Living Off Rental Income: Is It Possible? How?

Becoming financially independent sounds like a lofty dream. But real estate investors have found the right formula to actually make it happen. Not only is living off rental income possible — it’s a realistic goal for many people. Here’s your guide to everything you need to know to leave your job and start living off rental income.

What’s the Basic Mechanism?

The basic premise of living off rental income depends on investing in income-generating properties. These properties, whether residential or commercial, will provide the real estate investor with monthly rental income from tenants. A portion of that income will go to your mortgage lender, and another portion will be set aside for other costs. The rest? That’s the profit that goes to the investor for their smart investment! Quite often, though, the remaining profit may not be enough to sustain you. Therefore, living off rental income will usually necessitate buying multiple properties and investing in diversified assets. Read on to find out how to make money renting houses, enough to become financially independent.

Step #1: Figure Out How Much You Need

The first step to make a living off rental property income is finding the number that makes the most sense to you. How much do you need per month for financial independence? That number is a starting point for figuring out how much income your investment property or properties need to generate for you to start living off rental income.

Step #2: Find the Right Investment Property(s)

When searching for investment properties, there’s one thing that you need to keep in mind: positive cash flow. For this real estate investment strategy to be successful, you need to find one or more properties that have the potential to generate a sizeable income. One of the worst things you can fall into is being stuck with an investment property that doesn’t generate enough and costs too much to maintain.

There’s a handful of powerful tools that you could use to achieve this. A favorite in the industry is Mashvisor’s Property Finder. This tool gives you access to a huge quantity of income property for sale to choose from. You have a few different filters (like budget and property types) that you can set to ensure you find a rental property that fits your criteria. Once the filters are set, the Property Finder will show you the high return income properties in the housing market of your choice.

But that’s only half of the advantage. The main reason this particular platform is so powerful is because it can provide real estate investors with an advanced rental property analysis that can inform their investment decisions. You’ll have valuable information like the return on investment (cash on cash return and cap rate). All of these numbers should be studied before buying an investment property in order to ensure you’re getting yourself into a profitable purchase. At a glance, you can view the potential income generation of any listed property, making comparison easy.

Another thing to keep in mind at this stage is whether you intend to rent out your future property traditionally, or on Airbnb. Many investors are surprised to find out that some rental properties can provide substantially higher income as Airbnb properties. Mashvisor’s tools can also let you know the numbers you can expect from each property in both rental scenarios.

Step #3: Run the Numbers

start living off rental income as an investor

Once you’ve found a good rental property, it’s time to do the math. The first thing you want to consider is how much you’ll need to spend in order to get your new rental property running and ready for tenants. As well, you need a comprehensive list of all the recurring expenses that you’re going to incur from your property on a monthly and annual basis. These fixed and recurring costs can then be used to calculate your cash flow. Using an advanced tool like a rental property calculator can make this process a lot easier. By popping in some basic information like the terms of your loan and your recurring expenses, you’re set. Mashvisor’s Rental Property Calculator will let you know how much you can charge for rent as well as provide some expense estimates that you can adjust. It will give you a clear number of how much you’ll be profiting from that property investment. Living off rental income depends on having a net profit equal to or better than your previously calculated financial independence number.

Step #4: Invest in Multiple Rental Properties

The thought of investing in multiple rental properties can be scary to some beginner real estate investors. But fear not, with added cost comes added income. Living off rental income will usually necessitate more than one property.

By using the same powerful tools mentioned above, you can guarantee that you’ll have a set of high quality, high income-producing properties that can keep you afloat. Selecting a handful of safe investments, in strong rental investment markets, can ensure that you have a steady stream of rental property income for years to come.

Be sure that you’re fully aware of the current real estate market trends wherever you intend to invest. Since living off rental income is a long-term strategy, you need to be wary of how the market will treat you years from now. If the trends are in your favor, then you’re likely going to have great income for years to come.

Step #5: Maximize Cash Flow

Finally, an important step to living off rental income is maximizing your positive cash flow, thereby maximizing your income as a real estate investor. There are a handful of strategies you could implement. How much profit you should make on a rental property depends on some wise decisions.

Foremost, you could consider raising your rent at a reasonable pace. This can ensure that your rental properties’ income increases with inflation, or slightly more, over time. But be wary that rent increases need to follow housing market trends, or you may otherwise lose tenants to your competition.

Additionally, consider upgrades that could be made which reduce costs over time, such as improved roofing and insulation. While these may impose an immediate cost, some upgrades can be cost-saving in the long term, which is to your benefit.

Finally, adding in additional income streams, such as vending machines or in-property services, can go a long way. All of these sources of cash flow can add up and make a noticeable increase in your income as an investor.

Bottom Line

Living off rental income sounds like every investor’s dream. By making some smart decisions and using the right tools, it’s an attainable reality. By learning how to buy multiple rental properties and how to maximize cash flow, you too can live off rental property income.

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