Owning a home can be more than just living in it. If you have an entrepreneurial mindset, or wanting to have one, you might have already heard of passive income.
Passive income real estate is known as one of the most effective methods to generate additional income, ensure retirement security, and finally plan for financial independence. However, passive income real estate investing is not necessarily the right fit for every investor.
What is Real Estate with Passive Income?
Passive income real estate is a strategy through which an investor can create earnings without having to be actively involved. The term “passive income” is used loosely, as the level of required activity and involvement varies based on the investment type.
It is a great way to make money without having to work hard for it. Rather of spending your days working for someone else, collect passive money while enjoying your life.
Here are some ways you can put you passive income to use:
• Make a college fund for your children.
• Create and grow your retirement fund
• Clear your debts.
• Obtain financial freedom
• Invest in yourself.
3 Different Ways to Create Passive Income on your House and Lot
You may be asking how you may generate passive income for yourself because of the benefits of passive income. Fortunately, there are a variety of ways that can lead to passive income. Take a look at the 3 investment opportunities that have the potential to do so for your house and lot.
1. You're the boss.
When it comes to real estate investing using your house and lot to generate a passive income, You get to decide which property to invest in, who tenants to rent to, how much rent to charge, and how to manage and maintain the property while it is rented to renters.
While investing in a stock or mutual fund provides you some flexibility (you may pick which stock or mutual fund to invest in), and liquidity, you are still giving someone else control and management of your money. As compared to having your own rental income, easy to manage and you can handle it on your own, most likely.
Of course, before investing in rental property, you'll want to figure out all of the cash flows. You'll need to weigh in all of your costs to guarantee that being a landlord is more likely to be lucrative for you. There’s this hack in real estate investing called the 1% rule, you might want to consider that as a guide especially if you’re planning to do a rental property business. After you've figured out your cash flow, you'll want to see if the numbers indicate you'll be able to earn a regular profit on the property before you buy it. [5]
2. Appreciation of your Property
Price appreciation in real estate refers to the increase in the value of a real estate property over a period of time. One of the goals of investing in real estate is to get a positive return on the investment when the investor decides to sell the property in the future.
The price appreciation of a property can depend on a variety of factors, such as the location, future development plans, the physical structure or the demand and supply of property in a given location. Property owners can also force appreciation of their properties by carrying out repairs and renovations on the property.
Let’s say you invest on a property with total contract price of 1,216,000 by June 2021 and it increases on July 2021 by 1,236,000. Your property value appreciate of 20,000 in just 1 month.
Let's assume that each year, for 10 years, your investment property will appreciate by 2%. Here is where the ability to leverage benefits you. The appreciation is on the entire 2,400,000 not only the 20,000 of your own money.
After 10 years, your property value would have increased by almost 1,184,000 pesos from June 2021. Thus, you would have turned your 1,216,000 investment into 1,184,000 property appreciation.
In the Philippines, real estate price appreciation ranges from 2% - 5% per year. Which is another reason why real estate investing is one of the best investments you could have.
3. Deductions on your taxes
As a rental property owner, you're entitled to tax deductions. The owner of a property must pay taxes, assessed annually by a state and/or local government, on the value of the property. A property owner can claim a tax deduction on some or all of the property taxes paid if they use the property for personal use and itemize deductions on their federal tax return.
The real estate taxes that can be deducted include taxes paid at closing when buying or selling a home and taxes paid to a county or town’s tax assessor on the assessed value of the personal property. Personal property, according to the Internal Revenue Service (IRS), may include a taxpayer’s main home, vacation home, land, or foreign property.
You can write-off:
Interest on your mortgage
Interest on credit cards used to make purchases for the property
Insurance
Legal and professional fees
With the advantages of turning your house and lot into passive income mentioned above, we can really start looking into these properties as something more than just a home – where we eat, sleep, or take a rest. These opportunities can happen as long as you know how to do and make use of the things you know.
Starting to invest does not always have to be expensive. With the right mindset, you can start small and then grow it later own. You can also take a look around you and utilize some things that you already have but don’t know how to make use of. If you’re currently a home owner, this could be something to kick-start your passive income earning journey. If you have kids, you could also teach them these as knowledge is one of the most important things for success.