One of the main reasons why people choose to invest in property is because they are after change. This may be a change of lifestyle, hoping to achieve financial freedom and spend more time doing what matters to them.

Or perhaps this change is a shift in mindset, now at ease knowing that their finances are secured for the future.

Generating a passive income is essential in achieving this change. Property investment is a great way to generate this income and the first step in pursuing that change. Increases in rental income and the value of a property means that passive income from property is highly likely.

But this has to be achieved through careful planning, a proper property investment education, and the right mindset. Through this, anyone can invest in property, generate a passive income, grow a property portfolio, and achieve financial freedom.

So, how to make passive income from real estate investing?

While there are multiple theories, strategies, and opinions, from a wide range of experts (or those that claim to be experts), at the end of the day, there are two key ways to make passive income; owning positively geared property and accessing equity.

While many investors formulate different strategies, how small investors are making passive income in real estate  often comes from employing these two methods.

Positively Geared Property

A positively geared property involves owning a property that generates more rental income than the expenses paid in order to own the property. Say you purchase a property for $450,000 in an area where low vacancy rates are low.

Let’s say that you charge $600 a week in rent. The cost to own the home, including mortgage interest repayments, insurance, property maintenance, rates, etc., total $400 each week. This means that your net return is $200 per week, and you’re positively geared in the amount of $10,400 per year. 

This money is passive income. It goes in your pocket to be spent however you wish. This may help pay some bills at home, allow you to go on holiday, or purchase something a little extra that wouldn’t have been possible without that positively geared property.

A positively geared property allows for flexibility and opportunity. Having a positive cashflow property can provide that peace of mind, and provide that financial buffer if your circumstances change, as that property is essentially paying for itself. 

Or, the passive income from that positively geared property can be put towards saving for a deposit for the next property. The more positively geared properties you can acquire, the more passive income that ends up in your pocket.

It takes time, but having a whole portfolio of positively geared properties could accumulate enough passive income to live comfortably. 

A quick tip in buying positively geared property: start with an interest-only loan. Often when starting out in property investment, the expenses of owning the property will outweigh the rental income you acquire every week.

An interest only loan means you will only repay the interest that accrues on the amount initially borrowed (i.e. the principal). An interest-only loan is offered for a set period, and once this period has ended, the loan will change to ‘principal and interest.’

While you may not be chipping away at the principal, an interest-only loan means you’re spending less, leaving you with a higher cash flow to use for investment purposes and acquire that portfolio much quicker.  

Utilising Equity

The other key way to generate passive income from property is strategically accessing the equity that is generated as the property increases in value. 

This really does depend on your property increasing in value. Say the property you own is worth $450,000 one year, and increases to $550,000 in the next. You have seen an equity increase of $100,000 in this property.

You can access that amount by selling the property or borrowing against the equity. Once again, owning multiple properties means you can take full advantage of this strategy. It allows the investor to borrow that equity increase each year from a different property, generating passive income to live off.

Keep in mind that this strategy does require all properties increasing in value. You’ll also need an increase in rental income for this strategy to work, so that you can cover the cost of repaying the newly loaned amount. 

To strategically access this equity, you’ll need an investment-savvy mortgage broker to find out how much equity is actually available to you. Just because you have a certain amount of equity, doesn’t mean that you can access all of it. 

Property investment versus Shares

Borrowing against equity is also a key reason why property investment provides an advantage over investing in shares. Generating a passive income from shares is more difficult, as it is harder to borrow against shares as opposed to property.

While shares allow you to generate passive income through dividends and capital growth, the difficulty to borrow against shares really does give property investment the edge when it comes to growing your portfolio quickly. 

At the end of the day, knowing how to make passive income from property comes down to educating yourself. And remember, the amount of research and work required will depend on how you educate yourself,with resources designed to fast-track this process. 

The Property Investment Accelerator is a self-paced online course with tools and templates, live Q&A calls and a community of property investors.

Check out this Property Investment Accelerator Course’s reviews and start the journey towards financial freedom and generate passive income to live the life you’ve always wanted!