Passive Income Idea: Owning Rental Property

I’ve been thinking a lot lately about how I can increase my income outside of my full-time desk job. The reason I want to build my income from other sources is so I can eventually quit my full-time job. I just don’t enjoy it and can’t imagine spending the next 30 years of my life sitting behind a desk. Plus, I’ve still got debt to pay off and very little savings to rely on if times got tough or I had an emergency. Extra income can be used to help fill all of these voids and more.

I’ve already tried a few different things, like selling products (anyone need any Mary Kay?!), taking on a part-time job on the weekend, cleaning my office building for extra pay, and now freelancing online. I’ve had mixed results with all of these methods. They all have pros and cons. The biggest con to all the things I’ve tried so far is that they all require me to put in time to achieve success.

Outside of money, time is the next most-limited resource I have. It’s hard to find the time and motivation to work on these projects during the evenings and on the weekends when I could/should be doing something fun and catching up on a little R&R or social time with friends.

With that said, I’ve been looking at different ways to increase my income passively, and one of the first things that came to mind is owning property and renting it out for a profit.

Just like the other things I’ve tried, this method of increasing my income would definitely have pros and cons. A pro of owning property is that it could pay the mortgage itself (if you do it right). Plus, you wouldn’t have to put in too much time into managing the property (again, if you do it right), making it a great source of passive income.

Another positive of owning and renting out property is that it is a long-term investment and could gain in value over the years. If you are able to purchase property while you are still fairly young, it could be a great resource to tap into when you get ready to fund your retirement.

One major con for me right now is that I would have to qualify for financing to purchase a rental property and that could be a challenge. It’s not I don’t have a high credit score, I do, but more that my debt to income ratio is quite high and I don’t know if I’d even be comfortable approaching a lender about borrowing the money for purchasing the property.

Another con I’ve considered is that you would likely need to have a separate, or else VERY large, emergency fund to help cover any potential losses or damage to your rental property. Taking on renters is an additional risk beyond living somewhere yourself. You know that you won’t intentionally damage your property, but that same can’t always be said for tenants. Of course, you should always obtain insurance on any property you own and this company is a great one to look at.

For now at least, owning rental property is probably not a viable option for me and my situation. It may be more feasible in the future, and until then I’ll continue to look for other ways to build a passive income to help me reach my goals.

Do you think owning rental property is a good source of (mostly) passive income? What other passive income ideas do you have?

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About Kayla

Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

Comments

  1. Rental properties aren’t a bad way to make a bit of money. I’ve been doing it for years and will sneak in a post about it from time to time on Debt BLAG. I found that a discounted way to get into rental property was by buying a four-plex and renting out the other units. A duplex would work the same way… Happy to help if you have any questions about the process

    • Good ideas! Maybe instead of buying a property separate from my own home, I should consider moving into a duplex (or something similar) and rent out the other portion of the property. This would help cover my mortgage and I’d be really close by to monitor the property.

  2. Hmm given your financial situation right now, I would probably hold off on the idea. It’s just too big of an investment! Maybe pair down on your side hustles by focusing on the one or two jobs that are the most viable and put your energy and time towards those.

    • I am working on narrowing my focus. I did just recently quit my cleaning side hustle in favor of working online more instead. I’m not saying I’m going to rush right out and do this, it’s just a thought I’ve been having lately. Maybe once things are a little more financially stable I can pursue this.

  3. I definitely want to own rental property later in life (I’m not financially ready now). I see my aunt as a great example. She and my uncle used to run a business together, but when he passed away unexpectedly, she sold it. Now her only source of income is the several rental properties she owns, but it’s more than enough for her to live comfortably, and without too much stress. I definitely want to have a back up plan like this for when I’m older, too.

  4. I think it really depends on the rental market where you are looking to buy and your ability to deal with maintenance and/or tenant issues.

    My husband and I became accidental landlords when we moved from Kentucky to California and didn’t sell our house. The rental market there isn’t that great, and we have had a hard time finding good tenants. Additionally, the housing market has dropped significantly and we can’t really sell the house either. We’re often stuck paying the mortgage while the house sits vacant.

    On the other hand, my mother in law owns four small condos in Hawaii and has an occupancy rate of about 90%. But, she’s constantly dealing with tenants and maintenance issues related to the units. These are a fantastic investment for her, but far from passive.

    • Jessica, these are all good things to consider before taking the plunge into owning rental property. I know if I ever did decide to move ahead with this I’d probably want to live nearby to my rentals so I can oversee them easily. Plus I know in my current community there is a HUGE demand for more rentals so occupancy shouldn’t be an issue, it’s just finding the right person/people to occupy it that could be a hassle.

  5. I like the idea of owning rental property… but the numbers don’t really work on anything in my area, where I understand the market. Plus, we own our home, so we are very overweight in our portfolio, on the real estate side. Real estate can be good, but to find the sweet spot where the cash flow outweighs the risk of loss, is really tricky. I have resigned myself to REITs for the foreseeable future.

    • I don’t think it’s anything I’ll seriously pursue, at least not for a few years at least. I need to build up some wealth and pay down my consumer debts first.

  6. SO MUCH WORK. My brother owns two rental properties. The purchasing and renovating were not the issues. He’s also had so very good tenants, but very good tenants can still break appliances and put holes in walls and paint weird colours. Laws are different everywhere, and in Ontario (Canada) tenants can do all kinds of things and get away with them even when they sign a lease (ei have pets that are not neutered, barbeques etc etc etc). I am a tenant in another city and could not imagine some of the stories I have heard of many landlords. There are some things that rental applications cannot prevent from happening.

    It’s the luck of the draw. youmight find a really beautiful and up-to-date property and great tenants that barely breathe, or you might be putting in full-time hours.

    • I see where you are coming from. Owning rentals probably is more work than people realize most of the time. Luckily we have pretty strict laws here in my state so tenants have to follow their contracts and landlords can’t be abusive either. The laws helped me a time or two when I was a renter in college.

  7. I make a lot of money on my rental property, well over 6 figures. It is a great investment, if you buy right, manage better, and have a reserve fund so you do not go broke from being under-capitalized.

  8. Owning rental property has always been on my mind when I think of how I want to build passive income streams. I feel like it’s a lot of work (and money) upfront. But you’re right – when done correctly, it would be a great way to passively earn some money.

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