How to Generate Passive Income From Buying Homes

There are many ways to generate passive income, but this article focuses on how to generate passive income from buying homes.

Before diving into passive income generation, let us look at something very important in your journey to financial freedom: financial literacy.

Financial literacy simply means knowledge of money matters. How to use, invest and save money. 

Most people believe that working harder is the only way to make more money. 

So, they go on to work extra time, take extra jobs etc. However, at the end of the day, there is little or nothing to show for it.

Only a small percentage of people understand how money works. They know the rule of spending money to make money.

How is this possible, you may ask? Well, it is simple. While the other was busy accumulating wealth in banks and more liabilities, they found a way to preserve capital. Instead of working actively for money, they made money work for them. 

This is called passive income generation.

Your journey to generate passive income from buying homes begins here.

What is Passive Income?

Financially stable people still have more than one job. The first requires their presence and effort and generates active income. 

The second job requires little or no effort but still generates wealth. 

In the second job explained above, the active employee is their money; the income it generates is called passive income. 

Passive income is simply a steady cash flow stream that requires minimal effort. 

Assets that help you generate passive income are called passive income generators.

How to Generate Passive Income From Buying Homes 

The first step to making passive income from buying homes is to know what homes to buy.

You need to buy a home that can generate profits for you when sold.

Now, if you are new in this real estate or home-buying business,  you might be confused about where to begin. You might even make a mistake that will cost you. 

But, take a deep breath; you are in safe hands now. 

If you are lucky enough to have landed a good deal on your first trial, you should also check this, so you don’t get swallowed up eventually.

To avoid buying homes that become liabilities rather than assets, we advise you do the following;

1. Get a Proper Business Strategy. 

Don’t just wake up one morning and decide, “oh, it’s a beautiful day to find random homes to buy”. 

If you want your money to work for you as much as you claim you do, then you should at least give it a proper job.

How do you do this? 

Make proper research. Study the real estate market, know what works, decide on locations for homes you wish to purchase, decide how much you are willing to spend on repairs, etc.

2. Create a Budget.

The importance of setting a budget can not be overemphasised. You should know the amount of money you are willing to employ to work for you. 

This money should not affect the money used for your basic needs. Doing this helps prevent you from being desperate to sell your home before it is due.

You already know that selling off a home before it is ready to be sold, will lead to the tragic loss of the capital invested, right? 

3. Select A Property That Fits Your Budget.

Don’t just go buy a home because of how much you think you can make when it is sold. Ensure you are working with the budget you created above, and that the repair costs do not exceed what you are currently willing and able to spend. 

When you have successfully acquired a home at your desired marketable location, you can now decide what you intend to do with the home. 

There are several ways to make this home become your passive income generator. They include;

• Rentals
• Property Rehabilitation 
• Home flipping
• Real estate investment trusts

1. Rentals (How to Generate Passive Income From Buying Homes)

After choosing a property, based on its location or size, you can convert it to a vacation home rental, single-family rental or rental property that can hold up to 5 tenants (an example is an apartment).

2. Property Rehabilitation (How to Generate Passive Income From Buying Homes)

This involves getting an old building cheaply and refurbishing it into something that will yield great returns when sold. 

While doing this, it is necessary to do proper inspection and calculations. This is to ensure that the cost of the house and repair is not too much compared to the profit you will make after selling off the property.

3.  Home Flipping

This involves purchasing homes that are in good condition to sell them off within 6 months. 

Home flippers search for homes at great locations and do not require many repairs, buying them. Afterwards, they wait for at most six months for appreciation before reselling and making profits. 

4. Real Estate Investment Trust

This company owns income-producing real estate. 

If you are not interested in managing the property yourself, you can invest in this company and get a steady stream of income 

Benefits of Buying Homes

• It protects capital. Warren Buffet’s first rule of investment is not to lose money. 

Investing in homes provides you with capital preservation. It is one of the ways the rich can avoid paying too much taxes and also making losses.

• It creates a steady stream of cash flow.
• It provides long-term appreciation. As time goes on, the price of properties increases. The longer you hold it, the more its value increases and one can be sure of more profits when it is sold off or rented.

Conclusion

It is important to note that this is the more secure of all the passive income ideas as your capital is preserved. 

Someone is bringing babies into the world every day, so the need for homes will not diminish but increase over time.