly profit of renting the place out to a tenant within one to two weeks of booking per month, depending on the cost per night of course.
Let’s take a look at an example with some numbers. If you rent out your property to a tenant at $2000 per month and the mortgage is $1500 per month. Your monthly profit and passive income is $500.
Now for the AirBNB instead, let’s say you charge $150 per night to stay at your place for AirBNB. $150 x 7 nights (or 1 week) is $1050. So you can make the same amount you would charge a tenant in about 13-14 days (or 2 weeks) of booking instead.
If you happen to get bookings for the entire month, you end up making $4500 – $1500 mortgage = $3000 profit. $500 per month or $3000 per month? What sounds better to you?
Depending on your location and how popular your property is, you can definitely make significantly more.
On the same token, you could end up making less than if you were to rent to a tenant if you do not receive consistent continuous bookings.
Using the same example of $150 per night, 10 nights of booking is required to cover the monthly mortgage. This shouldn’t be too difficult to achieve as long as bookings remain somewhat consistent from month to month.
Now, with some patience, persistence, smart marketing of the property, and over time, as your ratings increase and more AirBNB users find your property, the repeat visitors and referred visitors from positive reviews can bring in more consistent bookings. This can turn your property into a passive income money making machine that you can eventually put towards scaling up to another rental property, then rinse and repeat. At that point, four or five AirBNB properties would be more than enough to leave your daily grind for good!