There’s nothing that sounds sweeter to most peoples’ ears than the phrase “passive income.” After all, who wants to actually have to work for their money? Wouldn't it be great to just see the dollars come rolling in without having to report to an office? The concept of making a viable living with little to no effort is certainly exciting, and many of us are on the lookout for opportunities to get in on the action.
One option for generating passive income that has become particularly popular in recent years is purchasing what’s known as an income property; this type of home differs from others because it contains a rental property, usually in the attic or basement. The mortgage for the rental property is rolled into the mortgage for the primary residence, so the cash collected every month from tenants can be used to reduce the homeowner’s monthly housing costs. Sounds like a win-win, right?
Well, maybe. Becoming a landlord certainly has benefits when it comes to raking in extra money every month, but there are some important financial and lifestyle questions to ask yourself before taking the plunge and purchasing an income property. For example:
- Do you have a fat emergency fund? Remember, if something in your property or your rental suite breaks, you’re responsible for fixing it, so it’s important to be sure you have a hefty amount set aside – just in case.
- Are you willing to pay two mortgages? There might be months where your rental property sits vacant, so you’ll need to be prepared to pay nearly double your usual monthly housing bill from time to time.
- Do you feel comfortable having someone else live in your home? Most income properties are attached to landlords’ homes, so you’ll need to decide whether or not sacrificing a little bit of privacy is worth it to you to make some extra cash.
- Are you ok with putting up with a little bit of annoyance? Even good tenants sometimes complain, forget to pay their rent, or sneak in pets they’re not allowed to have. Are you patient enough to deal with these types of hassles?
The truth is that sometimes the income that comes from owning a rental property isn’t so “passive” – if you’re interested in buying a home with earning potential, be sure to ask yourself the questions above before committing to the purchase.