One of the BIGGEST lessons Robert Kiyosaki’s book “Rich Dad Poor Dad” taught me was:
“The Rich Don’t Work For Money” – Robert Kiyosaki
To take it a step further, billionaire Warren Buffet once said, “If you don’t find a way to make money while you sleep, you will work until you die.”
Now if the rich don’t work for money and if we don’t make money while we sleep or else work till we die, then what does that do to your thinking?
I’m not trying to convince you that it’s bad to continue treating patients until you’re 70.
Heck, if you like what you do then more power to you! We’re always going to need good doctors to treat us as we get older.
But I want you to get to the point that you’re working ONLY because YOU want to be there. And NOT because you have to earn a paycheck.
The wealth building experts are clear on one strategy: Focus on developing multiple passive income sources to cover your expenses to reach FI.
Where do we start?
For our family, investing in passive real estate to build a source of steady income using earned income from the dental practice has been our key to success.
“Ok, that sounds good Jeff but what type of real estate investment is the best? Also, I don’t have much money outside of our retirement accounts to use so what should we do?”
Ahhh, patience grasshopper. That’s exactly what we’re going to discuss today so let’s get going….
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Active Or Passive Investor?
If you’re like me, busy with work and raising a family, then you should think long and hard about what type of real estate investor you want to be:
Active vs Passive
This is the one step I see most doctors/high-income professionals skip when starting out.
Most don’t want to put time developing goals on the front end yet this is what’s going to help guide you down the real estate path to success.
The first step is to figure out how much money and time you plan to put towards a rental investment. This will help determine between being active (landlord) or passive.
Most Passive Investors Circle (PIC) members join because they don’t have the time or resources to find a rental home and manage tenants.
Rental industry guru Grant Cardone teaches his students to focus on getting REALLY good at what you do best (your own business) as the more you make, the more that can be put towards real estate.
The best way for us was to focus on becoming passive investors investing in syndication deals. With these types of investments, you give up some overall control and pool your money together with a group of real estate investors.
Syndications allow you to enjoy relief from the typical responsibilities and time-commitment that being a landlord requires.
Types Of Passive Investments
Now more than ever is a great time to become a passive investor as there are more choices than in the past.
It seems as if overnight, crowdfunding sites began popping up advertising opportunities such as:
- apartment complexes
- self storage
- hotels (hospitality industry)
- mobile home parks
short-term vacation rentals
Not only did passive investors have access to crowdfunding deals, but also to deals directly from real estate sponsors.
Related article: 7 Ways To Evaluate a Real Estate Sponsor
As you can imagine with all of these new choices caused an increase in competition.
The apartment syndication space has become MUCH more crowded causing us to look into other avenues of investing such as vacation rentals.
What Are Vacation Rental Properties?
Vacation properties are typically privately owned that travelers can rent as a hotel alternative.
Accommodations can range from a spare bedroom to high-end luxury property offering full service amenities with a chef and butler included (now we’re talking!).
- log cabins
- tents (we’ve been glamping in Montana)
- tiny homes
- beach houses
Vacation Rental Business – Rise Of The Internet
If you owned a vacation home prior to VRBO.com and Airbnb coming online, then you’d have been hard pressed to rent it by using:
- newspaper ads
- For-rent signage
- travel agents
Eventually HomeAway.com acquired VRBO, TripAdvisor bought out Flipkey and now Airbnb is the go-to site of the vacation property owners market.
Know Your “Why” Before You Buy a Vacation Property
Remember that awesome time you had in the beach house you rented in Destin, FL?
What about the Big Sky ski-in, ski-out condo you rented over the Christmas holidays with your family?
The villa overlooking the green on the 13th hole at the South Florida golf resort was unbelievable too.
If you’re like me and LOVE to travel then you may be considering investing in your own property for vacation rental income.
After all, you’ve been renting from other people who own them so why shouldn’t you consider buying one yourself?
Before committing to acquire any short-term rentals, take the time to figure out your overall investment strategy.
Here’s an example: Dr. T is a busy, 45 year oral surgeon in West Virginia. When not working, he loves traveling with his family of six as he knows that they’ll be out of the house before the blink of an eye.
After practicing for 15 years, he’s built up a nice, 7-figure nest egg in a 401k.
He also realizes that this money is “locked up” until he’s 59.5.
He understands that time is of the essence as his kids will be out of the house in less than ten years.
Dr. T recently read Bill Perkins book, “Die With Zero,” and a lightbulb went on.
He needs to enjoy his money NOW with family experiences instead of waiting until he’s too old to do so.
He started thinking about how he could access the retirement account money without being penalized plus use it to cash flow these family outings?
The point I’m trying to get across to you is that knowing the “why” you want to invest in vacation property is going to be the fuel that drives you to success.
How to Look for Passive Vacation Rental Investment Opportunities
As with any type of syndication, whether in the multifamily space or not, the key is finding operators with a long, successful track record.
I say it time and time again that the MOST important part of investing passively is NOT focusing on the deals with the highest returns but the operators you can trust.
How can this be done?
For starters, check to see if they have positive reviews and speak to previous and past investors.
With vacation rentals, the most significant aspect is having a good location. Ask about where their current vacation homes are located and where future locations will be.
Popular travel destinations such as a beach location or ski resort typically have a higher high occupancy rate increasing rental cash flow.
Other questions worth noting to ask are:
- Do their properties generate consistent income?
- How do they estimate vacation rental property potential?
- Are they investing for cash flow or appreciation?
- Do they utilize depreciation for tax benefits and tax advantages? If so, how is this reported?
- What kind of marketing is used to keep a high occupancy rate?
- How are nightly rates determined?
- How much rental income can they expect from each property?
- What are the management fees and how are they calculated?
Pros and Cons of Owning a Vacation Rental Passively
Before making any major decisions when it comes to investing, consider the full range of pros and cons first.
Owning a vacation rental property passively has advantages:
- As with other types of passive investments (syndications), cash flow via passive income from rental income is created.
- You have your own personal vacation home to enjoy with friends and family (my favorite perk!)
- Tax benefits, such as depreciation, can be used to help lower your tax burden.
- Over time, if the rental was purchased in the right location, it can significantly increase in value.
As with any type of investment, there are potential disadvantages investing in vacation rentals. The good news is that the majority of these have to do with being the sole owner of the property.
Tasks such as cleaning, preparing for future guest, marketing and management.
If investing passively with a group, they have a team that can handle all of this for you.
Vacation rental property is a good place to start developing passive income as long as you have performed due diligence to find a trusted sponsor.
If the property has been purchased correctly in the right location, then not only can you enjoy the extra income, but also a great second home to visit.Join the Passive Investors Circle