Building a passive income with a 2nd dwelling
Building a second dwelling on your property offers a myriad of benefits and opportunities. If you’re in a position to add a second or even third home to your property portfolio, this blog is here to help you leverage that investment into a stream of passive income long term.
House prices have risen exponentially and mortgages are hard to get for investment properties, but that hasn’t stopped people from viewing property as a good long-term investment. Prefabricated homes are a cost-effective method of adding a new property to your section, and using it as an investment can be a great financial strategy. Beyond that, adding a second dwelling to your section can increase the land value and offer flexibility of living in the future. If what you’re after from your property investment is passive income, then read on. But first, let’s define passive income.
What is a passive income?
Unlike your active income that you typically work a 40 hour week on an hourly rate or salary, a passive income is an income stream yielding wealth that is not tantamount to the work input.
Depending on who you ask, a passive income is defined as building wealth without lifting a finger. Other sources will tell you however that even if it does involve a level of effort, it is still defined as a passive income so long as the level of work pales in comparison to the income generated. Dr Peter Kim defines passive income as “income that is not proportional to the time you physically put into acquiring it.” Typically, the work is done up front, with minimal ongoing efforts so that over time, you get out much more than you put in.
Cue property investment!
Building passive income with property investment
Property investment is a very popular source of passive income and for good reason. Owning a second dwelling either on your property or elsewhere unlocks ample financial opportunity. It adds huge gains to your property, increasing equity and upping the overall value of your land. But despite the guaranteed financial benefits, many argue that investment property isn’t always a passive income earner. In fact, the work involved readying a property for tenants and the ongoing upkeep and property management can become a big job if not done right. That’s why we’ve got some tips to minimise the workload so you'll reap the rewards and achieve a steady passive income with your second dwelling.
Building passive income with a rental property
With most housing data pointing to a housing shortage, a second dwelling as a long-term rental is a fairly sure-safe, guaranteed income. There’s high demand for rental properties across the country and an even higher demand for quality rentals.
According to Figure.nz these are the latest median weekly rent figures across the South Island and an estimate of the rental price you can expect to yield.*
- Tasman $510
- Marlborough $460
- Nelson $450
- Otago $450
- Canterbury $445
- Southland $368
- West Coast $260
*Data taken from November 2021.
For your investment property to be a source of passive income, however, the gains need to outweigh the work required. As a landlord, the biggest costs and labour are arguably maintenance and upkeep. Many rental properties will require much initial work to get the property up to tenancy standards. Buying older, existing homes will mean dealing with continual weather and mould damage, and general wear and tear that will require much of your time.
Offset this workload by investing in the right property from the get-go. A newly built home as a rental property reduces a lot of unnecessary maintenance stress further down the line. Historically, buying new would have required a larger upfront cost, but with existing housing stock prices being so high there is a parity in the cost of both options. And fortunately, with recent government initiatives to improve the quality and the availability of rentals, investing in new builds comes easier to investors than buying an existing home.
New build homes, such as prefabs, allow you to secure a new build home but at a much more affordable price point, with a much less stressful build process and at minimal efforts and property disruptions than that of a traditional build. That’s why many investors are looking to prefabs and transportable homes as their new investment property of choice and enjoy the minimal efforts involved right from day one and passive income potential for many years to come.
Building a passive income with an Airbnb
Platforms such as Airbnb, present an alternative opportunity for building a passive income with a second dwelling. When done right, a short-term rental can actually make more money than a long-term rental. For example, say you own a 1-bedroom unit. The weekly rent on a tenancy agreement is $200. But for that same unit on Airbnb, a fee of $150 per night can be charged.
Short-term rentals also pose other benefits such as flexibility. Renting out your property on a nightly basis allows you the freedom to choose when people can and can’t stay. If you have family or friends coming round for a holiday, you can offer up your dwelling for them instead. You call the shots!
However, the flexibility and higher income potential does of course come with higher risks, while Airbnbs are hugely popular, it’s important to note that higher rental fees must dissolve the additional costs. Cleaning fees, wifi (if you offer it), standard amenities, furnishings, potential damage and any complimentary items such as pantry staples and toiletries you choose to provide are all costs that need to be covered. Not to mention there is also no guarantee week on week your dwelling will be booked.
There are many ways however to take your Airbnb up a notch to competitively position your Airbnb above the rest and successfully achieve a consistent booking threshold. And over time, you’ll begin to see a great return on your investment.
But similarly to a long-term rental, for your short-term rental to become a passive income source, you need to make sure the work you put into your Airbnb is acceptable for the wealth you get out.
Here are some ways to increase your Airbnb’s passive income potential:
A massively time-consuming aspect of Airbnb is waiting around for guest arrivals and departures, key hand-over, and briefings. Cut out this time-waster, and opt for an automated check-in process instead.
There are so many options on the market from lockboxes to digital locks that there’s no reason you have to be there to greet your guests in person. Many Airbnb guests say they prefer to let themselves in than be greeted on arrival. So give your guests the autonomy to come and go independently, and save yourself the unnecessary hassle by automating this step.
Outsource property management services
Similar to a long-term property, the most time-consuming element to owning an Airbnb is management. And with new guests coming in each week or even each night, Airbnb management is a much more sensitive balancing act. If you haven’t got the time, and it’s financially feasible, it’s best to leave this up to the pros. Outsourcing property management services allow you to hand over the time answering calls, emails, and common coms that arise with each guest.
Additionally, if cleaning your Airbnb is something you’re unable to squeeze into your schedule, this is also something easily delegated to an external source. For some hosts, who oversee multiple Airbnbs or have a dwelling that doubles as a family bach far from home, hiring a local cleaner you can trust to pop in after guests leave can be ideal. Having them clean and prepare the place for the next people is a game-changer that makes owning an Airbnb less of a chore.
Lower the ongoing maintenance work
Upkeep is also a key consideration with a short-term rental. The less maintenance a property requires, the better. While an Airbnb property does not require the same level of standards as a long-term rental as per the Healthy Homes Standard, a quality dwelling that will last longer and require less ongoing maintenance and repairs is favourable to you as a property owner and more enjoyable to any guests using the home throughout the year. A newer property might also be more appealing to guests as they seek a comfortable, restful night away from home.
Automating, outsourcing, and lowering upkeep is key if you want to build a true passive income with your property. If you choose not to outsource, do what you can to automate your processes. Create clear guides for your guests, have email or message templates pre-created. Being efficient with your communication processes is a simple way to keep your guests happy and well-informed without taking up vast amounts of your time. But the same applies to the process of building your new investment property. Genius Homes uses a highly efficient production line to create your home on time and on budget without the added stress of you becoming a project manager on top of everything else you have going on.
The long-term dream for many is to establish financial security and a dream work-life balance by securing strong streams of passive income. While property investment, whether that be as a long-term rental or short-term rental, may not become passive income builders immediately, over time you’ll start building income passively with your second dwelling.
The prefab home process is uncomplicated and efficient. And quite simply, that’s why many people are opting for prefab homes as the perfect rental property solution. Invest your time and money into where there are the greatest gains and enjoy the outcome. By building a prefab with Genius Homes you’ll be able to enjoy the additional time, energy and passive income potential for many years to come.