02 Dec 2019

How is real-estate investment
a Passive Income investment?

A financial goal that many people desire is Financial Freedom.

One of the most popular investments to create financial freedom is real-estate investments. Before we get to why we must invest in real-estate, let’s learn about the meaning of financial freedom. 

When we talk about “Financial Freedom”, many people would think of having more money than you could ever need, rolling in cash and gold, or living a posh lifestyle. In reality, financial freedom is not about any of that. The meaning of “Financial Freedom” is for us to have “Passive Income” more than our expenses so that we no longer have to trade our time for money in our jobs, and we can live comfortably. 

For example, if our monthly expenses are 20,000 baht, and we can generate income from our assets at more than 20,000 baht, that means we’ve already achieved financial freedom. The question is, how can we create Passive Income, and why real-estate investments are an interesting option. 

One reason for us to invest in real-estate is because it offers return in the form of ‘rent’, which is usually paid monthly, which meets our needs to pay monthly expenses. Furthermore, real-estate investments offer us a fairly long-term income, because most leases are at least 12 months long.

Successfully investing in real-estate requires expertise in ‘location’. If we select a good location with high demand, it’s going to help us with finding tenants at a better price. You also need to be good at analyzing your ideal tenant. It is another important factor to determining whether you’ll be able to attract your ideal tenant or not because each tenant have different needs. If you understand your tenant as an office worker who lives far looking for a residence near the office, you may not need such a large room with many facilities, but rather focus on lower rent.  

But if you’re investing in a property for expats on short stays, they prefer large rooms for a family, which m ay require you to consider investing in larger rooms. 

Generating income from assets in the beginning requires a lot of effort, especially to invest in real-estate. A mistake in real-estate could mean you won’t have a tenant for a long time, which may lead to long-term loss as well. Another disadvantage of real-estate investments is that it is ‘low liquidity’, meaning it is difficult to sell and get your money back. So before you invest in any property, make sure you know the location. Walk around the area at different times of day, morning, afternoon, evening, and late nights. It is important in helping you to decide that your investment will be appropriate to the ideal tenant that you are looking for.