Investing can feel pretty distant. It’s hard to imagine the tiny fraction of Disney or Google that you own, your savings accounts can look a lot like a bunch of numbers with no meaning and mutual funds are about as easy to conceptualize as advanced trigonometry that’s taught in the original Greek. That’s why a big part of building a savings plan you can stick to begins with finding one you understand. Passive income is one such simple concept. It is a valuable addition to your wealth-building strategy because it can put cash in your hand every month while also being tied to something tangible, like real estate.
Through passive income, you can develop a variety of ways to get paid every month with little or no day-to-day effort on your part. One of the most traditional ways to generate this kind of income is to own a rental property, because you then receive a rent check every month while only needing to occasionally call a maintenance professional or list the house for rent every couple of years. The benefit is obvious – if the rent you charge is greater than the cost of the mortgage, insurance and incidentals, you’ll earn a profit every month. It might not be a large amount of money, but you’ll build equity along the way, and you can always sell the house at some point down the road.
If you’re young and trying to figure out a retirement plan, owning a rental property can be fantastic because you’ll earn a few bucks every month, which will eventually turn into a larger payday on a regular basis when you pay off the mortgage. If you plan it right, this can be right around when you retire so you have retirement income without having to sell any stocks or liquidate any accounts. Also, if you ever hit a rough patch or need to raise cash for another investment opportunity, you can sell the house. If you’re looking to get a great rate for a rental property, you can even use the equity you’ve got in your current house with a home equity loan, locking in a fixed rate while mortgage prices are at historic lows.