Passive Income Real Estate Strategies for 2024

The Big Picture On Passive Income From Real Estate:

• • Many strategies are designed for investors seeking minimal involvement, offering ways to generate income without actively managing properties, including rental properties, syndications, REITs, storage facilities, mobile home parks, fractional ownership, and more.
  • Each strategy comes with their own key features and disadvantages, so investors should choose which one caters to their risk appetites and investment goals. 

  • Investors should be proactive in seeking actionable steps and guides to find the best passive real estate strategy for them. 

People love to say that the average millionaire has seven income streams in personal finance circles.

As far as I can tell, it’s neither a hard fact nor a quote by a famous person. But it still has a nice ring—and conveys a deeper truth.

With enough passive income, you no longer need to work and earn active income. You reach financial independence and can cover your living expenses solely with passive income streams from investments. At that point, you can spend your days traveling, playing golf, playing with your kids, volunteering, or working on passion projects.

But how do you create passive income streams?

Passive Streams of Income from Real Estate

Sure, other passive income sources exist, such as stock dividends, bond interest, or business revenue from digital products or affiliate links. But at SparkRental, we’re all about passive income through real estate.

Remember the following ideas as you start building passive income streams to replace your day job income. And remember, you don’t have to pick just one — I earn passive income streams from many of the sources below!

1. Real Estate Syndications

Most of us don’t have millions of dollars to invest in an apartment building or other commercial property. The good news is that you don’t need millions if you buy fractional ownership in real estate.

It works like this. A professional real estate investor (the syndicator) finds a good deal and then approaches potential partners to raise most of the money. The syndicator puts in some of their own money and raises the rest from these silent partners. Despite owning a minority share of the property, the syndicator maintains most of the control and responsibilities of renovations and day-to-day property management.

The financial investors—known as limited partners or LPs—earn passive streams of income from the rents each year. When the property sells, everyone gets paid according to their ownership percentage, although the syndicator earns extra for their extra work.

On the plus side, investors typically earn high returns, in the 15-30% range, and get full tax benefits. Unfortunately, syndications usually require a minimum investment similar to the down payment and closing costs for a rental property, in the $25-100K range. Strict federal regulations also cause many real estate syndications to accept money only from accredited investors.

However, plenty of syndicators (AKA sponsors) allow non-accredited investors, even though they can’t market to them. This is why we launched our Co-Investing Club: to enable everyday people to invest small amounts of money in these large real estate projects. Non-accredited investors can participate, with as little as $5K per deal.

That makes it far easier to spread money across many properties than buying a rental property or investing in a real estate syndication. If you want all the benefits of real estate investing without becoming a landlord, consider investing passively in syndications.

Key features of a Real Estate Syndication

Here’s a quick overview for potential investors considering this route.

Potential risks: Market downturns, poor property management, overleverage, fraud, or mismanagement by syndicator.

2. Fractional Ownership in Rental Properties

If investing $5,000 still sounds like a lot, consider starting smaller by buying fractional shares in single-family rental properties.

Platforms like Arrived, Ark7, Lofty, and Concreit let you buy ownership shares for $20-100. You collect cash flow, and each property adds a passive income stream. And when the property sells, you earn your share of the profits.

Some platforms, like Ark7 and Lofty, even offer secondary markets to let you sell shares to other investors. Both require a minimum holding period, but after that, you can sell shares whenever you like.

Don’t expect returns as high as real estate syndications. But you still get the tax benefits of property ownership, albeit without the accelerated depreciation that comes with syndications.

Potential risks: Limited control, platform failure, illiquidity, and property underperformance.

3. Long-Term Rental Properties

Everyone understands the classic model for passive income through real estate: buying a property and signing a lease agreement with long-term tenants.

But the very simplicity of the premise is what gets so many new investors into trouble. They think that because they understand the concept of rental income, they also know everything they need to know about buying and managing rental properties. This is why many new real estate investors make many costly mistakes.

As you look into buying your first rental property, learn how to run the numbers to calculate cash flow accurately. Use a free rental cash flow calculator, including expenses like vacancy rate and property management fees. While you can buy a rental property with no money down, watch out for too much leverage. Learn exactly what real estate due diligence you must perform before sinking tens of thousands into a single investment.

For all those warnings, rental properties make an excellent passive income source, so much so that rentals can help you retire early with their ongoing income that rises over time and serves as a hedge against inflation.

Potential risks: Vacancies, property damage, market fluctuations, unexpected maintenance costs, and problematic tenants.

4. Short-Term Vacation Rentals

No one says you have to sign a long-term lease agreement with tenants. It’s your property, and you can rent it for a short time on Airbnb if you prefer. At least, you can in most parts of the country — some cities don’t let you use your property how you see fit.

Depending on your city and neighborhood, you can earn higher returns renting your property short-term as a vacation rental. You can even use tools like Mashvisor to compare cap rates and returns on a long-term or short-term rental property. See our full Mashvisor review for details.

However, the short-term vacation rental business requires more labor on your part as well. More frequent turnovers mean frequent cleaning, plus a much higher vacancy rate.

You also have to furnish and decorate the property, unlike long-term rentals.

If running a vacation rental business appeals to you, start with these tips to become an Airbnb host. You don’t even necessarily need to buy the property. You could lease a property and then rent it on Airbnb, a strategy known as rental arbitrage. Just beware that you need to accurately forecast your cash flow, or you risk losing money rather than making it.

Potential risks: Seasonal demand fluctuations, local regulation changes, higher operational costs, and property damage.

5. Mid-Term Corporate Rentals

Who says you can’t have your cake and eat it too? Consider corporate rentals as a hybrid between the long-term and short-term rental business models.

You provide a furnished rental property to corporate renters, such as travel nurses or business travelers, who need an extended 2–6 month stay. You don’t have to constantly clean or do laundry, and you don’t have to worry about frequent vacancies.

But the renters pay a premium and take great care of your property because your client is typically the employer, not the guest. Your occupants know it will get back to their employer if they mistreat the property, so they take excellent care of it.

For a free webinar explaining the business model and how to use rental arbitrage, see this webinar we hosted with Al Williamson. If you’re looking for passive income ideas that don’t require much cash, learn Al’s rental arbitrage strategy.

Potential risks: Economic downturns affecting corporate travel, hotel competition, furnishing, and maintenance costs.

6.  House Hack with an ADU or Basement Apartment

In the traditional multifamily house hacking model, you buy a 2–4 unit property, move into one unit, and rent out the other(s). Your neighboring tenants pay enough rent to cover your entire mortgage payment, so you effectively “live for free.”

But that’s not the only way to house hack and score free housing. You can also house-hack single-family homes by adding an accessory dwelling unit (ADU), basement apartment, garage apartment, or in-law suite.

Or by bringing in housemates, renting out storage space, or hosting a foreign exchange student like our cofounder Deni did. Check out our free house hacking calculator to run the numbers, no matter how you plan to house hack.

For that matter, you can also add passive income streams by renting out parking or storage.

Potential risks: Zoning issues, privacy concerns, potential tenant conflicts, and property value impact.

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Real estate investments? Awesome.

Being a landlord? Less fun.

Learn how to earn 15%+ on passive real estate investments in our free video course.

7. Rent Out Parking or Storage Space

In urban areas short on parking, you can rent your parking pad or other space for neighbors to park their cars. But your options for earning passive income from parking don’t end at the city limits.

Suburban and rural residents can earn money by renting out parking spaces for large vehicles like trucks, boats, RVs, and beyond. Covered parking commands a higher premium, but uncovered parking works, too.

You can also earn good money renting out a space for mobile homes to park, whether in the past or long-term. Water and electric hookups help but aren’t necessary if you only serve RVers passing through.

It may not seem like much extra cash, but even an extra $50 or $100 monthly adds up when compounded over years.

You can also rent out storage space in your garage, basement, attic, or elsewhere. Neighbor.com is a reputable marketplace connecting storage renters and providers.

Potential risks: Liability issues, property damage, local ordinance violations, and low demand.

8. Mobile Home Parks

Some investors shun the idea of owning a mobile home park. However, the lack of competition helps mobile home parks perform even better for investors in the know.

Regulations have prevented many new mobile home parks from opening in recent years, restricting supply even as demand for cheap real estate has grown. Mobile home parks also offer affordable housing, making them recession-resilient assets. They tend to perform well in all market cycles.

And no, you don’t need to manage the park yourself. You can hire a property management company to handle the day-to-day operations, leaving the investment a (mostly) passive source of income.

It’s a business like any other, and specific skills and knowledge are required to succeed. If it appeals to you, take a course on it — we recommend Mobile Home University as a reputable option.

Potential risks: Changing regulations, environmental issues, stigma affecting resale value, and tenant turnover.

9. Invest in Individual Mobile Homes

Some investors buy individual mobile homes rather than investing in entire mobile home parks. They then rent these out to families on a long-term lease agreement, often with an option to purchase.

They cost far less than a single-family house and offer much higher returns. And with even less competition because they’re not “sexy” investments. Often, you earn the best returns from the most “niche” passive income strategies!

Listen to our podcast episode on mobile home investing with Rachel Hernandez, AKA The Mobile Home Gurl, and check out her free mobile home investing course for more details.

Potential risks: Depreciation, difficulty in financing, location dependency, and potential for high repair costs.

10. Undeveloped Land

Of all real estate investments, land has the least regulation and, in many ways, the fewest headaches.

You don’t have to worry about maintenance or repairs. You don’t have to worry about tenants damaging your property. You don’t have to worry about going through the lengthy and expensive eviction process if your renters don’t pay. If someone rents your land for the occasional camping trip or hunting and stops paying rent, you cancel the rental agreement, and they lose the right to use your land.

Plus, land is cheap relative to single-family homes or commercial properties. That makes it far easier to buy in cash and avoid investment property loans while earning extra monthly money from direct real estate investments.

If you want to learn how to invest in raw land, take Seth Williams’ excellent land investing course at REtipster. And if you’re on the fence, check out this land investing case study, where a corporate worker replaced his 9-5 salary in 18 months.

It makes for another “unsexy” investment, which is precisely why it can be so profitable. Investors earn money by flipping land in one up-front payment or as a stream of passive income by signing a seller-financed note. (More on private notes shortly.)

Potential risks: Lack of immediate cash flow, zoning changes, environmental issues, and illiquidity.

11. Self-Storage Facilities

Self-storage facilities offer another not-so-sexy way to invest in real estate, with similar advantages.

While you have to maintain a physical structure — unlike land — the buildings are far simpler than residential properties. They come with minimal mechanical systems like electrical, plumbing, and HVAC, sometimes avoiding them entirely. You don’t have to worry about long eviction processes or complex landlord-tenant laws either.

Instead, the business is largely concerned with marketing and keeping your vacancy and turnover rates low. If you can find a good deal at a self-storage facility and keep your vacancy rate low, you can earn strong cash flow and an easy passive income stream.

Potential risks: Oversaturation in some markets, security concerns, changing consumer habits, and economic downturns.

12. Commercial Real Estate

Commercial properties range in use from office space to retail, restaurants to industrial. You can go as small as a corner shop or as big as a skyscraper.

The category also includes residential buildings with five or more units. When buying an apartment building with at least five units, you must take out a commercial loan rather than a residential investment property loan.

If the high cost troubles you, remember that it also deters much of your would-be competition. Commercial real estate investors face far less competition than residential investors, often leading to higher cap rates and returns. Even so, expect a much higher minimum investment than many other passive income opportunities on this list.

Like any other type of real estate investment, consider starting small and scaling up as you build confidence and expertise.

Potential risks: Economic sensitivity, high upfront costs, complex leases, and longer vacancy periods.

13. Publicly-Traded REITs

Alternatively, you can buy shares in a real estate investment trust (REIT). These companies trade on public stock exchanges, so anyone with a brokerage account can buy shares.

You can invest in equity REITs, which own real estate properties directly, or mortgage REITs, which own debts secured against real property. Either way, REITs tend to pay extremely high dividends.

That’s because the SEC requires REITs to pay out at least 90% of their yearly profits to shareholders as dividends. That makes creating passive income streams with REITs easy but limits their potential for share price growth. Companies can’t reinvest profits to grow their portfolios, limiting their ability to increase their value.

Their instant liquidity also comes with a downside: volatility. Because they trade on public stock exchanges, they tend to move in close concert with stock markets, which limits their usefulness for diversifying away from stocks.

Potential risks: Stock market volatility, interest rate sensitivity, and sector-specific risks.

Want to compare investment property loans?

What do lenders charge for a rental property mortgage? What credit scores and down payments do they require?

How about fix-and-flip loans?

We compare the best purchase-rehab lenders and long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

14. Crowdfunded REITs

If only you could buy shares in a REIT without the volatility or limits on growth potential… Oh wait, you can.

Over the last decade, real estate crowdfunding investments have skyrocketed in popularity. Most of these sell shares in pooled REIT funds, which either own properties, real estate-secured debt, or both.

However, you buy shares directly from the company itself rather than buying and selling shares on stock exchanges. That reduces volatility to nearly nothing, making it much harder to sell shares. In most cases, you sell shares back to the company rather than on the secondary market, but they restrict you from selling shares in the first 2–5 years of owning them. That makes real estate crowdfunding investments a long-term commitment.

Still, they have far more flexibility to grow their funds’ value by reinvesting profits. That gives share prices plenty of room to grow over time.

Just as easy to buy as public REIT shares, real estate crowdfunding shares offer true diversification from the stock market. They earn you returns based on income yield and real estate market fundamentals rather than moving in correlation with stocks.

Some crowdfunded REITs allow you to invest with as little as $100, or $500 or $1,000. Regardless of the exact number, it’s far lower than a down payment on a rental property. I’ve invested in Fundrise and Streitwise, for example. But see our full list of real estate crowdfunding investments for all available options.

Potential risks: Lack of liquidity, platform risk, potential for overvaluation, and regulatory changes.

15. Crowdfunded Real Estate Loans

Not all crowdfunded real estate investments work like pooled funds where you buy shares.

As an alternative model, you can invest money toward specific loans secured against real estate. You pick and choose the loans you want based on the interest rate, the loan term, the property location, the LTV (loan-to-value ratio), and the borrower’s qualifications.

My favorite of these real estate peer-to-peer lending platforms is GroundFloor. They allow retail investors (non-accredited investors), and you can make an initial investment as low as $10.

Best of all, GroundFloor issues short-term loans, so you don’t have to lock your money up for five years at a time. They provide short-term fix-and-flip loans for house flipping or the BRRRR strategy as a hard money lender. You can invest in loans ranging in terms from 6–18 months.

Potential risks: Default risk, platform failure, regulatory changes, and difficulty assessing loan quality.

16. Private Notes

Of course, you could also skip the middleman and lend directly to the borrower.

A promissory note is the legal document that borrowers sign when they take out a loan. You can lend money to other real estate investors directly and sign a private note with them.

I do this with investors I know and trust with a successful track record. For example, I lent $25,000 at 10% on an interest-only note to an investing couple I know. As an interest-only loan, they don’t make payments toward their principal balance — they pay me 10% of the loan balance each year as interest. That means $2,500 per year as a passive income stream for me.

Sellers often offer their buyers owner financing when they sell a property. That way, they profit from selling the property and interest on it as a stream of passive income.

You can negotiate any terms you like with the borrower. That includes interest rate, loan term, amortization versus interest-only, and any up-front fees such as points. So, you can invest for any period, as negotiated with the borrower. If you like, you can also record a lien against the property so you can foreclose if the borrower defaults.

Word to the wise, however: only lend money to experienced real estate investors you know and trust well. If they default, you must enforce the note and recover your money. “Neither a borrower nor a lender is,” and all that.

Potential risks: Default risk, lack of liquidity, legal complexities, and reliance on borrower’s integrity.

17. Joint Venture with a Partner

Like one of the streams of passive income outlined above, but don’t have any experience with it?

Find someone who does. Learn the shortcuts, the pitfalls, and expensive lessons that cost them thousands of dollars that you can skip.

That could mean partnering with a veteran real estate investor and leaning on their expertise and network of lenders, contractors, real estate agents, and beyond. Learn the ropes of a partnered deal or two to build confidence before buying properties on your own.

You don’t necessarily need any investing capital, either. In fact, you can offer to contribute your labor toward the deal.

You could also partner with someone who knows private note investing, mobile home park investing, self-storage, or any other niche outlined above.

And if you’re interested in passive investing in real estate syndications, you can always join our Co-Investing Club. Just sayin’.

Finding people further down the path than you are the fastest way to start building passive income streams.

Potential risks: Partner conflicts, unequal contributions or rewards, legal disputes, and shared liability.

Other Sources of Passive Income

Real estate isn’t the only source of passive income, of course.

Bonds pay interest. Some stocks pay dividends, as do some ETFs (exchange-traded funds) and mutual funds. Just don’t expect massive yields.

Branching out to more alternative assets, you can buy shares in franchises. Check out FranShares, which lets you buy shares in a fund that owns dozens of franchises and pays distributions on the cash flow.

You can even buy rights to royalties. For example, Public offers royalties to the music featured in the Shrek franchise. Whenever someone plays a song from a Shrek movie, it generates revenue.

You can earn money from stock photos if you have a great eye behind the camera. If you write the next great American novel, you’ll earn residual income from sales in perpetuity. Or, if you create a great blog, you can earn passive income from affiliate marketing. And so it goes.

Get creative and diversify among many different streams of income.

Actionable Steps and Tools for Beginners

If I were to return to zero and start again, here’s what I’d do. Take note: this also applies to all real estate beginners. 

1. Educate Yourself: Read books like “Rich Dad Poor Dad” and “The Book on Rental Property Investing”. Listen to real estate podcasts such as BiggerPockets. Take online courses on Udemy or Coursera. Attend local real estate investing meetups or webinars.

2. Assess Your Financial Situation: Calculate your net worth. Review your credit score using Credit Karma. Create a budget to determine your investing capacity. Use a retirement calculator to set financial goals.

3. Start Small with Real Estate Crowdfunding: Research platforms like Fundrise or GroundFloor. Start with a small investment ($10-$500). Diversify across multiple properties or loans. Monitor investments and reinvest dividends.

4. Build Your Credit and Savings: Pay down high-interest debt, set up automatic savings transfers, and use credit-building tools like Self or Experian Boost.

5. Analyze Real Estate Markets: Use Zillow and local MLS to study property prices and trends. For in-depth analysis, pay-services like PropStream should be considered.

6. Network and Build Your Team: Attend REIA meetings. Connect with real estate agents specializing in investments. Build relationships with potential mentors. Use LinkedIn or BiggerPockets to expand your network.

7. Practice Analyzing Deals: Use free online calculators to run numbers on properties. Learn to calculate cash-on-cash return, cap rate, and IRR. Analyze at least 100 properties on paper before investing.

8. Consider House Hacking: Look for multi-unit properties where you can live in one unit and rent others. Research FHA loans for low down payments. You may use the SparkRental house hacking calculator to analyze potential properties.

Final Thoughts

How close are you to reaching financial independence? Are you close to building enough passive income streams to cover half your living expenses? All of them?

Play around with our financial independence calculator to see where you stand.

Whether you’re just starting or making fast progress toward financial freedom, aim to create a passive income stream every single month. That could be as simple as buying more shares in a REIT, setting up recurring investments with a real estate crowdfunding platform, or buying a new rental property. Each dollar of extra income you earn makes saving and investing easier, compounding and growing exponentially over time.

Where you stand today doesn’t matter. Start making tangible progress every month, and you’ll find yourself reaching financial independence faster than you’d think.♦

How many sources of income have you built? What are your questions about how to create passive income streams?

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