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Alex Blackwood, who previously worked at Goldman Sachs in their real estate investment department, believes the best way to grow your wealth is through real estate investing. That’s why he founded Mogul Club, a real estate investment club that lowers the barrier to entry for generating passive income through real estate.
GOBankingRates spoke with Blackwood about why real estate is such a good investment for passive income, how to get started and how much you can expect to earn.
There are numerous ways to generate passive income, but Blackwood sees real estate investing as one of the best ways to do so.
“It makes it a great source for passive income because when you invest, you’re investing in a necessity of life,” he said. “You’re investing in a home, a rental property in which someone will live, so it’s very resistant against any sort of macroeconomic cycle. Even through [an economic downturn], you’ll get paid out passive income in the form of ‘dividends’ from your rent.”
And unlike the stock market, which can experience downswings, or cash, which loses value to inflation, rental income will almost always increase.
“Rental income improves year over year with inflation because the demand from renters is growing ever higher, especially as the supply is being constricted in a lot of different locations,” Blackwood said.
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While rents increase, the fixed costs that come with owning a rental property stay the same or increase very little.
“Your fixed costs might rise [about] 2%, but your rental income might rise 3% to 4% and upwards of 10%,” Blackwood said. “That expansion and margin allows you to grow your passive income, even while not investing more in that individual property.”
Blackwood notes that in order to make real estate income truly passive, you do need to hire a property manager to take care of the day-to-day. You can consider this a fixed cost that gets deducted from the rental income.
“[Having a property manager provides] an ease of mind,” he said. “A lot of people think about the midnight calls that they get from a tenant — those don’t really happen if you have a property manager in place. And so I would say [investing in rental properties] definitely is passive in nature.”
Buying a rental property may be out of reach financially for an individual, but new platforms like Mogul Club make this more accessible.
“The tech age that we’re in affords you a lot of opening to things that were previously inaccessible,” Blackwood said. “For rental property, a lot of different platforms have come out that offer people the ability to invest in individual properties. You can come in, invest $1,000 today, and kind of get your feet wet. And then as you learn and grow, you can start deploying more and more capital into the real estate investment as you become more sure about the investment itself.”
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You can even start with as little as $100, Blackwood said. And thanks to new technology, you can now invest as easily in real estate as you can in the stock market.
“We made [Mogul Club] as seamless and as simple as possible,” Blackwood said. “Basically, it’s how you would sign up for any traditional investment platform, whether it be Robinhood or Fidelity or whatever it might be. You have a very simple process.”
The returns you earn through real estate investing will depend on the property, and if you are investing through a platform, it will also depend on the size of your investment. On his platform, Blackwood targets a 12% internal rate of return.
“That’s a mix of appreciation and rental income,” he said. “For instance, for two of our most recent properties, the rental income yield was about 9%, so if you invested $1,000, it would be about $90 in rental income that you get paid out and distributed directly to your account.
“Now with the appreciation on top of that, that amounts to about 16% to 17%,” Blackwood continued. “A lot of times what people don’t realize is that the appreciation is a massive factor in real estate, and the ability to take out leverage just amplifies that return in a massive way. A 3% appreciation can turn into 12% almost overnight, just due to the fact that there’s leverage involved.”