How does passive income work with investment property?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 39 to read through:

Property income or passive income is so great because every month you have someone paying for your investment property. There are two. That is the biggest part: frequently the tenant, because the tenant pays the rent every month and with it the largest part of your mortgage, paying off the investment property for you. That is enormous fun, because you buy a property, but someone else pays for it.

The second part is the tax office, because the tax advantages often mean you also get tax benefits on a monthly basis. People then sometimes ask me, why monthly? When I do my tax return, clients tell me, I only get my tax back in the following year. And then I have to painstakingly advance the tax advantages all the time. Then I have a much higher monthly burden and have to wait for a tax refund the following year.

And I can tell you that real estate has a great advantage here. Because with property you have a legal entitlement to pocket the tax advantage on a monthly basis from the year after purchase, as you can then submit a very simple form to the tax office. That's the application for wage tax reduction and then an allowance is entered on your tax card and you get the tax advantages paid out directly every month.

That way, you have the rent and the tax benefits in your account every month. So you never have to pay anything out of pocket and always just have your own small share that you pay yourself. And this application for wage tax reduction is only done once and can then simply be carried over in subsequent years. That means you decide whether you'd like to get a large lump sum of tax benefits back once a year, but then you always have to pay that upfront until that time. Or would you rather apply to get the tax benefits monthly? And for the really smart ones among you who now think, well then I'll just take both, let me say: you can't. Either monthly or annually. Anyone who takes the tax benefits every month obviously doesn't get them on top again the following year as a single payment, because only one of the two is possible. Decide how you want to have it.

The fact is: I have good news for you either way. With a buy-to-let property you have two sources of income, rent and tax advantages, and most of my clients want those on a monthly basis.

Keywords:

passive income, buy-to-let properties, tenants, tax benefits, tax office, application for wage tax reduction, rents