Lets understand passive income with an example. It refers to the income that individuals earn with minimal or no effort exerted. A typical example of this is the interest people earn from their bank savings accounts. They don't have to work actively to receive this interest. Instead, they simply need to maintain a balance in their savings account, and the bank pays them interest on that balance. This interest, therefore, becomes their passive income. 

Different Ways To Make Passive Income From Real Estate

Rental Income

The easiest and most prevalent form of making passive income through real estate is by renting out a property you own. The rental income you receive from the property can be considered as passive income. By investing in a residential property and renting it out, you can earn a consistent and steady stream of returns. Additionally, the maintenance and repair costs for residential properties tend to be relatively lower. These properties can be seen as a lifeline in times of economic challenges, helping you manage increased expenses during periods of inflation. In simpler terms, they provide an effective means of coping with rising costs. 

REITs

REITs, or Real Estate Investment Trusts, are companies that are specifically created to pool investments from multiple investors. The funds collected through this pooling are then invested in real estate properties that generate income. In a way, REITs operate similar to mutual funds. Although you don't physically own the real estate, you invest in the trust, which subsequently invests in real estate on your behalf.

REITs engage in the buying and selling of properties, generating income through real estate transactions. They even handle property leasing on behalf of the investors. The rental income or profits earned from property transactions are then distributed to investors in the form of dividends. 

Commercial Leasing

Commercial properties are highly sought after by investors due to their potential for producing high returns and the wide range of investment options they offer. Investors have a variety of commercial properties to choose from, such as warehouses, office spaces, data centers, and more. These types of properties can provide a significant Return on Investment (ROI) of around 10-12%, ensuring attractive returns for investors.

One of the advantages of investing in commercial properties is that they often come with long-term leasing agreements compared to other real estate assets. This helps to reduce the risk of vacancies and ensures a stable flow of income, which is the primary goal of earning passive income. 

Fractional assets refer to the practice of investing in a fraction of a real estate property. This investment approach allows multiple investors to collectively invest in high-end properties such as industrial plants, warehouses, residential complexes, and more. Each investor then owns a portion or fraction of the property, and the income earned by the property is distributed among the investors based on their proportional investment.

Investing in fractional assets provides an opportunity to invest in expensive real estate without the need for a large sum of money. For example, it may be possible to invest in fractional assets with a minimum investment amount as low as Rs. 2 lakhs. This type of investment is particularly relevant for small investors who wish to participate in real estate investments with their limited savings. 

House Flipping

House flipping is a real estate strategy that involves buying and selling properties for profit. In this method, investors purchase properties with the intention of renovating or refurbishing them, and then reselling them at a higher price, thereby making a profit on the overall transaction. Unlike renting a property, house flipping does not involve holding onto the property for an extended period of time. The primary goal is to buy the property, increase its value through improvements, and sell it off quickly for a higher price.

Engaging in house flipping requires a significant amount of knowledge and understanding of the real estate market. 

Real Estate Crowdfunding

Similar to owning fractional assets, real estate crowdfunding is another method of investing in a portion of a real estate asset. In this approach, multiple investors come together and pool their funds towards a single real estate investment.

Real estate crowdfunding typically operates through online platforms where various real estate deals are listed. As an investor, you have the opportunity to review these deals and choose to invest an amount that you can spare, all with just a few clicks. The responsibility of managing the investment is handled by the crowdfunding platform itself. 

Duplexes, triplexes, And More

Properties that consist of two to four units offer similar advantages to single-family units but with less demanding management requirements compared to larger apartment complexes. These investment properties can be slightly more challenging to manage than a single-family home due to the increased number of tenants, but they also provide a better perspective in terms of cash flow. The risk of potential vacancies is spread across multiple units instead of being concentrated on just one unit.

Industrial Complexes

When thinking of making passive income through investments, residential properties often come to mind. However, it is important not to overlook the potential of commercial properties, particularly industrial complexes. Commercial properties, such as warehouses, storage facilities, or manufacturing plants, can offer a stable income stream with minimal management requirements. It is worth noting that the turnover of tenants in these types of properties can result in longer periods of vacancy. 

Short-term Vacation Rentals

An increasing number of individuals are opting for the short-term rental approach, particularly if their property is located in close proximity to a popular vacation destination. One of the advantages of renting out a property on a short-term basis is the potential to earn significantly more income per week compared to a traditional 12-month rental lease. Additionally, as the property owner, you have the flexibility to choose which weeks you want to make the investment property available for rent, allowing you to reserve specific weeks for yourself and your family. 

Conclusion

Investing in real estate for passive income is widely recognized as one of the most effective ways to make additional revenue, secure a comfortable retirement, and pave the way to financial independence. Furthermore, active real estate investors get numerous tax benefits and deductions associated with property acquisition, operations, and maintenance. These deductions include mortgage interest, property taxes, depreciation of rental properties, and expenses for repairs and improvements. If you're interested in earning passive income, then real estate offers a plethora of opportunities, such as residential and commercial properties, fractional assets, and others discussed in-depth in this blog. At VGN, explore our wide range of offerings from plots, flats to luxury apartments all in the prime locations of Chennai for fruitful investment opportunities and earning a great passive income.