Where to begin with passive income?

Question

Hello,

My boyfriend and I are looking to eventually make about 5-10k/month in passive income. We are both young (23) but want to get started as soon as possible. We have been doing a lot of reading and have a bunch of possible strategies but I was hoping for some advice as to which is the best option (also very open to suggestions).

We live in NY so we don’t want to start out here because it is extremely expensive. So we were thinking of flipping some houses out of state with a good team to build up some cash. Then eventually we would buy a triplex and rent it out.

Where should we begin?

Clayton Mobley · Answer

@Aliza Abramson Where to begin is going to depend entirely on your short-term goals. Your long-term goal of 5-10k in passive income per month is one thing, but there are lots of ways to get there. What are your needs and capacities in terms of time and energy you can put into deals? Do you both work full time or have a family? Then doing more hands-on types of REI might not work for now. Flipping is a tough business for new investors (definitely doable, but there's a learning curve like everything else) and doing so out of state while managing rehab etc from a distance is going to be a very steep curve. It's doable, but you'll need to account for trips out to see the prop before you buy, and likely some trips in between to make sure everything is going smoothly.

You also don't mention how much capital you have to work with currently. My guess at 23 is that your first step is probably going to be building up your war chest and knocking out any debt you might have (other than the mortgage on a primary home if you have one). Unfortunately, the first step for almost everyone is to wait a bit until you have the cash on hand to make sensible moves based on analysis and not just on what you can afford.

Once you do that, or if you already have ample capital to work with, it's about deciding what type of REI really works for your life right now. Not all REI is about owning physical real estate directly. If you don't have the time or inclination to vet teams and manage rehab work from afar (not for the faint of heart or uninitiated) then you might choose a more passive, diversified investment like a REIT (an ETF comprised of real estate investments) or DST (a trust you invest in that owns REI, another indirect way to invest).

If you want to directly own real estate but need to time to learn the ropes of the DIY method (BRRRR and flips) you can look into out of state turnkey (naturally, I am biased towards this option ;) which allows you to own rentals that are already fully rehabbed with an internal property manager already in place (real turnkey companies do everything in-house so you only have one team to vet).

You can also look into Net Leases (buying a commercial space that is leased long-term to a commercial tenant like a starbucks or a dollar store). Depending on the type of net lease (single double triple) the tenant is responsible for some or all of the expenses, which means you just collect your net income each month.

The point is, there are lots of ways to generate passive income. The most important thing is that you are honest with yourselves about what you can reasonably contribute in terms of money, time, and energy right now. You may not have the capital necessary to get started right away, so be patient rather than jumping into something iffy just so you can feel the rush of doing something (this is a common pitfall for new investors). Everything about your current situation can and will change over time, and so can the way you invest, but it's important to start where you are and not get completely lost in where you think you should be / where you want to go.

Good luck!