Here are a few easy steps you can follow to live happily off rental income. Generating passive income from rental properties is not that hard, it requires a bit of dedication and effort. Some of the biggest real estate investors use these easy steps to be financially free using the rental income from their property. Rental income can give you and your family financial freedom. This means that you have more passive income (income that doesn't need to work) than expenses each month. Everyone can live indefinitely without returning to work. Rent income can only be redeemed if the rent exceeds the cost of the property. Even if you bring in a monthly rent of $1,000, but your property expenses are $2,000 a month, you will not be able to use your rental income for your living expenses.
How much do you really need to live off of rental income?
Before Investing For Life shows you the steps to your financial freedom. It is best to decide how much you will need to be able to live off , so you can have an amazing future. You must first assess the situation and determine the passive income you need to quit your job and live fully on rental income. The easiest way I've found to do this is by these steps:
1) Write down the amount you are currently earning?
2) Are you satisfied with this amount? In your opinion, how much are you comfortable (not rich, but comfortable)?
3) Add 25% to this number (for example, if you want to earn $ 100,000 a year, add 25% for $ 125,000).
4) Divide by 52 for example ($ 125,000 / 52 = 2403 per week)
Using this method, you should be able to assess how much you rental income you need to achieve financial freedom and replace your job.
How many properties will be enough?
Now you need to know how many assets you need to be financially free and profitable from your investment. For this purpose, we assume that you have paid off all your mortgages and that your loan has no debt balance. Follow these steps to decide how many properties you will need:
1) Select the amount of rental income that you think is achievable with the investment property you can buy.
2) Times 0.75 to calculate 20% of the expenses.
3) Divide the original weekly amount calculated above, by the weekly rental income figure you did in step 2.
4) Round your answer up and this will be how many properties you will need.
Finally how to live off rental income?
Save your deposit
You need to buy your first investment property before you even think about moving to your dream location. To buy your first investment property, you must first save your deposit. Read me top saving tips here. Also remember that there are many ways you can fuel your savings account. Just keep in mind that the first deposit is always the most difficult, and then the cash flow and equity from the first investment property can be used to assist in the purchase of the remaining properties.
Your first investment property
Now that you have a deposit, you need to go out and buy your first investment property. Whenever possible you should have properties with high rental yield and high capital growth potential. Remember, the ultimate goal is to grow your portfolio and then pay for the property itself, plus a little bit to fuel your passive income. When buying your first property, be sure to check if you are eligible for the first home buyers grant, this can help with some of the costs of buying a property. This could be the first step to covering the expense of your own mortgage or rent.
Grow your rental income
If you want to make a living on rental income, it will be extremely helpful to increase the amount of rental income that you enter. Rents naturally increase over time and there are things you can do to increase rental income faster than standard market growth. The great thing about investment property is that your income will almost always naturally increase over time due to inflation, but your main expense, your mortgage, will remain the same. This means that you can see an increase in your property's income without seeing a large increase in your exit expenses. Even if a negatively designed property to start your purchase soon can turn positive as the rent exceeds your mortgage and other ongoing expenses.
Buy properties with positive cash flow
The goal of minimizing our expenses and increasing our income was all with the goal of creating positive cash flow. Here your income is higher than your expenses and you can take the extra money and use it for your own purposes. Some people take their positive cash flow and use it to pay off their mortgage, others use it to invest in more real estate and grow their portfolio, and still others use it to finance their lifestyle. How you use your cash flow is entirely up to you, but cash flow is a great position. That means your property will pay for itself even if you lose your job (plus something).
Buy more properties using equity and cash flow
Now that you have your first property and you are maximizing its value and rental income, you will likely have the opportunity to reinvest some of your earnings into more properties. It is very difficult to make a living on rental income from a single property, so you may want to buy more properties and expand your portfolio. Learn more about owning multiple properties. Always be careful not to overdo it and always maintain a comfortable risk level. Seek professional financial advice before making investment decisions.
Hold your properties for the long term
By keeping your property long, you let it increase in value and make profit over the years. Due to inflation, rents will almost always naturally increase over time (assuming supply and demand remain constant). This increase in rental income improves your monthly cash flow situation. Your basic expenses (mortgage payments) remain relatively stable. Interest rates fluctuate, but if you don't borrow the amount again, it will stay the same. Of course, when your income is growing faster than your expenses, you have more residual income to live on.
Be sure to protect your assets
When you own multiple properties and rely on their rental income to pay your daily expenses, you will want to protect them from disasters. The proceedings can result in the loss of all assets if the 10 assets are not properly protected. Talk to an expert about asset protection. There are many ways to diversify your investment and use different legal entities to protect your investment from proceedings and disasters. These become increasingly important as the portfolio grows and the risk of litigation increases.
Investing For Life does not provide financial advice and this is purely for educational purposes. Investing For Life encourages to seek professional help before going through with any financial decisions. Hopefully someday we can all live happily without working.
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