Everything You Need To Know About Rental Income — FIbyREI

What type of income is rental?

According to the IRS , rental income is any income that you receive for the use or occupation of property. Essentially, if you are renting out space to a tenant of any kind, that income would qualify as rental income.

Is rental income passive income?

Rental income is often thought of as a passive investment. Although some rental income arrangements are passive, not all rental income is completely passive. In most cases, there will be some form of interaction with the property that creates a little bit of active work.

Is rental income an asset?

Rental income is not an asset. Instead, rental income is income that you can produce with the help of an asset. However, the income you receive from a rental unit is not an asset by itself.

Do you have to report rental income to the IRS?

If you are bringing a rental income, then you will need to report this to the IRS at tax time. The income you receive from a rental will impact your total tax liabilities for the year.

How to generate rental income

If you are interested in generating real income, then you can take steps to start today. Here’s what you’ll need to do.

Find property

First, you’ll need to find the space that you can rent out.

Buy property

After you’ve located a property that will work for you, it’s time to close. Luckily, there are numerous financing opportunities to help you get started. This is especially true if you are seeking out a property that you plan to house hack. As an owner-occupant, you can unlock very attractive financing. But there are still opportunities for investors if you are willing to look. For example, owner financing could be a good option .

Find tenants

You’ve closed on the property — now what? You may need to spend some time updating the space. However, this will depend on the property.

Collect rent

Once you have tenants in place, hopefully, collecting rent is a breeze. A bad tenant can make this part difficult. But you can set up self-managed systems to easily accept rent payments. Or consider working with a property manager to avoid the hassle of collecting rent.

Maintain the property

Although this is not technically required to build a rental income stream, it is vital to maintain the property if you want the rental income to continue flowing. Tenants expect a clean and safe place to live. Take the time to ensure that the property is well maintained.

The bottom line

Rental income can be a boon to your income. With this increase in somewhat passive income, you’ll find that you have more financial freedom. Over time, you can build a real estate portfolio that generates more and more rental income.

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Andrew Kerr

Andrew Kerr

Host of “The House Hacking Podcast” and owner of www.FIbyREI.com