Greetings Current and Potential Real Estate Investors!
Today we want to take a step back and look at the reason that all of us are so in love with investment properties by starting a series of the top Reasons to Invest in Rental Properties.
Many of you may own one or multiple rental properties but we also know that many of you are just very interested in getting into the game and want to know what all the fuss is about. But whatever your current status is there is one thing that should get your financial mouth watering above all else: Passive Residual Income.
The New American Dream
The name basically says it all but Passive Residual Income (PRI) is basically any income that you receive regularly that you do not have to directly work for. Lets just take a minute to let that sink in with some popular examples…picture yourself sitting on the beach in a tropical country sipping on a free frozen adult beverage. Where do you find these free beverages? Well if you find actual free frozen drinks please let us know but if you have PRI your drinks can be considered free because while you are drinking them you are actually earning enough money through your investments to pay for that drink and then have money left over to gamble at the casino!
OK OK we know some drinks are more expensive than others and some investments yield more than others but you get the idea.
Here is another one to think of, instead of working late and missing your daughter’s piano recital you can actually get home early and take her to the recital and then while she is playing you can rest easy and enjoy the moment because your bank account continues to grow while you actually enjoy your life.
So these are the realistic promises of Passive Residual Income and they are the NEW American Dream.
Is Investment Real Estate Income Really Passive?
Many scared people will tell you that investing in real estate is too much work, some may even describe it as a nightmare! And so how could this possibly be passive? Think of it like a money machine. You have to build the machine in order for the money to print, it doesn’t just fall out of the sky. But once the machine is built you only have to perform minor maintenance on it in order for it to continually print money. This is just an analogy please don’t build a money machine Uncle Sam will find you! But investment real estate is the closest thing to a money machine you can find because it would require initial setup work and costs and then it requires regular maintenance. So while rental properties are not completely passive (like winning the Lottery and choosing the annuity option) they are about as close as you can get.
But What if My Expenses are More than My Income From the Property?
If you buy a property with a mortgage than this may very well be the case for many years. And if you buy a bad investment property, one that has high initial and maintenance costs coupled with low rent than you may never make money off the property even when you pay off the mortgage. So you must be prudent in your purchase, put in your due diligence and get advice from other investors and real estate professionals. Know your comparables in terms of purchase price and potential rental income and above all know your CAP Rate (check out our article on cap rates). If you make an informed purchase with a mortgage you should be close a breakeven point or at worst out of pocket a few hundred bucks a month. But all the while you are building equity and so that expense is offset by the principal you are accumulating. You will also get major benefits to your credit rating which will increase your purchase power. So as long as your make smart investments, even when you are losing some money you are actually making money.
The Secret of Property Managers Makes Your Income More Passive
You had to know we would talk about ourselves at some point right? But this is more than just self-promotion it is actually sound business advice because for a small fee you can have a professional property management company handle the vast majority of the work for you. This makes your income even more passive because you are doing even less work. Basically with a good company all you have to do is make the decisions once you are given all of the information on any important issues that your property is experiencing. (we know a good one at RPMMiami.com)
So get our of your chair and take your slice of the American Money Pie and buy your first (or fiftieth) residential income property and then check back next week when we discuss reason #2: Leaving Assets to your Children
If you have any questions regarding this post or anything having to do with property management please contact us at 305-517-3900.
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