Do you want to generate an income with investment properties, while a team of professionals takes care of the day-to-day details? If so, you want to generate a passive income.
Passive income can provide the income you want today, and then provide an income throughout retirement while you travel and enjoy time with family and friends.
What is Passive Income?
Many people incorrectly associate passive income with commissions, capital gains, interest, dividends, retirement income, and lottery winnings. But these are not passive income, according to the IRS.
Passive income, as defined by the IRS, is income coming from rental activity, or a business in which the taxpayer does not materially participate.
There are exceptions to this basic IRS definition, so refer to IRS documentation and consult your tax professionals for exact application to the regulation.
As a real estate investor, it is important to understand IRS regulations regarding passive income, and have a comprehensive strategy to minimize tax liabilities, to retire and live off passive income generated by real estate investments.
Create Passive Income From Rental Properties
One of the best ways to generate passive income is to invest in rental properties that generate cash to pay for the purchase, rehab, and maintenance of the investment properties, while also generating profits.
Generating passive income through rental property, however, requires work on the part of the investor.
The amount of work a real estate investor must put into generating passive income through rental properties depends on a number of factors, such as whether he uses a wholesaler to purchase properties, purchases turnkey properties, uses a contractor to rehab properties, or uses a property management company to manage the properties.
At minimum, the most hands-off real estate investors should manage key members of their team and oversee the finances of their real estate investing business.
Prepare to Retire and Live Off Passive Income
Before deciding to retire and live off passive income from real estate investments, there are a few things investors should do to help avoid a massive loss if the U.S. was hit with another major recession or housing crisis.
In an article on TheStreet, there are 3 keys to success by Dale Degagne that real estate investors should consider before retiring and living off passive income:
- Pay off the mortgages.
- Hold the real estate for at least ten years and keep good books.
- Have an exit strategy.
It takes time and energy, along with a successful strategy, to build a real estate investment business that enables an investor to retire and live off passive income.
Don’t Put Everything on Autopilot
One of the biggest mistakes investors can make with passive income during retirement is putting everything on autopilot.
Though investment properties produce passive income, the properties and the overall business must be actively managed. Therefore, putting a real estate investing business on autopilot is a prescription for complete failure.
So, how can an investor truly retire and live off passive income generated by investment properties?
At some point, an investor must pass the management of his real estate business to another individual who will be responsible for managing the team and finances of the business.
Especially as age sets in and cognitive abilities decline, as Dana Anspach points out in a Money Over 55 article, “it is important to have advisors and family members you trust. Share your passive income strategies with relevant people you trust and who you know will look out for you.”
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay.
We help clients build a profitable real estate investing business that can generate passive income throughout their entire life, while building multi-generational wealth.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.