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What is passive income and should you get in on it?

Anyone who has worked for a living understands active income: money which is earned through performing a service, but few people have experienced the joy of passive income. While setting up the passive income revenue stream may require active work upfront, it becomes a reasonably self-sufficient money-making machine in time. The best example of this is rental income.

Investing in a rental property is something that can be done at any stage in life but more and more soon-to-be retirees are seeing the benefits of the passive income.

How passive income works into a retirement plan

If you have the time and the wherewithal to create a sound property investment plan before retirement, the benefits can be significant. Here are some tips:

  • Set a goal. Before making any offers it’s necessary that you have an income goal in mind. From there, it’s just a matter of estimating expenses (more on that later) and finding the most advantageous mortgage to rent ratio.
  • Conduct a risk analysis. The foundation of your risk analysis will be similar to house hunting- find comparable properties and average out the numbers.
  • Over-estimate expenses. One thing that all great investors have in common is over-estimating expenses. Find out what the comparable rental properties pay in expenses and add 5 percent, at least. Worst case scenario, you have extra cash.

With careful planning and preparation, a rental property can churn out a healthy net income that can cover some or all retirement expenses, freeing you up to enjoy these years you have worked so hard for.

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