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If you have been looking for a way to generate a steady income that will grow, then real estate investment may be just what you need in your financial portfolio. When you become a landlord and collect rent, you can supplement your lifestyle with passive income that will set you up for lifelong financial security. The profit you earn from rent payments is categorized as passive income, which gets taxed less than ordinary active income. This is good news for anyone who wants to keep more of their wealth, especially as they get older and plan to retire.
Image by Phil Roeder / Flickr
Passive Income Helps You Work Smarter, Not Harder
The net profits you collect from rent are classified as passive income, or income you are not actively involved in generating. Passive income will be taxed at a fixed 15% rate regardless of how much you earn. Therefore, even if you make over $100,000 a year and get taxed heavily for your regular salary, all the passive income you generate from rental properties will be taxed at the lower rate. If you are a higher earner getting taxed at 35% of your ordinary income, being taxed at just 15% for your passive income stream keeps more money in your pockets.
Passive Income is Flexible
Another passive income perk is that you can decide how much time to invest in earning it. You can choose to have just a few properties that you leave to a property manager while you keep your day job. It is also possible to become a landlord full-time and live completely off of your net rental profits. Whether you want to invest 5 hours a week or 50 toward your rental income is entirely up to you.
Rental Income Makes a Comfortable Retirement
Retirement income traditionally consists of a fixed pension and social security check every month. With costs of living rising over time, however, you will want to maintain your lifestyle. It may not be possible to live as well ten years into your retirement if your income stays the same while the costs of utilities and food increase. This is where your rental income can help you! Rent is inclined to rise with the cost of living, meaning that as a landlord, you will have income that stays up to speed with inflation. Also, you should be able to pay off a majority of the mortgages on your rental units. By retirement age, you should have several paid-off units generating increased profits and helping you live well.
The Demand for Rentals is Timeless
Though being a landlord isn’t risk-free, the likelihood of your rental unit losing relevance is slim if you keep it properly maintained and marketable to future tenants. After all, humans will always be in need of places to live. Combine this unique security with the likelihood that your investment will increase in value, and you have an asset that is timeless and dependable.