Q: What Are the 7 Rules for Generating Passive Income?

Here’s what you need to consider in your next investment property.

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Recently, I’ve had a lot of new investors reach out with questions about the investment process, so I wanted to take a moment and lay out the seven rules for generating passive income in an investment property:

1. Pick your game plan. Are you going to be a developer? Are you going to buy a single-family home or a multi-unit property? Do you want to fix and flip or buy and hold?

2. Passive doesn’t mean hands-off. There is always something that’s going to come up in the property and you’ll have to attend to it. Be prepared to be on site from time to time to handle those issues as needed.

3. Diversification matters just as much as location. Depending on how much you have available to invest, diversification may mean owning multiple properties. You could also choose to spread your investment dollars across different mutual funds, investment trusts, and crowd-funded rental properties. Diversifying real estate income streams is key to balancing risk and reward.

Real estate is designed for the long term.

4. Pay attention to trends in the market. Don’t overpay or get emotional over an investment because you're not paying attention to the trends.

5. Choose the right capital sources. Can you pay cash? Do you need a loan? Can you use hard money? Each situation is different so we want to figure out what’s best for you.

6. Know your time horizon. Real estate is designed for the long term. If you anticipate that you’ll need cash and you’re planning to invest in a rental property in the next five to 10 years, you need to think about how long it will take you to get your money back. That goes back to the point of due diligence and studying the market trends.

7. Hire a professional. A good real estate professional makes the process easier. Hire an agent who knows real estate investing in and out, like the agents on our team.

If you have any questions about buying, selling, or investing in real estate, don’t hesitate to reach out via phone or email. I look forward to hearing from you.

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