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How to Earn Passive Income From Property Investment?

Are you looking to leave behind your 9-5 work lifestyle? Or perhaps you’re happy with your job, but you know that it isn’t what you want to do in 10-15 years. Maybe you want to make a little more on the side to ensure financial security in these challenging times. Knowing how to earn passive income from real estate is a great way to make that lifestyle change or work towards a future with less financial burden!

While there is no quick shortcut to generating passive income from property, there are certainly ways to significantly increase your chance of success (and decrease the time it takes to achieve a passive income investment!)

Analyse the data

Knowing how to make money from property investment starts with investing in the right place at the right time. When choosing a suburb to invest in, it is critical to compile all the data available on real estate markets at the time. It isn’t just about knowing the property’s distance to schools, hospitals, parks, etc. Instead, look at the actual data that is readily accessible. This includes stock on market percentages, days on market trends, online search interest ratios, building approval percentages, average vendor discount percentages, and many more! 

Try to avoid getting wrapped up in emotion and making decisions based on the herd mentality or the latest trend. Make informed decisions based on data and logic!

Cash flow vs Capital Growth

A good analogy is that capital growth is the engine, and cash flow is the oil. There is often the belief that cash flow itself is going to accelerate wealth. However, the capital growth or the increasing value of your investment will generate and accelerate wealth. A positive cash flow will still be affected by outgoings, such as interest payments, council rates, property management fees, etc. Even conservative capital growth will see a much higher return and help you achieve a successful passive income investment.

Picking a strategy right for you

It is essential to pick a strategy that is right for you in acquiring a passive income investment. Remember, a buy and hold strategy is enough for you to generate passive income. You might see many people using different strategies like renovations, subdivisions, etc., and seeing it pays off for that person. But just because it has worked for them doesn’t mean it’ll work for you, or even be possible in the first place. If you don’t want to renovate or develop or aren’t in a position to do so, then a buy and hold strategy is sufficient. 

Perhaps you do have a bit more time and money on your hands. Great! Feel free to explore more active strategies like subdivisions, renovation for profit, small-scale development and more! But be conscious about your limitations, aspirations, and resources from a time and money perspective, and pick the right strategy for you. 

The Exit strategy

Choosing an exit strategy is critical in generating passive income from the property. 

Perhaps you have chosen to build a portfolio, letting it double over a set period. Then you sell half those properties and use that cash to pay off the remaining properties. This leaves you in the position of having no debt on the remaining properties.

Or maybe, instead of selling properties to pay off debt, you pull out equity/profit and live off that. This way, you never have to sell properties, and because they are continuously increasing in value, you are in a position to live off the money these properties generate. 

Have you considered a mixture of these two exit strategies? This means buying good properties in good suburbs, and instead of selling, extract equity and put it into a development project that pays you 10-15% yield. While residential real estate generally pays a 5% yield, you can now double or triple this yield because you are accessing development projects. 

Whichever you choose, know your exit strategy and execute it with confidence!

Are you now ready to start your journey towards earning a passive income through property investment? Or maybe you want to know more about how to make passive income with a rental property?

PK Gupta
Published: 13 Sep 2021


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