The benefits of Passive Income

Becoming a landlord can give you a great stream of passive income, but it still takes a lot of hard work—not to mention the money you'll need up front.

One of the most common reason why investors buy into real estate is because of it’s the ability to generate passive income. The idea of not working and yet receive money sounds great but do you fully understand how essential this is in our lives?

Well, lets start with the definition of Passive income and based on investopedia, “Passive income is earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved.

The key word I want to highlight to you is ‘actively’, because the truth is that you would still need some level of involvement to receive passive income and when done right, these are 5 benefits you will receive from it:

1. Extra income: This is probably the most obvious benefit because who doesn’t like having an extra bit of cash every month. You use it to pay off your liabilities, build up your savings, list can go on.. or spend it guilt free on anything you want because you’re not taking money from your income through work.

 

2. Security: Think about your biggest concern when you get laid off. Most will certainly it will be money to eat and pay off your bills. So if you lose your job for whatever reason, wouldn’t it be nice to have some decent money coming through every month while you ride through the tough times.

 

3. A hedge against inflation: This is specifically so for passive income derive from rental properties. Very obvious benefit because if you’re a landlord, you’ll naturally have to increase your monthly rental every other year to keep up with the pace of inflation.

 

4. Improves your ability to get a loan: Most banks see passive income from property rentals as a proper source of income as long as your tenancy agreement is officially stamped and backed by a bank statement. Thus when the banks are assessing you for a loan, passive income will improve your debt service ratio and get you better terms.

 

5. Lifestyle: This is the ultimate benefit and end goal in life. To be financially free so that you can design a life exactly the way you want it! If you don’t care about lifestyle, you can just stay at your current job and work the required fix hours.

 
 
For me, the lifestyle benefit is why I have positioned myself to work on building up Property Pinpoint and my real estate portfolio – the income from these two is planned to continue investing into more real estate and build up more wealth.

On a final note, I just want to point out that there isn’t such a thing as true passive income. I have put in alot of work, sacrifices and risks in the beginning of my real estate journey and I’m just starting to see some of money coming in. Moreover, I know that I cannot completely remove myself from my investments if I want to continue receiving all the above benefits.

In my next post, I’ll share with you a little tip on what I’m doing to collect additional passive income on one of my properties – Stay tune.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>