Passive income has become a bit of a buzz word of late, but what does it mean and where does property fit into the equation.
Passive income is basically earning money from asset rather than exchanging money for time. This includes things like the interest you might receive on shares, writing a book that continues to sell for years to come, or collecting royalties on a song you wrote.
Many of these forms of passive income seem a world away from reality for most people, after all, how many budding songwriters do you know? This is where property comes in.
One of the best ways to create passive income is through property. There are different ways you can get involved and whilst we are not financial advisors and cannot give any specific advice, we can explain how they work.
BTL
BTL or buy to let is the more traditional way of investing in property. You purchase a property either outright or with a specific mortgage product and then let it out to tenants. If you work with a letting agent to manage the property for you, once it’s been purchased there is very little involvement needed from you day to day.
There are multiple options involved in this type of property purchase, you could buy a doer upper and invest some money in refurb work – hence increasing the capital worth and the same time. Or, if you prefer a maintenance free options, opting for a newer property will mean less work for you, but potentially a little less money too.
HMOs and Student Lets
Another form of BTL is HMOs or houses in multiple occupation. These are generally rented out by the room, so you need to factor in things like communal areas and bills.
Student lets can be a great option as there is high demand for rooms during term time, but do remember that most students will only require accommodation for around nine months of the year.
Serviced Accommodation
Another way to make passive income through property is through serviced accommodation. This is through offering short term lets, often through sites like Air BNB. You can hire agencies to manage this on your behalf so that again, it is a truly hands off experience for you.
Rent 2 Rent
Rent to rent is a way of subletting a property from another landlord. You would then in turn sublet it out to your own tenants. It’s important to have a good relationship with the main landlord as you are effectively representing them and their property.
You would also need to factor in things like bills and maintenance as these will still be your responsibility.
This can be a great option if you don’t have the capital upfront for a deposit or full purchase price, but do remember that the profit margins can be smaller as you are paying someone else’s mortgage.
Which is Right for me?
There is no easy answer when it comes to choosing which form of passive income through property is right for you. It will depend on your personal circumstances, how much money you have to invest and your level of experience.
When it comes to making any kind of investment, always seek professional financial advice first so that you can make an informed decision.
We hope this has given you a little insight into the different ways you can use property to create passive income. Of course, whichever option you choose, you will need to think about insuring your property correctly and that’s where we can step in and help.