How to earn passive income from your rental properties.
January 30, 2020
Most people would love to make a living by earning passive income. However, they also may be stuck on the idea of how to do just that. Bringing in money every month while doing little to no work may sound surreal to many, but it is possible. One way many people earn passive income is through rental properties. But it will take practice and time to turn your rental income into truly passive income, and here’s how you can do it.
If you’re considering purchasing a rental property to earn passive income, there are a few things you should consider. Firstly, you should be 100% debt free in addition to having an emergency fund that will last at least three months. Also, you should be aware of the high probability of having a terrible tenant at some point. You may have to deal with bad tenants who vandalize your property, fail to pay rent, and even refuse to move out. These factors may lead to you getting sued and having to spend your valuable time wasted going to court to fight suites and evict bad tenants. Of course, all of these events can be avoided by putting in more effort to find a quality long term tenant from the start.
One of the best ways to find a quality tenant is to do a thorough background check of every person who will be living in your home. This can include performing a credit report and criminal background check, calling current employers to verify income, and getting references from previous landlords, just to name a few. Of course, there are also free property management sites like Trintals that can make your life easier by providing bundle screening reports.
If you want to live completely from passive income then you should consider what level of income you need to live comfortably. Of course, the most important thing is to always have more cash inflow than outflow. So you should factor in monthly maintenance expenses, property taxes, emergencies, et cetera. After you determine your income after expenses, you can calculate how many properties you need to buy and at what value to earn the monthly income you desire.
If you will be buying your first rental property you should look for a property that is priced below market value. A modest property would be safest. You should also consider the location because properties near reputable schools tend to have higher appreciation than properties in lower-priced areas. A modest home in a good location will also attract better tenants, so you can avoid the nightmare that comes with renting to a bad tenant. Another thing you should consider as a first-time buyer is foreclosure properties, as they can often be a great deal if you plan to renovate and resell fast. Make sure to do proper research to find a property with good cash flow. If all of this still seems like too much effort, then you could even consider investing in REITs instead. By investing in rates you can earn passive income through monthly dividends, but there is always some risk to consider.
You can probably tell that managing a rental property takes some work, so it is not truly passive. However, you could make it 100% passive by hiring a reputable property manager. Just keep in mind that on average, at least one month’s rental income every year will be lost to management fees. If you would rather hang on to that income and still minimize the time and energy you need to expend, consider using a web-based, self-management platform such as Trintals.com. You will find it surprisingly easy to manage your own rental business and you’ll probably never get tired of paying management fees, to yourself!