How Real Estate Investing Generates Passive Income

How Real Estate Investing Generates Passive Income

There are many investment options out there. For example, you could invest in stocks, bonds, or mutual funds and get a return investment of roughly 5 to 7 percent. However, when you invest in the stock market, you do not have much control over the outcome. For those looking to have more control over their investment, an excellent option is real estate investing. 

Real estate investing allows people to gain passive income. Passive income is basically income you receive without doing any work to get it. Investing in real estate allows you to generate passive income in a number of ways:

Steady Cash Flow

The tenants in your rental property that you have purchased will be required to pay a monthly rent. This monthly rent has the possibility of being higher than the monthly mortgage payment that you will be paying. As a result, you could be making money from the tenant’s rent each month and have a steady cash flow.

 

Instant Equity

The housing market is very competitive and expensive at the moment. However, if you luck out, you can get a property that is below market value and an appraisal higher than the price you paid. Obtaining this could grant you instant equity. In addition, you could sell the property to get money back fast or just hold onto it.

 

Increased Value

Before investing in real estate, do your research to find a market that has the best potential for growth. Also, look to see who else has invested in that market. The value of your property could increase depending on how its housing market is doing.

 

Paying Down the Loan Principal

The cash flow you receive from your tenants can go right to paying down the loan principal. This accounts for about 80% of the value in regular loans. There are no other investments that can offer values as high as this for a low rate.

 

Tax Write-Off Opportunities

In real estate investments, there are a few possible write-off opportunities you can take advantage off. For instance, you can get write-offs for property management, mortgage interest, and maintenance. The 1031 Exchange allows you to get a tax write-off. This purchasing option permits you to trade an investment property for another while avoiding any taxes on the income of this sale.

 

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