Engle Realty: A Greater Baton Rouge Louisiana Real Estate Company
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Passive Income in Real Estate
Passive income is essentially the profit you make from a rental property whether or not you work.
Let's say you are a Manager of a restaurant and have a 3 bedroom house. The house rents out for $1000 a month and takes in $12,000 a year. After taxes, insurances, and mortgage interest, your profit is $6,000 annually. You are not actively working to make that $6,000.
Let's also say you're making $50,000 as a restaurant manager. That income is made from actively working, so you are taxed at an income tax rate.
Here is the kicker, on the passive income you made from the rental property ($6,000) you are actually taxed at a lower rate, plus any expenses on the property can be used to reduce your taxes.
And did you understand the difference between active income and passive income? One involves you working. The other, passive income, involved your investment (a house) "working for you". This is the benefit of rental income.
Sure you'll need to fix the property when something breaks, collect rent, and make sure the tenants are happy, but people find that the small jobs here and there are a lot easier than the 40-hours-a-week job.