Generating passive income is compulsory if you wish to embrace financial freedom. In this direction, property investment has become a widespread practice for many savvy Aussies, which is why you may ask how to make passive income with rental property?
That is a common question since many go down this path to retire comfortably. Still, as noted by experts in this domain, accomplishing passive income doesn’t occur overnight, and it doesn’t happen with a single investment property.
Nonetheless, rental properties ensure growth in your passive income while a rise in the value of the property enables you to enhance your investment portfolio.
How to Make Passive Income with Rental Property – Positively Geared Property
Positively geared property is an asset that generates higher rental income than expenses. For instance, let’s say that you get $500 per week in rental income, and the expenses per week cost you about $400 (mortgage costs included). That would mean you have positive cash flow.
If you want to create passive income by generating positive cash flow, the secret is to choose the right kind of property to start with. This way, you won’t have to wait to grow old until the rental property generates income.
You can choose to invest in any property: shopfronts, homes, storage units, offices, warehouses, car parking spaces, so on and so forth. Nonetheless, one thumb rule applies in all cases: do your research first and make sure you make a documented, informed decision.
It could be argued that there are no considerable traps when you get the perfect location and type of property. If you don’t do this right, you’re bound to reap the results. So, the answer to “how to make passive income with rental property?” has a lot to do with your strategy as a landlord.
How to Make Passive Income with Rental Property by Using Equity
Another way in which you can create passive income is by utilising equity, as the value of the building increases. When that happens, your capital is boosted as well. In other words, if you buy a property worth $300,000, and its value reaches $400,000, that would equal an equity increase of $100,000.
There are two ways in which you can access the equity, either by borrowing against it or by selling the property. For instance, the following year you borrow against property number 1, the following against property number 2, and so on and so forth.
How About Tax Management?
No matter how you choose to play the property card, diminishing the tax liabilities of an investment property remains vital if you want to maximise your profits.
The most common mistake that many investors fall into is assuming that their property isn’t subject to depreciation. So, they choose not to undergo a depreciation schedule. That means that you might be missing out on tax deductions that could help them enhance their cash flows.
That’s why we advise you to discuss this matter with your accountant. Have him/her clarify how income tax on earnings, negative gearing, tax-deductible allowances and depreciation function so that you decrease the number of payable taxes linked to your property.
We are confident that after having read our article on how to make passive income with rental property, you have decent background knowledge on the subject. Being informed is the key to success, not to mention that the input of a specialist can make the world of a difference.