Passive Income: The Pros and Cons of Rental Income, Part One

Have you ever sat down in your home, put up your feet, stretched your arms out behind your head and wondered what it would be like to make money without working for it? Passive income is a form of income that you can make with minimal effort on your part. We’ve already discusses gaining passive income through publishing royalties, but this article is all about gaining a passive income as a landlord.

Rental Income

Rental income can be a lucrative type of income if you know what you’re doing. Just deciding one day to take out a mortgage on a rental property because you have the hankering to make a few extra dollars a month probably isn’t going to be the best decision. Becoming a landlord is actually more work than you’d think. If that’s the case, why is rental income considered passive?

Well, being a landlord doesn’t have to be a full time job. Many landlords, especially ones that have years of experience, know how to manage their properties without much effort. If something breaks, they know to call someone to fix it. If tenants are having problems with one another, they pretty much stay out of it unless property damage is likely. If the building catches fire, they know to file an insurance claim quickly in order to get their passive income train back on track.

Basically, there are pros and cons to using rental income as a form of passive income, and since they both require a bit of discussion, we will break this article up into a two part series.

The Power of Pros

Rental income as a form of passive income has several obvious pros:

You Make Money – Obviously, if you are renting out a property you own, you have the potential to make a decent passive income, depending on the amount you owe each month in mortgage, insurance, and taxes. The best idea is to charge at least 50% more than you need. Even if it doesn’t give you a whole lot of profit, you can put that money back for property upgrades, which may make you more money in the future, for emergencies, or for those months when the tenant is late with a payment.

You Are Investing in Something Good – The US real estate market has seen better days (like when pioneers raced out West and planted flags in the ground to claim their acreage), but property is one of those things that, when taken care of, can result in many years of income returns. Why? Well, with growing populations, more and more people need places to live. If you make your property the best of the best, chances are that you will have people racing to ask you about the ad you placed in the classifieds for tenants.

You Can Grow Your Income – This is one of most important pros you should consider—you can literally turn your money into more money if you know what you’re doing. If you are smart and you put some of that passive income into the investment market, you can, if the market is right, make a considerable amount of money. What should you do with that money? Well, you can grow your money by purchasing more rental properties and starting the cycle over again. Don’t look at your rental property as an anchor tying you to your source of income, think of it as a way to grow your money without actually having to work for it.

As you can see, there are many wonderful pros if you choose to make a passive income through rental property. You can certainly make a great living as a landlord, but to every pro there is a con, which you will learn all about if you read the second part of this two part series.

Do you know of any other pros when it comes to generating income from rental property? 

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