How to Earn Money While You Sleep as a Landlord

Posted in Blog  
  on Jun 30, 2016

For many millennials completing college, reality strikes with an ugly blow. After years of studying towards their dreams, the truth can be stark. Numerous people are left wondering what went wrong, with no idea how they will ever afford the typical American lifestyle.

Image courtesy of gcrealtyinvestments.comHeavy debt from studies, coupled with high expectations from family and friends, places an unfair burden on individuals to accept a less than ideal career path and little time for outside pursuits. It is no surprise that people are rebelling against these expectations and looking for an alternative.

As this tide of millennials looking for a different way of life grows, people are turning to real estate as the answer. They are discovering that it is possible to develop a healthy stream of passive income through investing in rental properties. In their role as landlord, they have far more control over their life, and with a little ground work, they are discovering that the life they had dreamed of may still be within their grasp. The great thing is that this technique isn't limited to Millennials.

Why Is Passive Income So Appealing?

Image courtesy of copticnationtemple.net“Passive Income is money that you earn without having to work for it. When you earn interest on a savings account, you are earning money passively; it accrues whether you’re working or not.” ~ J.D. Roth

Passive income is simply a stream of earnings acquired without exchanging time in hours. In other words, money that comes to you, without you doing work for it. Once the structure of the particular business is in place, the income will continue to pay, with minimal (or even no) effort on the part of the owner. It is, of course, a great idea to include a passive income flow as part of your overall retirement plan.

When it comes to real estate, a passive income is achieved through acquiring properties and then renting them out. The rental income should cover the costs of paying the mortgage, as well as insurance, management fees and any other maintenance requirements.

Being free from the burden of exchanging your time in hours for money allows you to be in control of your life. Many have successfully set up passive income streams, allowing them to pay off crippling debts, enjoy additional travel opportunities, engage in an enviable work-life balance and even retire at a young age.

How Is This Different from Flipping Homes?

Building a passive income through real estate is different from a business involving flipping homes (in other words buying property to fix up and then selling quickly for a profit). Investment in rental property is a longer term strategy, which is generally less risky than flipping homes.

Image courtesy of anderson-schuster.comWhen buying property to sell, there is a lot of work and stress involved that can’t be considered passive since a considerable input of time is required in order to make a profit at the end of the deal.

Becoming a landlord certainly involves time at the beginning of the process. Finding the right property, screening the tenants etc. requires effort in the beginning, but generally once everything is in place, the income should stream in regularly without hassle.

Investment in property provides gains in the long term as property value grows with generally better outcomes than investment in stocks. When you consider that this asset growth occurs in the background, while the rental income provides real cash in the present, it becomes an attractive proposition.

How Can You Afford to Invest in Real Estate?

At first glance, people are put off by the perceived high barriers to entry to becoming a landlord. But, it isn’t as difficult as you might think.

Several companies offer affordable mortgages and with in-depth research you can find competitive deals. It makes sense to speak to a broker to find out the specifics of the loans that are available and then be ready to negotiate.

When it comes to choosing a property, know your maximum price and keep a cool head to avoid paying more than you should. You should aim to purchase property below market value, an achievable goal if you are armed with the right information.

The secret to a good rental property investment is to conduct thorough research into the area you would like to purchase, looking at what is already being rented and the figures involved there. House sale prices are readily available, and you can find out average rental rates quite simply. It can be useful to pose as a potential tenant to enable you to see what is on the market and learn from landlords, too.

If you find that conventional funding routes are not an option to you for various reasons, don’t give up. There are various other ways to raise capital, including finding a silent partner who is willing to invest privately or investing in a Real Estate Investment Trust (REIT). This fantastic option allows you to take the first step into your landlord career.

How Much Income Does Rental Property Generate?

Image courtesy of investorsmortgage.com.auRental property is a real way to generate passive income, but just how much is a question that needs to be looked at carefully. It is wise to consult a financial expert in order to map this out accurately, but here are the basics.

You will need to create a financial forecast, looking at the costs involved in purchasing a property, alongside the income, paying special attention to the cash flow.

After balancing the initial purchasing fees, monthly mortgage payments, expenses, taxes, insurance and repairs against the monthly rental income, you should be able to identify your passive income for a single unit.

It is unlikely that the income from a single unit will be enough to set your goals alight - so once you have the single unit income amount, work out how many times you will need to multiply it in order to achieve your desired income. A very rough estimate is that 10 properties will bring in $5,000 per month.

This is, of course, only going to provide you with an estimate, as unexpected costs do arise and occasionally tenants don’t behave as we would hope - but with allowances made in the “costs” for such discrepancies and adequate insurance in place, you should find that this figure is a good indicator of your income stream.

Is Rental Income Really Passive?

Is it really accurate to say that rental income can be passive, considering the amount of work and research required in the early stages?

I would say 100% yes, as the ongoing work involved is minimal and can be largely outsourced. It is hard work to start with as it is vital to make the right choices for a successful long-term investment strategy, but once that is done, you can pretty much sit back and relax.

Image courtesy of nostalgic-art.co.ukMost landlords set up systems allowing their rental business to run smoothly even while they are relaxing on the beach! Fixing up the house can be outsourced to contractors while you simply oversee the process. Once that is accomplished, there are fantastic companies dedicated to property maintenance who will run routine inspections on your property and handle any repairs that are needed. This frees you up from sourcing last-minute contractors and worrying about the workmanship and rates they charge. Maintenance companies develop relationships with multiple contractors, so you are unlikely to be overcharged or mistreated

Additionally, you can outsource the tenant management as well. This can include sourcing and screening tenants, drawing up and signing contracts, obtaining deposits and even dealing with late payments and evictions. These are the aspects that several landlords find the most stressful, so for a monthly fee you can conserve your energy and hand this over to a professional company.

Of course, for both property maintenance and tenant management, you should do your homework before deciding on what company to use. Ask for referrals and speak to other landlords to find out their experiences with the various companies. The monthly rate may be negotiable as well so don’t just sign up with the first option you find.

Summary

The initial work required to “set up” investment in a rental property can be difficult, there is no denying that. It is essential to make early decisions carefully, after substantial research - but the potential to bring in serious passive income once the systems are in place is huge!

This is a great option to consider if you want to enjoy more free time without the pressure to work constantly simply to escape debt and make ends meet. Making an investment in rental property has risks, as with all forms of investment, but it can provide the money to live life on your own terms in the short-term, while building your capital wealth over time. Isn’t it time you looked into it?


Related

Fair Housing Legislation: A Primer

The Fair Housing Act was first adopted in 1968 and covers most housing in the United States. In 1988, the U.S. Department of Housing and Urban Development increased its power to enforce the... More


How to Write a Lease Covering All Bases

When it comes to writing a lease, every state and locality has its own set of rules and regulations. Nonetheless, there are certain general guidelines which you should follow to protect your interests... More


5 Home Repairs To Handle for Your Tenants

Your tenants have needs -- including maintenance on the space that they rent from you. If you’re lucky, you have reliable contractors who are always available when your tenants need them.... More


What Makes a Good Landlord Insurance Policy?

  Before renting out your property, you should purchase a landlord insurance policy. Unlike a homeowner's insurance policy, a landlord insurance policy will protect you from common... More


The Millennial Rental Market Trend Report

Millennials now make up just under one quarter of the total population of the United States. Compared with previous generations, millennials are much more likely to rent their homes rather than owning... More


Rental Property Deductions

Owning a rental property means that you are a business owner and property owner at the same time. Because of this, the owner must be aware of key rental property deductions that you can take every... More


Rental Property Deductions

Owning a rental property means that you are a business owner and property owner at the same time. Because of this, the owner must be aware of key rental property deductions that you can take every... More


Section 179 Deduction Rental Property?

Depreciation is one of the nicest aspects of owning a rental property. Over the course of 27.5 years, you can take out the true value of your investment until you completely recover the amount you... More


Section 179 Deduction Rental Property?

Depreciation is one of the nicest aspects of owning a rental property. Over the course of 27.5 years, you can take out the true value of your investment until you completely recover the amount you... More


Self Directed IRA Rental Property

Most people let a third-party manage their IRA, but this doesn't have to be the case. A self-directed IRA might not be very well known, but it is an effective way to build up a nice nest egg for a... More