There seems to be no end to people who will tell you that Real Estate is the best investment a person can make. Recently, those people meant that in a “flipper” kind of way. Buy low, renovate cheap, and sell really, really high. At the time, real estate was gaining value at ridiculous rates. Sometimes gaining as much in a few months as it would have normally done in a year before. Most of that has come to an end. There are plenty of people who were “flipping” that are not doing so well right now.
All that craziness may give some people an amazing opportunity for passive income. Using real estate for passive income is simple. Buy affordable, rent for more than the mortgage payment. Well, it sounds simple. There are lots of things that you have to take into account. If you already own a house, you probably already know that. Costs of maintenance, taxes, repair and even vacancy must be taken into account. Each of those things are still your responsibility if you rent the house out.
While none of them individually is much, added together, they can be quite the burden. Depending on your location, taxes can add thousands per year. Even if it’s $1200, that’s an extra $100 a month that you need to account for. Your average maintenance won’t be much, but lookout for the big breakdown. The water heater will pick the most inopportune time to go out. Having a escrow account for such things is necessary. Depending on how much you plan on making the account total, this could mean a negative cash flow for several months. And then there’s vacancy. Nobody wants to think about vacancy, but you really must. You have to have a plan for paying all the bills for the house if there’s nobody living there.
As you can see, there are lots of potential pitfalls to using Real Estate for Passive Income. Of course with higher risks can come higher returns. If you are careful in your selection of property, you could stand to have a source of income that will last as long as you own the property. Eventually, as you pay down the mortgage, more and more of the rent income becomes real income. And don’t forget that each payment you make on the mortgage increases your equity in the property.
Real estate is probably one of the best, if not the best, option for passive income. Not only do you get a passive income stream, you get a tangible asset that can be sold later if need be.
[tags]passive income,passive,real estate,flipper,rent income,mortgage[/tags]
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But it’s not really passive is it? I mean “passive income” is really a misnomer when you stop to think about it. No matter if it’s real estate, divedend stocks, or a blog with google adsense, all of these things require some form of time and effort.
That’s just one reason why I don’t like the term “passive income”, it gives the wrong connotation.
I think that the definition of “passive income” isn’t necessarily that it’s 100% passive all the time, but that it may have some work to begin with to set up, but once you have it set up, it’s nearly self running with little to no effort.
I agree real estate is by far the best “passive income” source that can truly make the average or even the poor truly wealthy over a short or long period of time. I am making my journey now towards that goal of passive income through rental properties.
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