This is a guest post by Derek from Creating A Passive Income, a website that is dedicated to hunt out every possible passive income source there is. Be sure to check it out.
Do you often think about how you could create a passive income? Maybe you’re just itching to get out of your job and would love to create a real estate empire, or perhaps a franchise that is run completely by someone other than you. These dreams are all well and good, but you must first have your finances in order before you can pursue opportunities such as these.
You Might Not Be Ready For Passive Income
If you plan on creating passive income through real estate, you’re going to need some big cash down-payments set aside for those ventures, and before you even do that, it would be wise to get yourself completely out of debt.
I would love to buy another property right now. Houses are cheap and there’s a demand for rentals, but I know that taking on two mortgages is not cost effective when considering the interest. What if I wasn’t able to find a tenant for a while? Then I’m stuck paying two mortgages, two insurance premiums, two utility bills, and I would have two yards to upkeep. Not only would it hurt financially, but it would no doubt take up all of my spare time to maintain an empty house.
What to Do Before The Passive Income
My wife and I still owe about $69,000 on our house. While it doesn’t sound like a lot of money (considering some of the mortgages out there), we know that it’s wise to get rid of one loan before taking on another. So, our plan is to pay this mortgage off in the next 3.5 years by paying an additional $1,200 payment each month. This will save us approximately $22,000 in interest payments, and I predict that the housing market will still be extremely affordable (in fact, house prices may even be lower than what they are today) at this point as well. Imagine how fast we could pay for a down-payment on the next house! Heck, why not just buy the next house with cash? We’d get a heck of a deal I’m sure.
When you’re looking at passive income investments that require a large start-up cost, you should strongly consider taking care of all of your existing debts first. If you do not, and you invest heavily in your new venture, you could be looking at financial disaster in a very short time-frame. Dump the debt and deal with cash, and you’ll be ready to soar financially.
Are you currently in a position to invest in your next brilliant idea? How do you plan on building your passive income empire?