How to Earn Passive Income from Real Estate: The Step-by-Step Guide You’ll Actually Use

As a property investor, you’re always looking for new opportunities to earn passive income. And while long-term rentals can provide a steady income stream, they can also present cashflow challenges since the profit margin is often tight.

On the other hand, vacation rentals are attractive for their higher profit margins. But they also require a lot more work and effort to get started and maintain. From finding and onboarding guests to managing the property, it can be difficult to step away from the business and let it run itself.

Jetstream offers a unique solution that combines the best of both worlds: the high-profit margins of vacation rentals with the passive income potential of long-term rentals.

In this guide, we’ll walk you through the steps so you can earn passive income from real estate, and how Jetstream can help you start earning extra income without all the hassle. 

Table of contents

1. How do you generate passive income in real estate?
2. Long-term rentals vs short-term rentals
3. So, which do you choose, short or long-term rentals?
4. How to set up passive income from short-term and flex rentals
5. How to set up passive income from long-term rentals
6. Frequently asked questions about passive income real estate

How do you generate passive income in real estate?

There are many ways to generate passive income from real estate, but the most popular methods are long-term rentals and short-term rentals (also known as vacation rentals).

With long-term rentals, you can earn a steady income source from renting out your property to guests month-to-month. This method is often preferred by those looking for a more hands-off approach, as it requires less work on your part once everything is set up. Property managers are outsourced to handle the day-to-day tasks, such as finding and screening guests and dealing with maintenance issues.

On the other hand, short-term rentals are perfect for those looking to earn a higher income from their property since you can charge a premium for renting out your home or apartment to vacationers. This option can seem more work-intensive than long-term rentals, as you’ll need to manage bookings, cleanings, and turnover yourself (or choose a property manager to do it for you).

Outsourcing a service platform like Jetstream to manage your short-term rental can take much of your work off your plate. From guest communication to listing optimization to automating your cleaning and laundry, Jetstream helps you run your rental like a boss so that you can Maximize vacation rental income with the least amount of effort.

Long-term rentals vs short-term rentals

Evaluating the pros and cons of each type of rental type is important before deciding which one is right for you. After all, the whole point of passive income is to make your life easier-not harder!

Long-term rentals

Pros

Traditionally less labor intensive

Whether you self-manage or hire a property manager, long-term rentals require less day-to-day work than vacation rentals. Less frequency of resident turnover means fewer cleanings, and most maintenance issues are handled by the guests themselves or their assigned property manager.

Not subject to seasonal changes

Long-term rentals are not as susceptible to the ebbs and flows of tourism, which means you can count on a more stable income all year long.

Renting out for the long term

Having a year-long lease gives you the peace of mind of knowing that your rental unit is occupied for an extended period of time. This stability can be helpful in budgeting and forecasting, as well as providing a more consistent stream of income.

Cons

Vacancy risk is higher

There is always a chance your rental unit will sit vacant for a period of time between guests. This can result in lost income and added stress, especially if you rely on that rental income to cover your mortgage or other expenses.

Limitation to raise rates

Long-term agreements usually call for the rates to remain the same throughout the life of the contract, so you may have to forego potential income if market rates go up during that time.

To earn income, you need to own property

Of course, this isn’t necessarily a con-but it’s worth mentioning that you need to have equity in a property (either through ownership or investment) in order to generate income from long-term rentals.

Short-term rentals

Pros

Charge premium rates

The biggest advantage of vacation rentals is that you can charge premium rates, especially during the high season. This higher nightly rate can help you offset the added costs of managing a short-term rental and earn a significantly higher return on your investment.

More control over your calendar

With vacation rentals, you have the flexibility to block off dates when you need or want to use your property yourself. This can be helpful if you have a family or love to travel-you can simply make your rental unavailable when you’re not using it and then re-open it when you’re ready to start earning income again.

Less labor-intensive

Automation and outsourcing make it easier than ever to manage your vacation rental with minimal effort. Creating attractive listings, guest communication, keyless entry, and even laundry can all be handled by a professional service so that you can sit back and relax or take your own vacation!

No need to own property 

One of the best things about vacation rentals is that you don’t necessarily need to own property to get started. You can use a service like Airbnb to rent out a room in your house, or even just an extra bed in your guest room. This flexibility makes vacation rentals a great option for people looking to generate income without a huge investment.

Cons

Seasonality can impact occupancy rates

The biggest downside to vacation rentals is that they can be seasonal, which means you may have periods when your property is vacant. 

Potential for wear and tear

Another consideration with vacation rentals is that there is potential for more wear and tear on your property than with long-term rentals. This is especially true if you don’t have a professional service managing your rental for you.

What are your other options?

While long-term rentals and short-term rentals are the most popular types of rental properties, they’re not the only options. 

Rental arbitrage

Rental arbitrage involves using someone else’s assets, signing a lease, and then subleasing the property at a higher rent. You can earn income over and above the amount you’re spending on leads and other expenses, but risks are involved.

The biggest risk with rental arbitrage is that you’re essentially trusting someone else to take care of their property and not damage it. If there is damage, you may be held responsible and you could even be sued if the damages are severe enough.

Another risk is that your lease could be terminated if the owner decides to sell the property or stop renting it out. This would leave you without a place to live and could result in lost income if you rely on the rental income to cover your living expenses. 

Wholesaling 

For some real estate investors, the goal is to buy low and sell high where wholesaling comes in. Wholesaling involves finding deeply discounted properties, negotiating a contract with the seller, and then selling that contract to another buyer for a higher price. The wholesaler negotiates for equity as part of the deal so that they can earn a percentage of monthly rental cash flow without the need to buy a house themselves.

A risk with wholesaling is that you may not be able to find a buyer for the property you’re trying to sell. This can leave you stuck with a property you don’t want or can’t afford to hold onto, costing you time and money.

At the same time, the buyer could back out of the deal at the last minute. This could leave you scrambling to find another buyer-or worse, having to buy the property yourself if you can’t find someone else to take over the contract. You may not be able to negotiate a good enough price with the seller. You could lose money on the sale if you don’t have a profit margin built into the deal.

So, which do you choose, short or long-term rentals?

The rental property you choose will depend on your goals, risk tolerance, and investment strategy. Long-term rentals are best suited for property investors looking for stability and monthly payment. These properties require less work than short-term rentals but typically generate lower returns.

Short-term rentals are best suited for property investors who are looking for the potential for higher returns. Outsourcing vacation rentals can help you generate income without a lot of hassle. 

Jetstream is the perfect solution for busy investors who want to earn income from their rental properties without lifting a finger. Listing optimization, dynamic pricing, and guest communication are automated so you can focus on other things. Jetstream’s shared success model means you only pay a fee when you get paid, so there’s no risk or upfront cost.

While both long-term and short-term rentals are great options, flex rentals offer the best of both worlds.

What about flex rentals?

Flex rentals are properties that can be rented for either long or short terms, giving you the flexibility to adjust your rental pricing strategy as needed. So you can take on a range of booking lengths (from a few days to a few months). It’s perfect for modern travelers, especially digital nomads, who may not have a set schedule.

If you’re considering becoming a flex rental property owner, here are a few things to keep in mind:

• You’ll need to balance long-term and short-term renters to make the most profit.
• You may have to be more flexible with your schedule to accommodate last-minute travelers.
• It’s important to market your property as a flex rental so that you attract the right type of guests.

Flex rentals are a great way to generate passive income from your vacation rental property. Just be sure to do your research and plan to make the most of this opportunity.

How to set up passive income from short-term and flex rentals

Step 1: Market research 

Market research helps identify what type of guests are looking to rent. You can use this information to price your rental, list your amenities, and market your property to the right audience.

Asking questions like these will give you a good starting point:

• What type of traveler is looking for a rental in my area?
• What are they willing to pay?
• What kind of amenities do they want?
• When do they want to travel?

Once you have a good understanding of your target market, you can start to list your property.

Step 2: Buy property or find a partner

If you don’t already own a vacation rental property, now is the time to buy one or find a partner who does. The location of your property is important, as it will directly impact the type of guests you attract.

Consider these factors when choosing a location:

• Proximity to popular attractions
• Public transportation
• Property values in the area

You’ll also want to find a property that is the right size for your needs-too big, and you’ll have a hard time filling it; too small, and you won’t be able to maximize your profits.

Step 3: Set up keyless entry

Install keyless entry in your short-term and flex rental property

Remote check-in is a must for any vacation rental property. With keyless entry, guests can let themselves in without having to meet you in person. This is especially important if you plan on renting your property to short-term or flex guests, as they may not be able to schedule their arrival around your availability.

Look for a system that offers these features:

• Auto-lock and unlock doors
• Integration with other smart home devices
• Easy installation

Safety, convenience, and peace of mind are just a few benefits of keyless entry. And it’s easy to set up. It saves you time and hassle and gives your guests a better experience.

Step 4: Find a good cleaning and maintenance team

A good cleaning and maintenance team is essential to the success of your vacation rental business. They take care of the day-to-day tasks necessary to keep your property running smoothly. This includes everything from changeovers and laundry to general repairs and maintenance, so your guests expect clean and adequately maintained accommodation wherever they go.

Jetstream’s Operto Teams integration lets you automate cleaning tasks 

Deliver a seamless guest experience and save yourself the hassle of managing day-to-day operations. Outsource cleaning with tools like Operto Teams. You can auto-create cleaning tasks and set triggers to send real-time notifications to cleaners. You can integrate Operto Teams with Jetstream for complete overall management.

Step 5: Get listed on the right channels

Taking your property live on vacation rental websites is important in getting bookings. But with so many listing sites to choose from, it can be difficult to know where to start. Listing your property only on Airbnb can limit the discoverability of your rental.

Jetstream’s channel distribution increases your rental’s visibility

The best way is to list your property on multiple channels. This gives you the widest possible reach and helps you attract guests from all over the world. Jetstream helps optimize listings across channels like Airbnb, VRBO, Booking.com, and other major vacation rental sites.

Step 6: Outsource and automate everything

Setting up and running a short-term rental involves daily cleaning and maintenance, guest communication, and marketing. These tasks can quickly become time-consuming and take away from your primary goals.

Automating and outsourcing these tasks can help you free up your time to focus on running your business. With a service like Jetstream, you can automate messaging to answer repeat questions, schedule cleanings and other maintenance tasks, automate calendar sync to avoid double bookings, guest screening, and automatically optimize your listing for each channel. 

Plus, Jetstream’s guest-facing team can manage guest communication on your behalf, from check-in to check-out, adding a human touch to the guest experience.

How to set up passive income from long-term rentals

Step 1: Market research

Similar to short-term rentals, your first step is to conduct market research. This will help you understand the local real estate market, trends, and potential areas for growth. When looking at investment opportunities, consider nearby attractions and their popularity, peaks and ebbs throughout the year, and the type of traveler your property will appeal to.

Step 2: Buy property

Once you’ve decided on the type of property you want to rent, it’s time to buy a suitable investment. The goal of a long-term rental is to generate passive income, so you’ll want to focus on finding a property that will be in demand.

Since the duration of long-term rentals is usually 6 months or more, you’ll want to ensure that your property is in a desirable location. Another thing to consider is the type of property you want to rent. Single-family homes, apartments, residential properties, and duplexes are all popular choices for long-term rentals.

Step 3: Hire a good property manager

A property manager will take care of the day-to-day operations of your rental property, freeing up your time to focus on other things. Everything is taken off your plate-from guest communication and management to cleaning and maintenance.

When looking for a property manager, be sure to do your research. Read reviews, compare pricing, and ask for recommendations from other landlords in your area. Once you’ve found a good property manager, you can relax, knowing that your rental is in good hands.

Step 4: Write up your rental agreement

A well-written rental agreement is a must for any landlord. This document should outline the rules and regulations of your rental property and the rights and responsibilities of both you and your guest.

Be sure to include the length of the lease, rent price, security deposit amount, pet policy, and any other house rules. You’ll also want to include a clause allowing you to enter the property in an emergency. Once you and your guest have signed the agreement, it’s legally binding.

Step 5: Market your property 

Listing your rental on multiple channels will help you reach the widest possible audience. You can also use social media to market your rental-create a Facebook page or Instagram account dedicated to your property.

Include high-quality photos and detailed descriptions of your rental. You’ll also want to include information about the surrounding area, nearby attractions, and public transportation options so potential guests can get a sense of what it’s like to stay in your rental.

Conclusion

Long-term and short-term rentals are a great option if you’re looking for a way to earn passive income. The kind of rental you choose will depend on your goals and the time you’re willing to invest. 

A long-term rental will give you a steadier stream of income, while a short-term rental has the potential to earn you more money in a shorter amount of time. If you want to earn passive income with little effort on your part, a short-term rental might be the right choice for you. 

And with a service like Jetstream, you can easily optimize listings across multiple channels and get your property in front of millions of potential guests. Automation tools handle the day-to-day work, so you can sit back and relax while earning money from your rental.

Frequently asked questions about passive income real estate

What is an example of a passive real estate investment?

An example of a passive real estate investment is a rental property. You purchase the property and then rent it out to tenants. The income you earn from the rental is considered passive income because you are not actively involved in managing the property. Some other examples include investing in a real estate investment trust (REIT), limited partnership, real estate crowdfunding, and syndication. 

Is real estate a good source of passive income?

Real estate is a good source of passive income because it’s a tangible asset that can appreciate over time. Additionally, rental properties can provide a steadier income stream than other investments, such as stocks and bonds. 

How do rental properties make passive income?

Rental properties make passive income by providing a place for people to live in exchange for rent. The income from the rent is considered passive because you are not actively involved in managing the property.