13 Ways For Investors To Boost Their Residual Income

The majority of today’s real estate investors entered into the industry with one simple business goal: to build residual income. After all, residual income is a great indicator for how well a company is performing. For all intents and purposes, the more revenue streams padding the bottomline of a business, the better. It is important to note, however, that not all residual income streams are created equal. To truly realize the residual income you have always dreamed of, you need to pick the vehicles that will maximize revenues the most efficiently and effectively.

What Is Residual Income?

Residual income, in its simplest form, is essentially a synonym for either excess cash or disposable income. From a real estate investor’s perspective, however, residual income is the net income that exceeds the minimum rate of return; it’s the result of exceeding expectations. More often than not, residual income is calculated on a monthly basis and suggests what investors will be left with once all of the bills and expenses are accounted for. It is an important indicator for investors, as it awards insight into their own performance. Not to be confused with cash flow, which represents the net amount of cash being transferred into and out of a business, residual income is reserved for excess profits (never deficits).

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Residual Income Formula

Typically accounted for on a monthly basis, residual income shouldn’t be calculated until all expenses are considered. Having said that, the residual income formula looks like this:

Operating Income – (Cost Of Capital x Operating Assets) = Residual Income

Passive Income Vs. Residual Income

Understandably, inexperienced investors may not be fully aware of the differences that exist between passive income and residual income; after all, the two not only share similar monikers, but they also represent coveted streams of income any investor would be happy to receive. To that end, the two forms of income have several differences that warrant investors’ attention.

Whereas residual income is retained by an investor after all of their expenses and bills have been paid, passive income is inherently different. In fact, passive income isn’t necessarily a sum of money, but rather a method of procurement. As one of the three main categories of income (active, passive and portfolio), passive income is income derived entirely from a rental property in which they are not actively involved. Quite simply, the phrase passive income is used to define income made through little or no effort on behalf of the person earning it.

While passive income and residual income are two separate things, it’s not uncommon for them to converge. In the event enough passive income accumulates, investors may find themselves with residual income. In fact, the primary reason investors are attracted to passive income is because of the residual income it may result in.

Residual Income Ideas

As previously discussed, residual income represents excess earnings or disposable income. The money an investor is left with once all of their bills and expenses have been accounted for qualifies as residual income, and there are literally endless possibilities to generate it. Any activities that generate net profits in excess of the minimum rate of return can contribute to an individual’s savings. That said, not all income-producing activities are created equal; some are unequivocally better than others. Passive income real estate investing, in particular, has developed a reputation for awarding savvy entrepreneurs with some residual income of their own. In addition to real estate, here are a few more ways to boost your existing revenue stream:

• Passive Income Real Estate Investing
• Rehabbing Properties
• Monetize Your Blog
• Implement Affiliate Marketing Strategies
• Real Estate Investment Trusts (REITs)
• Become A Private Money Lender
• Invest In Stocks And Bonds

How To Boost Residual Income Using An Existing Rental Property

While residual income can come from just about anywhere, there are several things rental property owners can do specifically to increase their existing revenue stream. Let’s take a look at some of the most creative ways real estate investors can attempt to boost their residual income using an existing rental property:

• Implement Pet Fees: Investors looking to increase their revenue may want to consider adding a few fees to their leases. For example, adding a pet fee to the lease may increase profits. Done correctly, a pet fee could very easily increase revenue each and every month.
• Lease Partial Months: Offer to prorate an additional two weeks for tenants that may need a place to live while transferring living arrangements. While not everyone will take you up on the offer, there are many tenants that will be more than grateful to spend the extra money in exchange for the convenience.
• Become A Licensed Agent: As a licensed real estate agent, you may be able to offer your services to any tenants looking to move. When a tenant gives their notice, there’s no reason you couldn’t at least offer to help them find a new place, and even collect commissions in the process.
• Implement Early Termination Fees: In the event a tenant wants to break a lease, make sure there are financial repercussions. Place a termination clause in your lease and be sure to let the tenants know about it. Doing so will protect your bottomline from tenants leaving prematurely.
• Implement Holding Fees: In a market as competitive as today’s, landlords are sure to see prospective tenants competing for their property. As a result, it may be in your best interest to charge holding fees. That way, you may be able to offset losses if the tenant backs out.
• Implement Holding Fees: Don’t be afraid to charge fees for any extra occupants. Be sure to conduct a background check on the person, update the lease, and add an additional rent amount for the new occupant.

Summary

Real estate investors of every level share one universal goal: building residual income. At the very least, residual income indicates how successful a company is in the moment. The more residual income, the better off today’s investors are. Therefore, it only makes sense to increase your revenue streams wisely. In the event you want to increase your own residual income—passively or not—try implementing some of the suggestions outlined above.

Key Takeaways

• What is residual income, if not for the one thing real estate investors covet more than almost anything else in the industry?
• Those that know how to make residual income in real estate will have an advantage over the competition.
• The right combination of residual income ideas could result in a lucrative career.