Disclaimer: I am an engineer. I have nothing to do with finances and I do not give any financial advice. Thank you.
Real estate investing is considered one of the major sources of generating passive income. Anyone who is looking to get into the realm of financial freedom has to have real estate at the top of their investments list.
However, not everyone knows how to get involved in this business and most people think that you need to have a huge capital to start in such investment, but this is not true.
In this post, you will learn more about passive income in general, plus 4 different ways you can invest in real estate depending on how much money you are willing to start with.
- First, What Is Passive Income?
- What Are The Best Passive Income Sources?
- How To Choose The Type Of Investment To Start With
- What Are The 4 Real Estate Investing Options?
First, What Is Passive Income?
Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.
Some of them, however, would require quite the effort in the beginning, just to give it the required push to start off, and then it starts giving you that regular income later on.
What Are The Best Passive Income Sources?
After lots of research and comparisons, I was able to come up with the below list. I would say most of them are safe methods, ones that has the least amount of risk and don’t really require a crazy amount of money to start. This is not everything out there, but those are the ones I found so far which seemed possible to start with. I will be adding more along the way.
Here are the risk-free ones (in no particular order):
- Real estate investments
- Google AdSense/Affiliates
- Online business
- Retirement accounts
And then there are the methods which can be a little bit risky, but not so much if you know what you’re doing:
- Real estate investments
- Stock market
- Index funds
How To Choose The Type Of Investment To Start With
When it comes to making a choice, you would mostly just need to check which of these options you can afford or which of them you have the access to try and invest in. Also, if you already have some sort of knowledge or know someone who can help you get started.
For me, I decided to start with the real estate investment option. And I have listed the real estate option in both the safe category and the not-so-safe one, this is because investing in real estate has multiple methods, some of which can be risky and costly, but others not so much. I will briefly explain the details of each one below.
What Are The 4 Real Estate Investing Options?
1. Buying Property
This is the typical type of real estate investment where you would need to have a sum of money that is enough to buy a property (residential, industrial, or commercial) and you would then decide to either rent it and have a fixed monthly income or renovate and sell it with a higher price.
You can check out this video on how to buy at a lower cost so you can make a profit in reselling.
Usually the trick in this one is that it could take a long time to find a buyer for a property; and if you rent, you may end up with tenants who do not pay. So, it’s got a bit of risk to it if you’re not experienced in that field I guess.
2. Real Estate Funds
And there are three types of funds: there is the Exchange Traded Funds (ETF), the Real Estate Mutual Funds, and the Real Estate Investment Trusts (REITs).
ETF and Mutual Funds are somewhat similar in many aspects. However, deciding on which fund to invest in would typically rely on the cost vs the profit you will get, and also the flexibility of the trading and how long you plan to hold your shares. If you’re interested in the topic, you can find a more in-depth comparison between the two here.
A REIT, however, is a company that owns, develops, and manages real estate properties that produce income. The benefits of investing in REITs include their lower investment entry costs; and that they are highly flexible, allowing investors to invest in a range of real estate from commercial properties to shopping malls. Check out this article for a comparison between REITs and Mutual Funds including their pros and cons.
Interestingly, I found out that real estate funds were only introduced last year in Egypt (where I live) and apparently there are only two launched at the moment one of them is Naeem Holding fund which provides an annual profit of 26%; and they accept both local and foreign investors with minimum share price of LE 50K. And it looks like there will be more launching soon too (so excited!). More on this here.
3. Online Real Estate Investment
I came across this gem of an option, but sadly I couldn’t find one that accepts funds from where I live (and I will be saying this sentence frequently along the way).
Basically these are online websites where you can buy shares with whatever amount you want, starting with as little as $100 for some websites, and they search for properties to buy and sell and you get an annual profit.
For example, I found this website called Fundrise where you can start investing with $500 and it is not required to be a professional like other websites. This one is limited to investments from U.S. residents only, though. I couldn’t try it, but I have read a lot about it and they were mostly good reviews. There are plenty of other similar websites listed here.
4. Home Construction Companies
This would be investing in a company that builds houses. You can find homebuilder companies in your city or online. And this is the real estate investment option I started with.
I myself am not a realtor and I cannot afford something like buying a property to rent or renovate and sell, for example. (And I only found out about the Egyptian real estate funds when I was writing this post, so it was a bit too late..)
However, luckily, I found another way to get involved in real estate investments which is through a local construction company where I can buy shares and they use the money I pay along with many other investors to build properties and then sell them; and the investors get a fixed amount of yearly profit.
It was easy for me to choose this one also because I already knew a realtor in that company. I started with the least amount of money to buy only one share for LE 50K (that is about $2800) which is all the money I had on me, literally. And I could have waited until I had some extra money, but I thought the earlier I start, the earlier I will be getting a revenue, and so I just did it.
It is hassle-free and almost risk-free, so it is a good start for me to have some kind of investment to generate a passive income. My plan is that throughout this coming year, I would try and save up money so by the next year I would be able to buy a second share.
(Side note: I would not recommend spending all you have on a single investment option unless you are certain that it is a safe and trusted investment. I did that because 1. I know the people involved and know people who are long-term investors with them, and 2. I knew if I’d kept that money it would have been spent on meaningless stuff especially since it’s SALES season!)
The best time to plant a tree was 20 years ago. The second best time to plant a tree is today.Chinese Proverb
The other investment options I’m considering
One of the other passive income options mentioned in the lists above which I also find interesting is the index funds. Index funding is a type of mutual fund with a portfolio constructed to match or track the components of a market index. It is said to provide broad market exposure, low operating expenses, and low portfolio turnover.
I’m planning on trying this as a next step. I’m currently still searching for the best index fund to invest in in Egypt. But the good thing is there are options to invest in international index funds even if you are not a resident of the country.
Although, it seems to have a more complicated procedure, but it is possible. So, I will be doing more research on the matter and will be sharing my findings in a later post.
The other passive income option which I found possible and somewhat easy to start is the online business. Online business however is an umbrella term for a huge number of businesses that you can try.
In my next post, I will be sharing all the online businesses that most people sort of have agreed to have been the most helpful and which ones I myself have tried so far.
Till then, happy days!
To receive more exclusive tips and gain access to other useful material on the blog, hop on board and join the journey!