Beginner’s Guide to Passive Income through CRE
“If you don’t find a way to make money while you sleep, you will work until you die.” -Warren Buffett
Does the billionaire Berkshire Hathaway CEO have a point? Most things in life require time or money. But what if you could trade money for time?
Financial freedom can “buy” more time to do the things you love and pursue the things you’re passionate about. One way to achieve financial freedom is through developing passive income streams.
According to The College Investor, “Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate.” This is a staggering statistic: 9 out of every 10 millionaires created their wealth through real estate investing. Moreover, a report from the IRS finds the average millionaire has not one, not two, but SEVEN sources of income. (Vandenboss, 2024).
Real estate investing is not a “get rich quick” scheme. Real estate investing utilizes leverage, compounded over time, to an investors’ advantage resulting in long-term wealth. If purchased and managed correctly, an income producing asset should be working for you every second of every day.
With the above in mind, it is imperative to fully understand there is risk associated with real estate investing. Commercial real estate investing is a complex process with many potential pitfalls. We recommend consulting with trusted advisors before solidifying your next investment. The information below provides some general guidelines to consider as you expand your portfolio or kick things off in a successful real estate investment venture:
Passive may not be so passive. Creating passive income streams via commercial real estate can still be work, even if you hire a property manager. There are many angles to consider before deciding to build passive income through commercial real estate investments – and it’s not for everyone.
Know the market. The IRS defines passive income as regular earnings from real estate activities – unless you’re a real estate professional.
Macro-economic factors, such as interest rates, environmental policy and federal investment programs (1031, Opportunity Zones), and micro-economic factors, such as local employment trends, infrastructure and school districts, can positively or negatively impact your real estate investment. So, since you’re likely not a commercial real estate professional, consult with the experts at Black Diamond Realty.
Rental income and appreciation over time. These are the two primary ways to generate passive income in commercial real estate. Rental income is obtained by leasing commercial property space to tenants or businesses. Passive income revenue through a property’s appreciation over time refers to investing in a property and selling it at a future date when the property has increased in value as a result of market factors, property improvements, or the economy.
Where to start? Triple Net Leases (NNN). We have previously discussed Triple New Leases, and they can offer a perfect passive income investment strategy. Investors take a hands-off approach to building operations and maintenance while gaining a reliable cash flow source from lessees (Crowd, 2023). Two other profitable sectors for passive income in commercial real estate are multifamily and industrial properties. Multifamily properties provide steady income through leases and, as we have previously noted, industrial real estate is riding a wave of popularity due to the rising demand for ecommerce distribution centers (First National Realty Partners, 2024).
View a selection of Black Diamond Realty:
- Investment/Multifamily Opportunities
- Properties with Triple New Lease Options
- Industrial Real Estate
Article by Black Diamond Realty
References
Crowd. (2023, August 3). Triple Net: the ultimate passive real estate investment – Crowdvest LLC. Crowdvest LLC. https://crowdvestllc.com/resources/triple-net/
First National Realty Partners. (2024, July 19). The Beginner’s guide to Commercial real estate investing. First National Realty Partners. https://fnrpusa.com/blog/commercial-real-estate-investing/Vandenboss, K. (2024, May 30). The average millionaire has 7 sources of income – here are 3 you can start building today. Yahoo Finance. Retrieved September 6, 2024, from https://finance.yahoo.com/news/average-millionaire-7-sources-income-164311915.html#
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This article, financial analysis, and any predictions herein are based on information supplied by sources believed to be reputable. It contains selected information to formulate reasonable judgments but does not contain all the information necessary for each person’s individual circumstances. Information and economic conditions change and are unique to each individual. Each person must complete its own due diligence to ensure accuracy and applicability. Information has been summarized herein to facilitate review; these summaries are not intended to be a comprehensive or individualized analysis. THIS ARTICLE’S FORWARD-LOOKING STATEMENTS AND REAL ESTATE INVESTMENT INVOLVE RISK AND UNCERTAINTY. PAST INFORMATION IS NOT INDICATIVE OF FUTURE RESULTS. ACTUAL RESULTS CAN VARY MATERIALLY, AS A RESULT OF MULTIPLE FACTORS. BLACK DIAMOND REALTY EXPRESSLY EXCLUDES AND DISCLAIMS ANY REPRESENTATION, WARRANTY (INCLUDING ANY WARRANTY OF FITNESS FOR PARTICULAR PURPOSE OR ARISING FROM CAUSE OF DEALING OR USAGE OF TRADE), CONDITION, OR UNDERTAKING THAT WOULD BE IMPLIED BY THIS ARTICLE TO THE FULLEST EXTENT PERMITTED BY LAW.
