How to Earn Residual Income

Step-by-Step Guide

1. 1

   Step 1: Learn about the work involved.

   Being a landlord isn't as simple as just collecting rent checks every month.
   
   There's a lot of time, work, and money involved in maintaining the property and meeting the tenants' needs.It's best if you're a handy person with hands-on experience making repairs, doing yard work, and working on basic plumbing repairs/maintenance.
   
   If you can't perform work yourself, you'll have to pay someone else to do it.
   
   This can get very expensive, especially if it's an older property or a neglected building in disrepair.
   
   Remember that being a landlord can involve 24-hour problems.
   
   Just because you're ready to call it a night, it doesn't mean there aren't problems that need to be addressed at the property.
   
   Sometimes problems arise that need an urgent solution.
   
   If you can't be on call around the clock, you'll need to hire a building maintenance person who can be (which, again, will cost you more money).
   
   Recognize that dealing with tenants can be difficult at times.
   
   There's always a chance that some type of conflict will arise at some point, so make sure you can calmly defuse those situations if you're thinking about becoming a landlord.
2. 2

   Step 2: Do the math to see if it's worth it.

   It's very difficult to find a bargain price on property.
   
   Some investors were able to do this during the housing crisis, but now that things are more stable it can cost a lot of money to purchase a piece of property.
   
   If you do find a bargain, it's probably in desperate need of significant and extensive repairs, which can sink you into debt if you're not careful.Decide in advance what you hope to earn off the property after expenses, then calculate how much you'll have to pay on your mortgage and taxes (to say nothing of repairs).
   
   For example, say you hope to earn $10,000 each year in rental income but you're paying $2,000 each month in mortgage and $300 every month in taxes.
   
   You would have to charge approximately $3,150 in rent each month, which may be extremely unreasonable in your local market.Search around online to get a sense of what other landlords in your area are charging, and decide if a property you're interested in would be a worthwhile investment. , Say you find a property that isn't too expensive.
   
   You'll need to take into account the mortgage payments, the tax on your property, and the cost of repairs and upkeep.
   
   This can be difficult to do on your own, so it may be best to enlist the help of a professional in assessing the property and determining the potential expenses you'll face.Ask the bank who sets up your loan (assuming you take one out) what the terms of the loan are.
   
   Find out how much you'll be paying each month for the mortgage, how much time you have to pay it off, and what kind of interest rate you'll be looking at.
   
   Talk to an accountant about the potential tax costs on a piece of property and to weigh the financial risks of owning that property.
   
   Hire a reputable home inspector to assess the property before you purchase it.
   
   The building may need structural repairs, rewiring, and new plumbing, which can add up to some very expensive repairs.
   
   Read reviews of home inspectors online, or ask friends who've bought property for a recommendation. , As a landlord, you'll want to make sure your tenants are responsible.
   
   You don't know these people and are trusting them with your property, so it's a good idea to try and get to know your prospective tenants a little bit before signing a lease.
   
   However, you'll want to avoid the opposite extreme and avoid renting to people you actually know.
   
   Renting to a friend or relative can create a lot of tension that could dissolve your friendship.Try and chat with prospective tenants for a few minutes.
   
   Ask them about themselves and their work to try and get a basic idea of what they're like and how responsible they are.
   
   Run a credit check to make sure that a prospective tenant isn't a huge financial risk.
   
   Ask for previous rental references, and contact those landlords to see if the tenants ever caused significant problems.
   
   Remember that it is illegal to discriminate against a prospective tenant over that person's age, gender, sexual orientation, race, or religious affiliations. , Just because your income isn't directly coming from an employer, it doesn't mean you're off the hook for taxes.
   
   In addition to property tax, you'll have to pay taxes on the income you earn each month as rent, so it's important to know what you owe money on.Any money you receive as rent must be declared in your gross income to the IRS.
   
   You must report advance rent as rent that was paid in that year.
   
   Even if someone pays off the first and last years on a 10 year property lease, you must report that last year of rent as having been earned at the time the lease was signed.
   
   If you have your tenants apply their security deposits to the final month's rent, you must list that money as advance rent.
   
   Any fees you charge a tenant for canceling a lease must be declared as income paid as rent.
   
   Any rent that is exchanged for property or services (for example, waiving a month's rent in exchange for a tenant painting the building or making repairs) must be declared as rental income equal to what the tenant would have paid for the agreed upon time span.
3. 3

   Step 3: Estimate the property's costs and expenses.

4. 4

   Step 4: Find the right tenants.

5. 5

   Step 5: Know your tax obligations.

Detailed Guide

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