Passive income comes in many shapes and forms. There are thousands of ways that people have created automatic streams of income, and more are being created all the time.
All sources fall into one of two types of passive income; Investing Passive Income and Business Passive Income. Out of these two primary vehicles, business and investing, an unlimited number of possibilities arise. Mastering just one area and building a portfolio of investments can help you reach your financial and lifestyle goals! This article will focus on how to build passive investment income.
A passive investment may include both a retail financial product and other managed investments where the activities do not constitute the carrying on of a business. Unlike active investors, passive investors buy a security and typically don’t actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable.
There are many arenas of investing that can be used to generate passive income. Stocks, bonds, money markets, managed funds, rental properties and other financial investments can be used to generate income. There a wide variety of products available with differing levels of risk. It is important that before making any investment decisions, that you contact your financial advisor to analyse your current financial situation and develop an appropriate strategy. With the right strategy you could be on your way to building multiple streams of income!
Tax Benefits
There are also number of tax benefits that relate to passive investment. A number of deductions can be claimed on your tax return such as interest paid on the loan to fund your investment. With respect to rental properties, you can also claim repairs and maintenance of, rates and taxes, insurance, agent’s fees, travel to and from the property to facilitate repairs, and buildings depreciation. Tax deductions can also be claimed as a result of negative gearing, where the costs of keeping the investment instruments exceed the income gained from it.
Owning rental properties can be a great way to put your money into something that will pay you regularly for many years. Unfortunately many people attempt to get into rental real estate they end up spending all of their time managing, maintaining, and overlooking their properties! This is not passive income. If you are working around the clock to maintain your rental properties, you may be earning money but it is requiring your time! Passive income means automation!
Building a passive income is a vital part of wealth creation and an important aspect of balancing risk. After all, wouldn’t you rather that your money work for you?
For a more comprehensive analysis of your financial situation and for a strategy to build passive income please contact our head financial planner Christine Hallowes CFP on (02) 9868 3900 or email her at christine@elitefinance.com.au.
The ATO has provided comprehensive guideline on rental property deduction. For more information, please visit http://www.ato.gov.au/corporate/content.aspx?doc=/content/00282530.htm
James Solomons 