Earn A Passive Income For Life
While being a landlord may be freighting to some and comes natural to others, history has shown that the best method to build wealth in the US is to own real estate that can generate passive income.
What is passive income? Passive income is money you make without exerting any effort or spending time generating it. Passive income examples are rents made from leasing property, dividends made from holding company stocks, and/or owning a business that you do not manage on a day-to-day basis.
Imagine for example that you have $20,000 in cash. That equates to 20% of $100,000 which would be the minimum down payment on a $100,000 property. By purchasing such property, you’ll be expected to pay a mortgage of $315/month. Take into account an additional $150/month for property tax, and another $100/month for maintenance and HOA, your all-in cost would be $565.
Now let’s say that this property is a 2-bedroom, 1 bath apartment unit in a decent area that rents for $1,100 per month and you lock in a tenant for a 24-month lease.
That equates to $535 of passive income per month (for life, if rent never increases or decreases). This is practically free money! Notice that in this scenario, the tenant is also paying down the mortgage on the property. This results in added equity in the property (more free money).
Tax Advantages
Did you know that owning real estate that is used as an investment property offers many tax benefits? By tax benefits, we mean tax write-offs and scenarios that lead to paying $0 in taxes on those properties.
Let’s take a look at the example of the $100,000 rental apartment described in Section 1. Let’s assume that this property is in a 3.0% property tax zone. Therefore, the estimated yearly tax due to the county will be $3,000. What if we tell you that according to the IRS property depreciation rules, the property “loses value” at a steady rate for 27.5 years. This is called depreciation.
Why did we put loses value in “”? Well because we all know that property typically appreciates and “gains” value. However, according the IRS depreciation rules, it loses value.
What does this mean? This means that at the end of the tax year, you can claim a depreciation loss on the property that will, in most cases, offset the property tax due ($3,000)1. This results in not having to pay the property tax and saving the $3,000. Saving this money is more free money in your pocket.
Can you see how this tax advantage can generate an infinite return on your investment?
- The specific tax benefits you will enjoy may differ from other investors, so be sure to consult your tax accountant for specific advice.
Increased Cash Flow
Going back to the first benefit, earning a passive income for life, did you notice how easy it was to generate the $535 of passive income per month? Can you imagine having three or more properties that generated a similar amount of return per month?
Not only will you have increased your net worth, created passive income, but now you also have increased your cash flow. This added cash flow can also be reinvested in more assets. Banks and lenders will consider this cash flow in your gross income calculations resulting in higher approval amounts for loans and mortgages.
This is how you can take advantage of this snowball effect to build wealth, which we will discuss in more detail in item 5.
Title Ownership For Free
Using everything we learned so far about the benefit of investing in real estate, we can clearly see how rental properties with good tenants can pay for themselves, generate passive income, increase your cash flow, and begin to build real wealth.
Now consider you’ve had a property for 10-15 years and it is nearly paid off. Who paid for it? The Tenant of course. This results in FREE title Ownership. Someone has purchased a home and gave it to you, for FREE (well minus your initial down payment and closing costs).
Starting young and early can have an exponential growth affect on your portfolio. You can begin owning property at the age of 18 and the sooner you begin, the more time your properties will have to mature and generate higher cash flows and increased passive incomes.
Remember the saying “Its never too late”? This applies in real estate investment and wealth creation as well.
Create Everlasting Wealth
So, you went to college or a prestigious university. You graduated with student debt. You took on your first job and began working in the 9am – 5pm corporate “American Dream”.
Now what? Do you stay in the rat race and continue to work till retirement age? Will you have enough money saved up to retire? What if the answer is no? Then what?
By starting to acquire real estate property as an investment at an early age, you ensure that you’ll have a steady and secure passive income to cover all your expenses by retirement age. You’ll also have high equity in real assets that can be passed on for generations, creating everlasting wealth for your family.
