Imagine earning a living without having to trade your time for money… A life where your monthly expenses are covered, and you have the financial freedom to pursue your passions and spend more time with your loved ones. You’ll need to start generating passive income to make this dream a reality.
Passive income is a regular income that you don’t actively work for. Examples of passive income include the royalties earned by authors, musicians, and actors. Fortunately, you don’t have to be a successful creative to earn a passive income; there’s a much more accessible path: property investment.
In this article, we’ll share expert insights and actionable advice on how to make passive income from property. Ready to begin your journey to financial freedom?
What is passive income from property investment?
In property investment, passive income usually refers to rental income generated with minimal input from the investor.
Most investment properties offer a combination of active and passive income. The degree of passivity will depend on the type of property you invest in and how much you decide to do yourself. If you decide to self-manage, your investment will be significantly less passive than if you use a management company.
Let’s look at how passive different types of investment property are to manage:
- Buy-to-let properties: Self-managing a buy-to-let property can be somewhat passive. However, dealing with tenant queries and maintenance issues can become time-consuming when managing more than one property. Using a property management service will allow you to concentrate on scaling your portfolio rather than the nitty gritty of day-to-day management.
- HMOs: HMOs offer higher returns than your standard buy-to-let but tend to be less passive. You can choose to use an HMO management service, but you will still be responsible for paying the bills. However, the effort is minimal, considering the returns that HMOs can offer.
- Serviced accommodation: Serviced accommodation, like holiday homes, can offer excellent returns but require a more hands-on approach because of the frequent turnover of guests. You can generate passive income from a holiday home by outsourcing to a serviced accommodation management company. That way, you just need to take care of the bills.
- Leasing to another investor or company: Another option is to lease your property to another investor or company on a long-term basis so that they can run it as an HMO or serviced accommodation. This will generate truly passive income, but the return on your investment will be much lower.
Why choose property investment for passive income?
So, what is the best asset for passive income? Why property investment? Why not stocks and bonds, digital assets, business investments, cryptocurrencies, or fine art and collectables? Out of all the investment opportunities out there, property investment is usually considered one of the most reliable and rewarding ways to generate passive income. Here’s why:
Tangible asset with long-term value
Firstly, unlike stocks or digital investments, property is a tangible asset that tends to maintain its value or grow in value over time. Even during periods of economic uncertainty, property tends to hold its value more than other types of assets, making it a reliable investment.
Borrowing opportunities
When investing in property, you can leverage your capital by taking out a mortgage. By borrowing money, you can acquire an asset of higher value than if you were using capital alone. This helps to maximise your ROI as you benefit from both rental income and appreciation while only investing a small amount of your own money upfront.
Consistent demand
There will always be demand for high-quality homes. This consistent demand makes property a more dependable source of income compared to many other types of investment.
Preparing to build a property portfolio
A successful property portfolio can generate reliable passive income, providing financial security for years to come. However, building a profitable portfolio doesn’t happen overnight. It requires a combination of knowledge, strategy, and careful planning. Let’s take a look at what high-level preparation is required.
Step 1: Educate yourself – Don’t rush into anything before you’re ready. Remember, knowledge is power. Books, online courses, and mentorships are invaluable resources. Taking a course can save you time as it condenses key information into a structured format. Choose a course that is run by someone with real-world experience and beware of self-proclaimed experts who lack practical experience.
Step 2: Define your strategy – Decide which type of property investment strategy best suits your budget and goals.
Step 3: Set clear financial goals – Work out how much passive income you need to earn to cover your lifestyle. Then, determine whether this is achievable with your capital. If not, set a more realistic goal and timeline to help you achieve it. Speak to our consultation team for help with setting realistic goals and developing a strategy to achieve them.
Step 4: Build a team – For your venture to succeed, you’ll need a team of experienced specialists behind you. Finding a trusted accountant, mortgage broker, solicitor, and property management company is a good place to start. At Purseglove, we have an extensive network of professionals at our fingertips; get in touch if you require specialist advice.
Getting started with generating passive property income
Here’s a step-by-step guide to help you choose the right property, figure out the finances, and set up effective management so you can start earning passively!
Step 1: Choose your first property type – Decide which property type aligns with your capital and goals, then use platforms like Rightmove to explore what’s out there. Once you’ve shortlisted a few potentials, you can start booking viewings.
Step 2: Understand the numbers – Next, it’s time to crunch some numbers. Consider key metrics like ROI, cash flow, and yields to determine which properties are worth pursuing. Don’t dismiss properties that are slightly out of your range; vendors may accept lower offers.
Step 3: Secure financing – If you’re new to property investment, securing funding can be challenging, but working with an experienced broker can save you time and money. Need help with this? We work with trusted brokers and can help you to secure financing.
Step 4: Conduct thorough due diligence – Now it’s time to conduct thorough research and due diligence to determine which properties align with your strategy and are most viable. Research the local area to find out more about the market, rental demand, and property trends. Think about who your target market is and what their needs are. Carry out checks to ensure that the property meets local regulations, particularly if it’s an HMO, as HMO requirements vary from one region to the next.
Step 5: Property management – Decide whether you’re going to self-manage or hire a professional property management company. To generate a truly passive income, you will need to use a management company. Always look beyond the cost of property management and carefully compare what is included in each company’s services.
Strategies for maximising passive income
To achieve your financial goals, you need to adopt strategies that are designed to maximise your passive income. The following strategies will boost your earning potential, enabling you to scale and optimise your returns.
Choose the optimal property investment strategy
First things first, which type of property makes the most money?
Buy, Refurbish, Refinance (BRR): This powerful strategy involves buying a property that needs a lot of work, increasing its value through renovations, and then refinancing it at its new value to release a significant portion of what you initially invested. This frees up capital to invest in your next project.
House in Multiple Occupation (HMO): HMOs are shared houses where individual rooms are rented out, enabling you to generate higher yields. Redeveloping a property into an HMO is an effective way of maximising the rental income it generates.
Serviced accommodation: Operating a property as a serviced accommodation, like an Airbnb, can generate significantly higher rental income compared to a traditional buy-to-let. However, it’s important to note that demand is driven by location and the property’s appeal, so this strategy requires thorough research. This sector is popular because it is largely unregulated – many compliance costs (e.g., HMO licenses) aren’t required, but this looks set to change soon.
Leveraging technology
Technology can help you create a truly passive income by streamlining and automating management tasks to increase your operational efficiency whilst minimising the amount of manual work involved.
Landlord software can automate time-consuming tasks like financial recordkeeping and streamline processes like rent collection and maintenance tracking, significantly reducing the manual effort involved in running your portfolio.
Taking your first steps towards financial freedom
Learning to generate passive income through property investment can transform not just your finances but also your quality of life. Imagine reducing financial stress, achieving long-term security, and even creating intergenerational wealth. When you are generating passive income, you gain the freedom to pursue your passions, spend more time with family, or even travel the world.
As the saying goes, “The best time to start was yesterday, the next best time is today.” Every great journey begins with a single step, and now is the perfect time to take yours!
Start by setting clear financial goals and seeking expert advice. At Purseglove, we offer end-to-end property investment services in Nottinghamshire. Our sourcing consultants are here to help you make informed investment decisions and secure profitable property deals. Get in touch to find out more.