Financial Planners Say Real Estate Is Top Passive Income Source

  • Insider asked financial planners how their clients earn passive income, and real estate won.
  • Not all own investment properties — some invest through a real estate investment trust. 
  • Others simply rent out rooms and units in their own homes, called “house hacking.”
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Financial planners say their clients overwhelmingly turn to one source for passive income: real estate.

Insider spoke with several financial planners, asking each where their clients get the most passive income. They told us that one of the most common forms of passive income they see among clients is real estate. 

However, they noted that not all of their clients are landlords managing properties and apartments. Instead, they turn to two other methods to get passive income with less hassle. 

They invest through real estate investment or income trusts

Instead of owning their own real estate, some investors simply buy shares of a larger real estate portfolio. Financial planner John Bovard of Incline Wealth said that several of his clients invest in real estate this way. 

These real estate investment trusts, or REITs, as they’re known, come in several different forms. While REITs are available on some investment platforms, Bovard’s clients focus on non-listed REITs that offer monthly income.

Clients invest in the

, and the company takes care of the management. “[The company is] going out and they’re buying these huge portfolios of real estate. Then, my clients, they’ll put $100,000 into the fund, and that money is locked up for 12 months,” he said. 

“Every single month they receive a monthly distribution from that fund, and then they also own a portion of that underlying real estate. They also can participate in that real estate appreciating in value,” he said. 

These non-listed REITs are available only through a financial planner and do have requirements on minimum income or net worth. However, there are publicly-traded options available that offer income quarterly. Either way, REITs can help generate passive income without the need to own real estate directly. 

They ‘house hack’ to turn their own homes into income

Financial planner and Facet Wealth co-founder Brent Weiss said his clients are using their own homes to generate passive income.

House hacking, or buying a home with a rentable room or separate unit in order to earn passive income, has become a popular way for his clients to earn money from real estate.

“Probably half of my clients are now thinking about real estate differently,” he said. “How can I buy a home for me and my family? And then how can I rent out that extra shed with the full kitchen and everything in the back?” 

In Weiss’s experience with clients, it’s an effective way to start getting passive income from real estate. While it will require some landlord work, it may not require much of an extra investment.