Passive income means making money without work. Of course, there’s no such thing as 100% passive income. You’ll always have to do a little bit to take care of your money but you can get very close to passive income through investment.

Why Does That Matter?

If you want to be wealthy, there has to be a time when your money starts to work for you. High earners often aren’t wealthy. Without their pay checks coming in, they’d soon find themselves overwhelmed by mortgage payments, school fees and credit card statements. Wealthy people aren’t dependent on a pay check; they have assets which make their money whether they work or not.

Property Investment Can Generate That Passive Income

Property bought for the purposes of renting it out to generate income will generate passive income in two ways:

  • Direct passive income – this is the rent that someone pays to use your property. Early on in the investment cycle, you won’t have much change from the rent when you pay the mortgage each month. However, the longer you hold your property the more the rent will rise and the mortgage will stay roughly the same. That means after a couple of years, each month you’ll have surplus cash after paying the mortgage. Over the course of a complete mortgage this can be a fairly substantial amount of money too.
  • Indirect passive income – mortgage repayment – you won’t see this income for a while because it’s not cash and you only see it when you sell the property. But there are two forms of indirect passive income, the first is the obvious one. When someone else is paying rent, they are paying your mortgage for you. If you take an 80% mortgage on a rental property when it’s paid off, your tenant has paid for four-fifths of the place.
  • Indirect passive income – equity gains – the second form of passive income is that, assuming the property market continues as it always has, of equity gains. In short, a home purchased today for $500,000 would be expected to be worth more than that when you sell it in a number of years’ time. That’s more free money for doing nothing.

Of course, most rental properties will need a little maintenance over the years and some investment in renewing them to maximise their rental returns but that’s OK. If you want your income to be truly passive from your investments; you can always outsource that maintenance and cleaning. It won’t completely eliminate work on your part but there will be very little work to be done.

This is how wealthy people become wealthy. They use a small amount of money to secure a mortgage on a property (i.e. they get an asset). Then they let that asset create value for them (i.e. they rent it out). Then they sit back and wait for the money to roll in. Then they do this again and again and again until the amount of money coming in each month is sufficient to more than their needs.

If you want to become wealthy but you don’t know where to start; contact me and I can help you get started in property investment.