Passive income is the buzzword in real estate investment. If you’re new to this whole world, there are some details about passive investing that still might be a little fuzzy to you. Why is it so important? Why do real estate investors get so excited about passive income? Why do people always harp on about it all the time?
Does it really matter that much? What am I missing?
If you haven’t begun your real estate investment journey just yet and you’re not quite sure what all the fuss is about: don’t worry. Through this mini-series on passive income, we’ll guide you through everything you need to know: why it matters, how to earn it, protect it, and maximize it to make the most of your financial future.
Passive Income for Your Best Retirement
When you think about retirement, what do you envision? Most of us struggle with some level of anxiety about retirement. The stats don’t lie: for some time now, there’s been a serious retirement problem in the United States. Whether it’s due to outstanding debts or wage stagnation, the fact is that an alarming number of Americans don’t have a retirement lined up. Let’s consider a few facts courtesy of The Motley Fool in case you’re in need of a refresher.
- For a $5,000-per-month retirement, most Americans will need over $1,000,000 to last a 30-year retirement.
- The average 50-year-old has $42,797 saved. The average retirement age is 63.
- 45% of Americans have no retirement savings.
- 38% of Americans aren’t actively saving for retirement.
- 36% of Americans over 65 are completely dependent on Social Security.
- By 2034, Social Security will only be able to cover 77% of its promised benefits.
In short, your average American either isn’t saving for retirement or is actively worried that they won’t have enough money for retirement. So what’s the answer? If savings aren’t enough, where can you turn? The answer lies in earning passive income. Rather than relying on a stockpile of savings to be divided out among your golden years, creating streams of passive income is the key to securing your retirement.
If you’ve ever felt anxiety about your financial future: worried that your kids are going to have to take care of you, or that you won’t have anything to leave behind…you can finally stop. Anyone can create cash flow through real estate investment.
The idea is that you create these streams of income and, rather than depleting your savings to sustain your retirement, you earn money passively through your investments, and this helps you secure the lifestyle you wish to have. Best of all? It’s easy.
Earning Passive Income in Turnkey Real Estate
Earning passive income isn’t possible with just any investment. There’s always going to be a balance. You’re either going to find that investments have too little risk and reward, or too much risk.
If you want to create passive cash flow, there are a few factors you really want in your investment:
• Stable and long-term
• Managed by an outside team
Real estate is the ideal investment for generating cash flow because you not only reap the benefit of appreciation and the physical asset: but you earn money every month through rent from the tenants. This is your actual cash flow. Everything else is a bonus.
With a buy-and-hold strategy, you earn this rental income until a time comes when you want to sell the property and turn a profit on it (perhaps due to rapid market appreciation or a change in your strategy).
Because you want your strategy to be as passive as possible, it’s crucial that it involves a turnkey real estate provider. In most cases, they have already purchased and renovated investment properties in well-researched and tested markets (cutting out a significant amount of work for you). You buy the properties from the provider, then they help you find tenants and manage the property through their property management services.
As the owner, you don’t have to worry about day-to-day operations. For someone looking for cash flow, this is the ideal situation!
When Should I Start?
Investing in turnkey real estate isn’t just for those of us thinking ahead to retirement. That said, we should all be thinking about retirement earlier than we think we should! Real estate investment is for anyone, from the 55-year-old with an established career to a fresh-faced 20-something who would rather invest in real estate than buy a personal home.
Chris Clothier manages the development and implementation of sales and marketing for Memphis Invest. He helps potential investors define their purpose for investing in real estate and educates peer companies on best practices in the emerging turnkey real estate industry. He is the author of The Turnkey Revolution, a contributing columnist for BiggerPockets, and an experienced speaker who regularly addresses audiences of real estate investors and business professionals.