In the upcoming year, on this blog you’ll be seeing many articles on real estate investments. It’s a new investment area my husband and I are planning to venture into. There are some things we already know about this asset allocation, but we have a lot to learn, too. We plan to share our research and adventures with you along the way.  If real estate investments are in your horizon either now or in the near future, we hope this series will be useful to you as well. Through rental property investing, our goal is to build our monthly cash flow while increasing our passive income.

Passive Income

What is passive income? This article stated that passive incomes are revenues you earn even when you aren’t actively working. With passive income, you may do a lot of work up front to get the ball rolling, but eventually you reach a point where money will keep flowing to you regardless of what you do or don’t do.

Some great examples of passive income are dividends and interest payments from stocks and bonds. As an investor, you’d spend years building a large investment portfolio. Over time, you won’t need to do much work (passive income doesn’t mean perfectly 100% passive with no maintenance required) to receive revenues in the forms of dividend yields and/or interest payments. Even while you’re asleep or on vacation, some of those payments are being deposited into your financial accounts! This is the power of passive income. By contrast, active income is money that stops coming to you when you stop working.

Currently, our annual passive income is at about $33,000 (after-tax). Our financial goal is to get this number up to $48,000, covering 12 months of expenses at $4,000 every month. When we reach that number, we wouldn’t need to dip into our investment portfolio at all. The passive income would be enough to cover our estimated expenses. With that kind of benchmark, we still need an additional $1,250 in passive income every month to reach our goal [($48,000-$33,000) / 12]. At the time of our early retirement, our investment portfolio alone will certainly support our retirement lifestyle. However, we prefer to invest that money on philanthropic projects.

Ways to Build Wealth

What are some of the typical ways people build wealth?

• Build a successful business (or a few);
• Increase income;
• Increase savings rates;
• Invest (such as the stock market and real estate).

My husband and I are heavily invested in the stock market (both U.S. and international) and bond funds. For several months now, we have been thinking about expanding our investing strategy to include real estate. We do have some REITs in the stock market, but they’re a relatively small portion of our investments. What I’m talking about here is investing in rental properties.

Rental Properties and Cash Flow

What do we like about the prospect of owning rental properties? The answer that immediately comes to mind is stable monthly cash flow (assuming tenants pay rents on time). This is something we can certainly get used to having. Many of the dividend and interest payments from our stocks and bonds get paid quarterly. Those that payout every month come at different times throughout the month. In general, such streams of passive incomes are inconsistent on a month-to-month basis. Thus, you can understand why we want to add investment options that generate stable monthly cash flow. 

Our Current Plan

What’s our current plan? Research, research and more research! We will be doing this through the Internet, books and having discussions with current real estate investors, real estate agents, brokers and friends living across the country (to get their perspectives on the housing markets in their local areas). My husband and I will also be busy having discussions among ourselves, too. Early in 2017, we plan to travel to various cities to scout out potential purchases (based on our research).

Prior to reading this article, were you familiar with passive income? I didn’t learn about the term until this year.

Are you currently earning passive income? If so, what are your income streams? Are you looking to expand into other areas?