We’d all love to earn a passive income by purchasing a duplex, triplex or fourplex – or a combination of the three. But where do you even begin? This guide explains how to earn passive income through real estate rental properties.

Passive Income Through Real Estate Rental Properties

Passive income is cash that you earn without investing your time every day – it’s money that comes in as the result of the work you did at one time (but not all day, every day right now). One great way to earn a passive income is to invest in real estate, and that may mean buying a single-family home, a duplex, a triplex or a fourplex in Silicon Valley.

How to Create Passive Income Through a Real Estate Rental Property

First things first: The best way to generate the most income through real estate rental properties is to purchase one and rent it out to tenants. After you’ve done that, you can choose to manage the property yourself or hire a property manager to handle tenant issues for you – but the bottom line is that you own the property and people pay you to live in it.

To be successful at creating passive income through real estate rental properties, you need to follow these steps:

  1. Learn the laws
  2. Find the right property
  3. Obtain a mortgage to buy the building
  4. Advertise – or hire a property manager to do so
  5. Screen and choose tenants

Here’s a closer look at each.

Rule #1 for Creating Passive Income Through Real Estate Rentals: Learn the Laws

Lots of laws apply to landlords in California (and elsewhere in the country). It’s up to you to learn about tenants’ rights to privacy, anti-discrimination in housing laws, and eviction processes. Many aspiring landlords take a landlord-tenant law class before diving in with both feet, which is a wise choice; that helps ensure that you stay on the right side of the law.

Rule #2 for Creating Passive Income Through Real Estate Rentals: Find the Right Property

Talk to a Silicon Valley multifamily property REALTOR® to learn about your options. Also, decide whether a duplex, triplex or fourplex is the right choice for you. You should also explore the possibility of purchasing a multifamily property, living in one unit and renting out the rest; a lot of people use that option when they’re first starting out, and it can help maximize your income (because your tenants will cover your personal monthly mortgage payment).

Related: Steps to buying a multifamily property in California

Rule #3 for Creating Passive Income Through Real Estate Rentals: Obtain a Mortgage to Buy the Building

Getting a mortgage on a multifamily property is a little bit different from getting one on a single-family home, but it’s entirely possible to do so. You should also know that homes with four or fewer units (duplexes, triplexes and fourplexes) are considered residential when it comes to financing; those with more units are typically considered commercial and require a different type of financing. And if you’re an owner-occupant (a person who lives in one unit while renting out the others), you may be able to use an FHA or VA loan; if you’re not, you’re an investor who’s limited to conventional mortgage loans.

Related: How to finance a duplex, triplex or fourplex

Rule #4 for Creating Passive Income Through Real Estate Rentals: Advertise (Or Hire a Property Manager)

After you buy your rental property, you can decide whether to hire a property manager or manage the space yourself. Keep in mind that if you choose to manage the property yourself, you’ll be the one responsible for advertising, finding tenants, screening tenants, collecting rent, scheduling repairs, conducting routine maintenance and, if necessary, eviction. For that reason, many people choose to work with a property manager who charges a small fee to manage the property (and deal with tenant requests) each month.

Related: 5 tips for managing your own rental property

Rule #5 for Creating Passive Income Through Real Estate Rentals: Screen and Choose Tenants

If you don’t hire a property manager, you’ll be the one screening and choosing tenants for your rental property. That means running background checks and talking to people who are interested in renting out one of your units. It also means making sure you’re up-to-date on fair housing laws and what you need to do to comply with them.

Related: How to find great tenants for your Silicon Valley rental property

Are You Buying or Selling a Duplex, Triplex or Fourplex in Silicon Valley?

If you’re selling a duplex, triplex or fourplex in Campbell, Cambrian Park, Los Gatos, San Jose, Santa Clara, Saratoga, Willow Glen or another community in Silicon Valley, we’re here to help. Call today or fill out the form below to find out about our innovative marketing plans that can put your investment property in front of all the right buyers.

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