Introduction

It’s practically universal to want to increase your income. Regardless of how much money someone has, they would still like to make more.

If you’re like most, you swap your time for money. Even highly paid, successful doctors and lawyers are limited because they have to trade their time in exchange for payment. Doctors can only see so many patients in a week. Their potential income is limited by time.

Passive income is money coming in that requires you to invest very little time. You may spend some time initially, while you’re getting it all setup. However, once it’s up and running, you’ll continue to receive income for a long time to come.

A few examples of passive income include:

1. Rental Income  

    

2. Dividends, pensions, or interest from investments   

    

3. Earnings from a business that doesn’t require your involvement (affiliates and silent partnerships)   

    

4. Royalties or cash from an artistic creation (a book or song you wrote, or even a painting)

Imagine the power of building a few passive income streams that will provide you with reliable profits for the next ten years, or even longer.

Passive income is one of the greatest ways to build wealth. You can create an unlimited amount of extra money in this way.

“Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.”

- Johann Wolfgang von Goethe

Rental Income

Most of us have purchased a home or condo at some point, but most of us haven’t purchased a property for the sole purpose of earning money. There’s a difference.

When you’re shopping for a property to live in yourself, you’re interested in certain features. However, these features may be irrelevant to you when you’re shopping for a rental property.

Check out these different types of rental properties:

1. Single-family homes and condominiums. These common properties are well-known by everyone.  

    

2. Multi-family properties. This includes everything from a duplex to a giant apartment building. These have some advantages over single-family homes because you can rent to multiple tenants simultaneously.  

    

3. Commercial property. Any building that’s zoned for commercial use would be included. You could be talking about a small barbershop, a giant shopping mall, or an office complex.  

    

4. Industrial. This would include factories and similar properties.   

    

Note:  Why don't Short-Term Rentals fit in here?  Because they are anything but passive UNLESS you hire a management company to run them for you.  

Getting Started

If you’re a first-time landlord, it might be easier for you to start with a residential property because of the familiarity. Commercial properties tend to boom and bust more dramatically, and they require a different level of expertise. Industrial properties tend to be quite expensive.

Choosing the best type of residential property to purchase can be determined by your location and interests:

1. Single-family homes and condominiums. These are best suited to areas with low purchase prices compared to rents. Determine if the money generated from the rental income is enough to pay the mortgage, as well as all the other expenses. Remember you want some profit leftover, too!

• The common expenses include: Insurance, maintenance (roof, painting, upgrades, and so on), property taxes, and management fees (if you hire someone else to manage your properties).  

   

• Look for homes with 3 bedrooms. Everyone that’s looking for a 2-bedroom home can live in a 3-bedroom, but the opposite isn’t necessarily true.  

   

• The most lucrative rental homes are typically in slightly lower middle class areas. This part of town will normally have solid rents, but the price of the property is quite low. Do the math on a variety of properties and you’ll find the best deals. Keep in mind that these areas may have poor appreciation though.  

   

• The real disadvantage of single-family homes and condominiums is vacancy.  When the property is vacant, it brings in zero dollars.  This is one of the areas where multi-family properties have the advantage.

2. Multifamily properties. There are several advantages to multi-family properties.

• There’s a decreased cost per unit. A building with four units will typically cost much less than four single-family homes. But, you can collect rent from four different tenants.

• Maintenance costs are potentially lower. For example, replacing the roof on a four-unit building will cost less than replacing the roofs on four different houses.  

   

• Vacancy is less of an issue. Having one vacancy doesn’t eliminate all your income.  

   

• There are disadvantages, too. In a single-family home (and a duplex), the tenants are normally expected to mow the grass and shovel the driveway. In a multi-unit building, you’ll be expected to take care of the maintenance responsibilities. Larger buildings will also require some onsite management.

We'll continue this article next week with "Profit Analysis" and "Getting a Good Price."

If you missed any other parts of this series, just click below to find them.

Passive Profits: Do It Once and Profit Forever - Rental Income (Part One)   YOU ARE HERE

Passive Profits: Do It Once and Profit Forever - More Rental Income (Part Two)

Passive Profits: Do It Once and Profit Forever - Dividends, Pensions, and Other Interest (Part Three)

Passive Profits: Do It Once and Profit Forever - Conclusion (Part Four)

Now go and grow! 

Michelle R Russell

© The Prosperity Process, LLC  

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