Using a Second Home for Passive Income

Investing in real estate has always been a popular choice for investors. Whether you are going with the hands-off approach of REIT’s or purchasing a second home to be used for rentals, the potential for solid passive income is there.

The great thing about having a second home, besides having steady revenue coming from rent, is that there are tax deductible items like interest, taxes, and insurance. Plus, there isn’t a need to pay capital gains taxes if the money from rental properties is put towards another rental property.

You have to remember that if you own a rental property you are considered a landlord – assuming you don’t hire a property manager. This means that you are going to have to assume the responsibilities of taking care of your tenants’ needs. Things like minor repairs, complaints, and payments all must be handled by you.

Before investing in real estate, you’re going to need to do your homework. Make sure that you know the neighborhood’s laws and regulations. Some areas may charge higher taxes than others and have strict policies regarding zoning laws.

If you want to generate a positive cash flow from the revenue coming in from your rental property, you’re going to have to make sure you calculate your income versus expenses. Calculate the amount of money you are putting towards your property and keep track of the income that you are gaining. If you are continuously losing money annually, you might want to reconsider your strategy get it off of your hands before you lose all of your capital.

Bio: Kuba Jewgieniew is the owner of Realty ONE Group, a real estate firm that was ranked top 10 in the nation for closed transactions by Real Trends.