Nothing has demonstrated the fragility of jobs more than what we have been through in the past five years. Twenty-three million people unemployed or underemployed is something that even the most obtuse among us cannot ignore. This is not a political statement. It is a fact, and it is irrefutable. Maybe you are one of those 23 million. I can only imagine how losing your job has turned your life upside down. Unemployment compensation cannot replace a paycheck and although it surely helps, it is only available for a defined period. Passive income can be a buffer against such life-changing events.
The Passive Income Stream
All too often, the clearest insights we have with regard to our lives are seen in the rearview mirror. When you bought your first home, did you consider a duplex? I know I didn’t! After years of apartment living, I yearned for my own space and wanted to distance myself from that nosy neighbor with an ear pressed to his side of my bedroom wall. Looking in that rear view mirror, I realize that I could have purchased a duplex for just a little more than I paid for my single family home. Had I done that, someone else would have paid my mortgage payment for twenty years, and I could have invested the savings in another duplex or other passive income opportunity. It’s too late for me, but not for you! Real estate is a form of passive income virtually everyone is capable of achieving. If you buy a single family home, you are a chump! I can’t put it any plainer than that.
So, Passive Income is a Sure Thing?
Whoa! Not so fast, cowboy! Only two things are sure in life, and passive income isn’t one of them. Sadly, there is an element of risk in any investment. That’s why you get a return on your investment. That return is your reward for taking the risk. You cannot eliminate risk, but you can mitigate it. You can even find entire corporations that are built on the concept of risk management.
How Do I Manage Risk?
Using the duplex as an example, the first thing you should do is establish what you, or you and your spouse can afford as a monthly mortgage payment. Consider only 50% of the anticipated rental income from the duplex in your calculation and consider only 150% of your combined household income. This will minimize your risk if the rental is unoccupied or needs repairs and will provide you breathing room in the event you or your spouse suffers a job loss. Then, buy in a stable neighborhood that has good schools, access to public transportation and convenient shopping. It is the location, location, location thing.
Next, make certain you perform your due diligence on the condition of the property. Ask yourself, “Will it need immediate repairs? What repairs will it require in the future and are these costs manageable in the context of my income? Finally, research the property tax and insurance costs. Is anything in the wind that might cause property taxes to rise, such as a proposal for building a new school or adding a new gymnasium? What are your insurance costs considering the rental portion of the property? You must take these steps to mitigate or reduce your risk. If you follow this advice, you are starting in a good place and while no one can guarantee success, you are, at the very least, on the safest path to a passive income.
Some Basic Skills that Will Help
The landlord’s role is not a good fit for everyone. You need to have some solid “people skills.”
You need these people skills to deal with tenants. You must also pay attention to detail, avoid procrastination, and show empathy. If you are too sympathetic, you will end up as a doormat on the stoop of your tenant’s entryway. If you cannot honestly say that you possess these attributes, being a landlord is going to be tough for you. Honest introspection now can save you considerable grief later. This passive income stream is a home run for the well prepared.
Are there any landlords reading this post? We encourage you to share your thoughts, suggestions, and experiences in the comments section.