When it comes to balancing income and investments, every family does things a little differently. Determining the household budget, who works, and how the bills are paid is a highly personal set of decisions based on the capabilities and preferences of everyone in the household. However, one thing that every individual, family, and household should consider is the possibility of passive income. It’s a sad truth that most people don’t even realize that passive income is possible. We get head-down into working hard, building a career, and paying the bills without ever thinking about how useful and surprisingly accessible even a small amount of passive income through real estate could really be. the fact of the matter is that if you can save up the downpayment amount for a second home, you could have renters paying mortgage and then some in no more than a few months.
So why aren’t more individuals and families becoming investment property owners and bringing in casual passive income? While some may not care for the additional responsibility of becoming landlords, usually it is simply because it hasn’t occurred to them to do so. Here at Crescere Capital, our goal is to bring greater financial freedom to as many families as possible through smart real estate opportunities. To help with that effort, let’s look at five of the most important ways passive income through real estate can benefit you and your family.
1) Increasing Your Long-Term Monthly Income
When most families think about the possibility of buying a second house, the immediate fear is that the monthly drain for mortgage costs will become overwhelming, so this is what we’d like to talk about first. There is a big difference between buying a second home and buying investment property and, surprisingly enough, investment property is actually more accessible for families with perfectly normal incomes. The reason for this is because while a second home’s mortgage will weigh on your monthly budget, an investment property, if chosen and managed properly, can completely cover its own costs and add a little extra to your monthly income in terms of rent for decades after the initial purchase.
Here’s how it works: Your first investment property should probably be a small single-family home in a neighborhood with reasonable demand. Choose the home carefully and negotiate your mortgage so that the local rental price exceeds your monthly mortgage payments by enough to cover annual maintenance costs and the occasional emergency while still leaving you a little extra. The result? You are now building property equity and functioning as a respected landlord all while gaining money every month.
2) Protection Against Job Loss and Illness
Now that you understand how investment property can work for you, it’s important to see just how useful that passive income can be. Most people rely solely on the work they can do and the savings they can put aside in case of emergency, but few remember to plan for the possibility of unemployment. Unfortunately, layoffs, injury, illness, and other less universal circumstances happen all the time that can result in one or even both the working adults in a household losing their regular income.
However, being a landlord isn’t contingent on work availability or your ability to make the commute every day. If ever a time comes when otherwise you would be living on savings and scrambling to find another job, the passive income from real estate can make it easier to coast and give you the opportunity to look for a new position that will be a real step up in your career rather than a stop-gap measure.
3) Creating Income Options with Valuable Property
Another interesting aspect of passive income through real estate is that you don’t actually have to go the standard route. Once you own a home (or even commercial property), you can use it however you think will make the most income. You can use the building to start your own business, open a home daycare, run a boarding house for students, or get into the sharing economy.
One of the most popular ways to use investment property in the last five years is to turn a single-family home into an incredibly profitable ‘whole home’ Airbnb listing. You might be surprised what vacationing families and professionals on business trips will pay for a cozy private home in a quiet neighborhood rather than dealing with the hassle, cleanliness questions, traffic, and ‘convenience expenses’ of hotel stays. All you have to do is invest in furnishings, clean it between guests, and restock the towels and little soaps.
4) Planning for Passive Income in Retirement
One of the best things about buying investment property is that it will continue making money even after the mortgage is payed off. With a home you live in, no longer having to pay mortgage saves you money but with a rental property, the large percentage of monthly rent that used to go to maintaining the mortgage payments is suddenly landing in your pocket. This means that about the time you’re thinking about retiring and coasting on your savings and current retirement plans, your passive income suddenly multiplies wildly, especially if you have more than one investment property crossing over the mortgage line. It is, in fact, entirely possible to pay for your entire retirement on real estate alone if you plan correctly earlier in life.
5) Introducing the Benefits of Wise Investments to Your Children
Finally, never forget that property lasts longer than liquid capital and almost any other kind of inheritance. If one of your biggest concerns is having something valuable to leave to your children, there’s nothing better than property that already generates passive income. This is also the perfect opportunity to teach your children exactly what a wise investment looks like.
Get them involved in choosing the properties you invest in, talk about what makes a good investment and why the property will be able to pay for itself and increase your wealth at the same time. You might even consider keying their allowance to the real estate income so they can directly experience the benefit. This will teach your children to look out for good investment opportunities of their own which is an even better inheritance than the property itself.
Hopefully at least a few of these points have peaked your interest in turning your ability to save and make sound financial decisions into incredibly valuable passive income through real estate. For more information about how to find that first rental property and get started on the path to a surprisingly cushy retirement, please contact us today! Here at Crescere Capital, we’re always happy to help a new family find their way to passive income.