In 2018, there has been a projected ‘Top 5’ ways to make passive income, throughout a few articles, we’re going to explore these methods to try to help you gain more knowledge around the subjects so you, too, can look into making some more money.
The reason Real Estate is one of the most common forms of making income is because it offers a profit in appreciation (this means that it increases in value). One key law when buying land is to always buy it for less than what you believe it is worth. Think the house is worth $300,000, buy it for $260,00, you’re saving money and will begin making money quicker.
Ways of benefitting from a purchase of real estate can be from:
Raw Land; undeveloped land is brilliant for appreciation value because all you have to do is develop it. For example, as a city expands, the land in the outer skirts of the city will become more sought after, and more valuable. This can also be the case for valuable minerals discovered on the site (oil, gold, quartz, gravel deposits, trees etc. Income from this is determined on how you choose to use the land – if you have a gravel deposit and agree to allow companies to mine it, you can get regular payments for any discoveries or for any structures that they add. The land can also be rented for production (agriculture).
Residential Property: these are mainly focussed on their location – being in close proximity of schools, shopping centres, playgrounds etc. will increase the value of the property. Other improvements like renovations also increase value, making the home more appealing and liveable (upgrading the kitchen, adding a bathroom or updating the hot water system etc.). Making money from this investment comes from tenants paying rent.
Commercial Property: this gains value for the same reason as raw land and residential real estate: location, development and improvements. The best of these commercial properties are continually sought after. These properties can gain from all of the above-stated ways, with rent being the most common. Generally, the property owner does not have to pay rates, the tenant must do this, and the rent of a commercial property increases at a higher rate than what it does in a rental property.
However, there is another form that is common for commercial tenants (someone renting an office within your property for example). They can pay a fee, on top of their rent, for the ability to exercise options like ‘right of refusal’ of the space that they’re paying a fee for, this is a premium to hold the option whether they use it or not.
For example: You’re renting an office space in a commercial property for $100, and are also paying a fee of $25 to hold the office next door. Someone wants to come in to hire the room.
You have the option to say ‘yes’ or ‘no’ to that tenant, based on your position (don’t want a neighbour, want to use the office space etc.).
If you say yes, they individual can rent the office, and you can choose whether to keep paying the premium (fee) or not while the tenant is in there.
If you say no, the tenant will not be granted the renting capabilities and you keep your right of refusal while paying the premium.
If you’re Australian, a cool site to check out is Brickx: this is a site that ‘provides a simple and low-cost way to access the property market’ where Australians can now buy bricks and instantly invest in residential property from under $100.
A (very) simple breakdown of how it works is:
1. Choose your property
2. Buy your bricks (NB: 1 brick is a fraction of a property)
3. Earn rental income
4. Sell your Bricks for Capital Returns. And that’s it!
For more info about this, visit: www.brickx.com
You can find more topics like this at investercon.com