What’s the point of working your entire life just to get by? Some people can work their entire adult lives and not make enough money to afford retirement. Others, can make a tremendous amount of money, work ridiculous hours, and never have the time to enjoy it. What is the key to making enough money that you have some to enjoy, while be able to spend time enjoying it? The key is passive income.
Passive income is basically where you make money by putting less and less effort into the venture. For the most part, this will not allow you to get rich quick, but it could potentially allow you build wealth for the future. Although there are several types of passive income, one of the most common and least complex is renting property for income.
Renting properties is not for everyone, there is a high level of stress, and there are a number of risks, but for the right person, there are a lot of opportunities. Rental income is a type of passive income referred to a residual income. Residual income means that you put work into a project upon start-up and reduce the level of effort as time goes by while maintaining a steady income. Now, let see how this can be put into motion for rental properties.
First, do your research! Before signing a contract, talk to people, ask questions, and don’t move too quickly. The keys to successful property development include, timing, financing, and organization. The best scenario for buying a property is to buy low, rent high. The perfect time to buy an investment property is when interest rates are extremely low. Several decades ago, when interest was next to nothing, people borrowed money to buy properties in large cities like New York City. Over time, these investments made them hundreds of millions of dollars. This is exactly the scenario you want, but likely on a smaller scale. If you have the opportunity to borrow money with low interest, this will increase your potential profit. If you have the money, then you’ll need to find the place.
Finding the right property is not easy. This could take some time, but it will be worth it in the long-run. Find a property in an up and coming area, as location will have an impact on the rent that you are able to charge. The property should have a solid base (ie. bring someone who knows housing to view the property with you). In a perfect world, the property should only require cosmetic changes. Being that this scenario is not overly realistic, be sure to have a budget for the unexpected. If possible, looking for properties in foreclosure, or situations where real estate is a buyers market. This will ensure that you can really negotiate to get the right price. When you are viewing houses, do not think about the house as if you are going to live there, think about the potential for profit. The more bedrooms, bathrooms, yard space, and amenities the property has, the more you will be able to charge. Before signing anything, get an idea of the rent that you would need to charge in order to earn a profit. Consider the mortgage, taxes, insurance, and upkeep in your renting point. Then, be sure to look in local area guides on rental properties, this will give you a good sense of the potential for rental income. For example, if people are charging $600/month for a 3 bedroom house, and you were looking at charging $800/months for a 1 bedroom, this may not be the property or the area for you.
Once you have your place, and you have likely spent investment money improving the property, find the right renters. Do your homework, check previous tenant/landlord relationships, and do a credit check. In the short-run, this may seem like a lot of work, but once the initial investment and work is done, you could be benefiting for years. While doing so, the value or your property and wealth increase steadily. If you are successful, renting properties can be a great means of passive income.