One of the biggest benefits of investing in rental property is that it’s a passive income source – or at least semi-passive. The idea is to purchase a property and pay for its upkeep (including principal and interest on your loan, property taxes, insurance, repairs, and so on) while collecting rental income from the tenants who live there. In an ideal situation, you’ll collect more in rent than you pay in upkeep, resulting in a monthly profit – all without having to do much work.
Of course, any landlord can tell you the demands of the job are more considerable than they first appear. You’ll be responsible for things like marketing the property, collecting and screening tenant applications, accepting rent, dealing with maintenance and repairs, and in some cases, going through the process of eviction. If you’re managing multiple properties, you can easily get overwhelmed.
Fortunately, there are some valuable strategies that can instantly make your rental property – and your entire real estate investment strategy – more passive.
The Problems With Passive Income
Passive income is a bit of a misnomer. There’s no such thing as something that can make money with literally no effort. Usually, some combination of the following demands are in play:
- Upfront time. Sometimes, you’ll need to front-load the strategy with upfront effort. In the case of rental property, that means reviewing and researching lots of properties and trying to find the best fits for your portfolio.
- Upfront money. Some passive income sources simply require an initial injection of capital – and rental property is no different. Even if you’re taking out a loan, you’ll be responsible for coming up with cash for a down payment (as well as maintenance, repairs, and other expenses).
- Ongoing time. Despite being called “passive,” some of these strategies do require an ongoing investment of time. You’ll need to tweak your strategy, make repairs, and initiate other adjustments to keep making reliable income. For rental properties, this manifests as a host of landlord responsibilities.
How to Make Your Rental Property More Passive
So what can you do to limit these variables and make your rental property more passive?
- Hire a property management company. The best and most comprehensive option is to simply hire a property management service. A property management company will help you at every stage of the process; they’ll be responsible for marketing, tenant screening, rent collection, maintenance, responding to repair requests and complaints, and even filing evictions. They can even advise you during the property purchasing phase, helping you get the most from your investments.
- Collect payments online. If you decide not to enlist the help of a property management company, you should at least set up a system to collect payments online. It’s much more convenient for your tenants, and it will give you access to your funds faster. Your tenants also have the option to set up auto-payments, so you never have to remind them about rent being due again.
- Outsource tenant screening. Tenant screening is vital if you want to maximize tenant retention and secure reliable income – but it’s also a time-consuming and effort-intensive process at times. Consider outsourcing your tenant screening, at minimum, to free up time and still get access to the best tenant candidates.
- Automate whatever you can. Automation is the most reliable strategy for reducing the time you spend on tasks regularly. Using sophisticated software (and potentially some algorithms of your own design), you can automate a significant share of your responsibilities. For example, you can get automatic notifications about maintenance needs, or automatically scour the web for new purchasing opportunities.
- Delegate tasks. Are you investing in property by yourself? Consider investing with a partner. You can split the responsibilities, delegate tasks when necessary, and ultimately make better decisions together. With the right partner, you can multiply your earnings, improve your strategies, and spend less time on basic tasks.
- Establish secondary streams of income. Consider making your revenue stream more robust by introducing installations that don’t require much upkeep. For example, you could build a new parking structure and charge some extra money for tenants who want to park there.
- Make tenants responsible for some upkeep. Depending on where you live and the nature of your property, you could specify in the lease agreement that your tenants are responsible for at least some upkeep – such as clearing snow from the sidewalk or mowing the lawn.
It’s impossible to make your rental property investment strategy 100 percent passive, since you’ll still need to choose the right properties to buy and make major decisions. But you can reduce your time spent and your responsibilities required to an absolute minimum. Use these strategies to close the gap.