Rental properties are an income-crating investment that will help with reaching goals of financial independence. With enough, you can quit your job and spend time with your family, travel, volunteer, or work at a not-super-high-paying job that you like. But, do they create truly passive income?
Well, the answer is not every month. Sometimes, it can take a while to find the right tenants, and there might be maintenance issues, property emergencies, and also some repairs, and you may get bad tenants, and in that case, it’s definitely not the most passive income.
So how do you maximize the passiveness of your rentals? Well, read on to find out.
First of all, more cash flow means better options. Your march towards being passive starts before you even get a property. You must only invest in properties with a stronger cash flow because good cash flow comes with the option of getting a property manager that handles it. If you advertise vacancies, screen the tenants, sign the leases, get the rent, and handle repairs, and you can get that handled by someone else if you can afford it. A 1000/month rental that only nets 200 dollars in cash flow won’t cut it, and your entire cash flow would go towards the manager, so you won’t’ have repair costs, accounting costs, vacancies, and the like.
It means a whole lot more if you have your work invested upfront, and a more difficult hunt to get properties with an amazing cash flow. Be sure to calculate the estimated annual repair costs and the capital expenses, the vacancy rates, property management, and accounting fees, and other overlooked costs. If the property has good cash flow, then go for it.
Also, avoid the slums. The low-end housing often means low-end tenants, and they will be difficult, time-sucking, won’t pay rent on time, if at all, and you’ll have to deal with them in court, and they won’t be treating your property right. Affordable housing might seem like a good idea, but you’ll be branded by others as a “slumlord.” Do you want that? Nope. Instead, go towards middle-class housing where you want the rental income passive instead of being a mess.
Finally, screen your previous tenants, and make sure you really screen them. they’re a by-product of leasing tenants who are good, and they pay their rent every month. Finding good ones does mean getting a little extreme, whether it be credit reports, criminal checks, also run eviction history reports, and call up their employer or direct supervisor, to find out what type of people they are. You should, if they exaggerate their income, not least to them. If they lie about the little stuff, they can’t be trusted with the bigger issues. Do spend time screening your tenants.
Being a good landlord involves doing the right thing, and if you want to create a truly passive income that will help you, this is the way to do it.