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One of the most touted benefits of property investment is its ability to provide passive income to an investor. Having a means of passive income is ideal for many, especially those who want to build an income stream that provides steady returns for a long period. This is possible through property investing, where an individual can collect rent from tenants, or via stocks, bonds and pensions, which offer dividends and interest. The obvious benefit is earning an income with minimal effort, which is the objective for many people in retirement. 

Paul Smith, Touchstone Education co-founder, understands the desire to establish a passive income stream. As an experienced property mentor and wealth coach, he has helped create compelling courses at Touchstone Education that teach individuals how to become passive investors. Students of this particular course have the money to invest, but may be tired of low savings interest rates and negative compound interest, or not want the hassle of actively managing stocks and shares to generate income. By taking a course in passive income, they soon realise there are several possible solutions. 

The range of investment options that can provide passive income include: 

  • Buy-to-Let House: A consistent demand for housing means that this residential property type will always have renters looking to take it up. 
  • Commercial Property: While seemingly requiring more capital, the commercial property avenue is open to investors who have gained the knowledge and experience from residential investments. Commercial properties also have long-term leases, extending an investor’s earning potential. 
  • House in Multiple Occupation (HMO): Investors who choose to rent out individual rooms stand to gain more income than renting an entire property. 
  • Serviced Accommodation: When done right, serviced accommodation units have the potential to bring in good returns. As Touchstone Education’s team knows, the prospects of serviced accommodation are promising to the determined investor. 

Passive income is gained in the following ways: 

Monthly Rent 

A buy-to-let property located in the right place and with maintenance (or ownership) costs taken care of should generate positive cash flow. The investor’s goal is to make sure that the property’s income exceeds its expenses, something that’s possible with due diligence. An individual with multiple properties turning in positive cash flows can find it easier to accumulate enough to diversify into other investments or comfortably retire. 

Capital Growth 

Capital growth ranks as the second income stream from property investment. The growth in the value of a property over time is a good thing for an investor, who may want to hold onto the asset for many years before realising significant returns. Even where properties generate negative cash flows, their capital growth can exceed the losses over a certain period. 

Using Profit for Further Investment 

In a scenario where an investor gains positive cash flow from a buy-to-let property purchased using a mortgage, they can use the profit to pay off the mortgage debt. They’ll be relying on the rent collected to do this, and once the capital owed is paid off, they become the outright owners of the property. Furthermore, continued ownership provides the benefit of capital appreciation, which is an increase in equity for the owners. They can use this equity as a deposit on a second property, providing an opportunity to expand their portfolio. 

Start Early 

If the objective is to earn steady returns over a long period, starting early is necessary. Indeed, the advantage of time to an investment is the compounding effect, which reinvests earnings to generate more wealth. Investors who start early can effectively raise their returns potential through compounding.