Real estate is NOT passive income…at least
not in the way most videos make it out to be. In this video, I’ll compare property investing
against three other passive income ideas then reveal the only three forms of true passive
income real estate investing. We’re talking real estate investments today
on Let’s Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money. Hey Bowtie Nation, Joseph Hogue with the Let’s
Talk Money channel. A special shout-out to all you in the nation,
thank you for spending a part of your day here. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. It’s been a while since we did a real estate
video on the channel but those of you in the community know, I’m all about property investing. It’s where I got my start as a commercial
real estate analyst and then my first real experience building wealth through rentals. But I get just a little batshit crazy when
I see videos here on YouTube trying to make it out as this miracle passive income investment. I think…well maybe they’re just thinking
about a different real estate investment than I know. Because working 50+ hours a week analyzing
and developing commercial real estate didn’t seem all that passive. Neither did using my weekend to fill up a
17-foot uHaul truck full of trash and all the shit tenants leave behind, then dumping
it Monday before work…yeah, not that passive. But there are ways you can make real estate
as passive as possible so every once in a while, I’ve got to set the intertubes straight
with a video. In this one, I’m going to compare real estate
against three other passive income ideas so you know what to expect. Then I’ll reveal three ways to make real
estate passive income, ways to invest in real estate that really work to create income without
the constant headache. I’ll show you exactly how to set up those
three passive income investments including a review of my newest real estate investment
on Fundrise. I just invested $1,000 in a portfolio of 35
income properties with projected returns as high as 16% with a projected dividend return
from 7.7% to 8.5% on an annual basis. I’ll detail the portfolio as well as tell
you how to get a 90-day risk-free trial on Fundrise. Invest now and if you aren’t totally satisfied
after three months, Fundrise is going to refund your entire investment. Now the definition of passive income is any
income or return you get without having to do anything. So rather than actively managing your real
estate, passive income would be collecting those checks without having to visit your
rental 10:30 at night to light the pilot light on the water heater. Yeah, had to do that one…a couple times. But how does real estate investing, and here
we’ll talk about residential rentals which is by far the most popular method, how does
that stack up for passive income against some of the other ideas you see? Let’s compare real estate as passive income
versus three other ideas, then I’ll show you those three ways to make true residual
income from property. And the first comparison here has to be real
estate versus stocks. Now I know a lot of you are thinking stocks
are easily the more passive investment here but don’t forget the time you should be
spending analyzing a company before you add it to your portfolio. Now if you’re just talking about buy-and-hold,
index investing then I would definitely give stocks the win on this one. Most real estate investments take a month
or more to buy or sell versus that almost instant trade you can make in stocks. The analysis on real estate investments takes
longer also just because you might have to physically visit the property and look up
cash flow data. Another favorite income idea here on YouTube
is…well, YouTube. Now YouTube can eventually be a source of
passive income. Here I’ve made just under $45,000 over the
last year in ads and over $12,000 on a video I created 13 months ago. That video still makes over $60 a day and
without having to do anything for it. But I had to create more than 300 videos and
am publishing three videos a week to keep up that growth and momentum. I’ve heard of YouTubers that stop doing
videos and the money keeps coming in for a while but slowly trickles off. With real estate, even if you’re doing the
bare minimum, that property is still there earning rent and appreciating in price. Finally here before we get to those three
passive income property strategies is real estate versus my favorite passive idea, self-publishing. Those of you in the bowtie nation, you’re
tired of me talking about self-publishing but this is easily the most passive form of
income I’ve found. I’ve published 12 books on Amazon and make
just over two grand a month. It takes about three months to develop a book
idea and publish but after that, it’s almost completely passive income so I definitely
have to give the win to self-publishing over real estate on this one. Everyone has a book in them so give this one
a try at least once and thank me when you’re collecting those checks. Now I want to get to those three ways to make
passive income from real estate investing but first a question for you. What are your favorite passive income ideas? What are either the ideas you’ve seen here
on YouTube or the passive income strategies you’ve tried that really do create the income
without the work? So scroll down and let us know in the comments
below. Now let’s look at those three ways to create
true passive income from real estate and we’re not talking telling your tenants not to call
you after 9pm. I’m not going to stand here and try telling
you that rentals or all these other real estate strategies are passive when they’re not. These three strategies are the only ones that
will create an income stream without having to do any work on your part. The first one here is investing on Fundrise
and while I’ve known about the site for a few years, I only just started investing. The way Fundrise works, its team of property
developers and analysts look at individual properties to include in portfolios. The portfolios take either a debt or equity
investment in the properties and then investors can buy shares in the portfolios. So you’re getting a diversified portfolio
of different property types and in different regions, along with professional management. Portfolios have returned between 9% to over
12% since 2014 and the site offers several choices for different investing styles. You’ve got the supplemental income portfolio
which focuses on cash flow and a dividend yield as high as 8.5% a year. You’ve got the long-term growth portfolio
here that focuses more on price appreciation, in the range of 8% a year but still provides
cash flow of about 1.5% annually. Then you’ve got a balanced fund that provides
both cash income and appreciation. What I like about Fundrise and why I finally
signed up is the complete transparency on all the investments. You can see how each property stacks up on
risk as well as how many are debt investments and how many are equity. You can click through to see individual properties
like this commercial renovation in California. The platform is going to show you the project
risk, what type of investment the portfolio has as well as a full market analysis. And again, that diversification of property
types is important here. You’ve got commercial properties like the
office space we just looked at and residential space like this apartment project. You’ve got those debt investments that provide
safety and income as well as the equity projects that help boost returns for the portfolios. All-in fees for investors are 1% which is
in-line with private advisory and way below what you pay on most real estate crowdfunding
sites. One feature that really sets Fundrise apart
is this 90-day trial offer and low $500 minimum. Invest as little as $500 in the starter portfolio
and try it out for 90-days. If you’re not totally satisfied, you get
your entire investment returned. I’ll leave a link to that free trial offer
in the description below the video. Our next passive income strategy is another
one we’ve covered on the channel before and that’s investing through real estate
investment trusts. These are going to be a lot like investing
on Fundrise with that idea of buying into a fund that holds many properties and spins
off cash to investors. The difference here is that REITs are traded
just like stocks so you can buy them in a regular investing account. This graphic from the National Association
of REITs shows the dividend and price returns over the four decades through 2013. REITs have provided an average total return
of 13.5% over the period with about 8% of it from dividends. What I love about REITs is that you can buy
funds like the Vanguard Real Estate ETF, ticker VNQ, which itself holds almost 200 REIT companies
or you can invest in the individual stocks that specialize in a property type. I’ve got an IRA account that is almost completely
invested in REITs with returns of between 11% to 52% since setting it up last year. In fact, the two worst investments in this
account are the only two non-REIT stocks; Newmont Mining and Lending Club. Our final passive income real estate strategy,
and this is also one of my favorite ways to invest with no money down, is the lease option
strategy. This strategy solves all the problems in real
estate rentals by making it so the tenant cares just as much about the property as you
do. No more late rent checks, no more evictions
and no more filling up the truck with trash after they move out. The way the lease option works is you rent
out the property but the tenants sign a rent-to-buy contract where you’re providing financing. You get a down payment of maybe 10% plus monthly
payments that cover rent and the purchase option on the house. So let’s walk through an example, actually
this is straight from one of the houses I’ve sold on a lease option. This was the second house I bought, a 768
square foot two-bedroom on Franklin Avenue. I got this one as a short sale from the bank
so I was able to take over payments and put just $3,000 down. I went in an changed the carpet, painted and
put down tile floors for less than $2,000 and put it on the market. I had about $5,000 in the house and another
$38,000 on the loan so I put it on the market for $50,000 and was able to sign a lease option
to tenants within a month. The tenants put down $5,000 so completely
cashing me out what I put into the property. They paid $600 a month which included their
loan and an escrow for utilities and property taxes. Not only was I able to price the property
for 16% more than what I paid but the interest rate on the lease option was 8.5% – and
this was early 2000s so that was a few percent above rates on money I was borrowing at the
time. With the lease option strategy for investing
in real estate, tenants pay all the repairs on a property because it’s their responsibility. They self-manage because if they don’t make
those lease payments they’re going to lose everything they’ve put into it. Your vacancy drops to almost zero and you
have no realtor fees. Some lease options will close out, the tenant
will refinance and take the house. Some the tenant will get tired of payments,
leave and you get the house back. But any way you slice it, this is about as
close to passive income you’ll get with real estate rentals. Click on the video to the right to see all
seven ways I’ve found to invest in real estate with no money. Learn how to get started without that big
down-payment. Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button and clicking the bell notification.