Developing a strategy for passive income early in your career can provide you with significant funds later in your life. One of the ways for earning is through buying properties and renting them to tenants. Sounds easy, right? Well, it’s not rocket science, but as you delve into the mechanics of the real estate business, you will see that it is not a picnic either.
Before you venture into these deals, the marketing team at Upkeep Media, that’s been working closely with property managers for years, warns you should know that there are a few investing guidelines you should follow and risks you must avoid. Read on to discover a successful way of growing your passive income stream with rental properties.
What is passive income?
Some people call it “making money on the side,” others refer to it by “easy money.” Passive income is every single cent you make without being physically involved in the activity that generates profit.
The paycheck that you get from your workplace is active income. If you have a small business, the net profit is active income. Having a property where you do not live in, but lease out to renters is passive income.
Passive income is still subject to taxes and fees, but it is also a safe way of acquiring extra cash and save for rainy days. You can invest in real estate and use one or multiple rental properties to generate passive income. This strategy can be successful in the long-term if you do it properly.
How should I choose my rental properties?
Before investing in a rental property, you have to do some serious homework, which may take several months of research and negotiations.
There are several types of estates that you can invest in to gain passive income. One of them is buying turnkey rental properties, which are homes or office centers that are in optimal condition, and ready for the tenants to move in right away. This strategy is great for beginners since you don’t have to bother with home improvements or repairs prior to leasing it out to renters.
A second option would be to buy properties with high potential for commercial activity. These properties are either constructed for businesses or can easily be converted to office buildings. This type of rental properties will bring you more money since the rent is higher than residential estates, but purchasing them will also require more substantial funds.
If you’re on a tight budget, you can opt for buying low-income housing and vacation homes. These rental properties will generate a small income, while intermittent, especially if you lease out a holiday apartment, but it will still bring you a reliable source of income in the long-term.
What is the biggest risk to rental properties?
One of the biggest risks that you face when buying rental properties is investing in a money pit. This unfortunate scenario happens when you do not do your research properly. Money pits are homes that look good at first sight, but which require serious improvements or have a problematic tax history.
If you end up buying a money pit, you will invest more money than you had planned even before renting it out. In some cases, it can even spell the end of your real estate investments. You can prevent disaster by doing your research and consulting with experts prior to signing any contract for a rental property.
How much money can I make?
There is no exact amount that can predict the value of passive income you will receive. It all depends on the rental property that you purchase, its market value, and the mortgage interest, and so on. Your best option is to take every expense into account before deciding on the rental cost of your property. This strategy will help you cover your initial investment, and still bring a few bucks into your account every month.
Also, make sure that you can cover for taxes and unexpected costs that could surface early into your strategy. Very often, new owners of rental properties face unexpected expenses in repairs, maintenance, and insurance fees.
Do I need a property manager?
If you think that you cannot manage leasing out a property, but you still want to grow your passive income stream with rental properties, consider hiring a property management company.
Property management companies with solid experience and expertise in turning rental ventures profitable. At Real Property Management Greater Milwaukee, we ensure that you get the best possible price for your home when you lease it out and that the money you receive covers all costs and fees aside from generating some extra cash for your account.
The key is to set it up like a business and you are the business owner who works on the business, and not in the business. You need to systematize your real estate business and delegate as much as possible, among a number of things. This will help make a business like this succeed, and this will turn you into a true business owner, not just someone who owns your job.
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