Passive Income

[Lee Jackson]

In realestate terms what is Passive Income.

eg House Income $10,000 pa (Rent)
Loan Repayments $ 9,000
Expenses $500

so for the year your cash positive $500. I would say that my Passive Income is $500.

 

[Lotana]

Hi Lee,

I think you'll be right if you won't deduct expenses. "Passive income" as a term is usualy used as an opposite of "active income" generated by work or trading. "Expenses" is deducted from "income" to calculate profit/loss. In your example what you call "house income" would be "passive income", interest and other expenses will form "expenses".

Say cheese ,

Lotana

 

[landlubber]

Hi Lee,
Passive Income is the "accounting" term for income where you can lie on the beach, or in some other "inactive" location, and the biggest decision you have to make is what you'll have for lunch .....and the passive income (cash etc) keeps flowing into your bank account even if you decide you just want to lay on that beach for ever !

Hope you're inspired .
See you on the beach !

Peter H.

 

[Lee Jackson]

I'm always inspired.

 

[Steve Navra]

Hi Lee,

Passive income could be:

Rent 10k per annum - assuming rental income at 4.5% then the property is worth $222,222

Loan repayment - assuming 6% as the loan cost then the mortgage would be $150,000 (Interest only.)

Draw down 80% of loan value: $222,222 X 80% less existing loan of $150,000 = $27,777

Buy an income stream for five years (cashbond) with the $27,777 will yield $6055 per annum.

Less Expenses: $500 + cost of using the 'idle' $27,777 at 6%; $500 + $1667 = $2167 per annum.

And your passive income is $3888 per annum!! (More than 5 x your original $500)

Regards,

Steve