Wednesday, September 17, 2008

Additional Passive Income Through Being a Landlord

A few weeks back I was writing a post about how I had forgotten about the tax benefits of being a landlord. That article reminded me of something else - the security deposit. Suddenly I realized that I didn't have it, my ex did.

My ex rented the apartment to the current tenant in April, while he was still living in the house. So naturally he got the security deposit from her. However, I realized that when I moved in in June I should have gotten it, since now I am her landlord. So, I wrote my ex and he agreed to send it. It took a couple of weeks, but I got it yesterday. Technically the tenant's lease isn't up until April, but leases have been broken before. In any case, I need to keep the money on hand for when she does end her lease, and assuming she has completed the full term and the apartment is in the same condition it was when we rented it out, I will return it her.

I hope that the lease will go through April (or longer!) and she does keep up and clean the apartment. As a landlord, I do not and could not consider this money mine. I am not going to add it to my monthly goals. I am fully expecting to return it to her when the time comes.

However... all you savvy personal finance people will have already figured out that there is a benefit I can take from this - interest. I am going to deposit this money in a higher interest savings account and take advantage of the interest earnings. The security deposit is $550 so we aren't talking about a lot of money here, but as I like to say... out of pennies, dollars are made!

I've said before that bank interest is probably my favorite form of passive income. While you don't earn a lot that way, necessarily, it really is passive. All I have to do is deposit the check. Fantastic!

Further Reading:

Writing off Expenses as a Landlord

Rentals as Non Passive Income - Being a Landlord

MSN Money - Do You Have What it Takes to be a Landlord?

Photo by: DryRot


Catie said...

Here's just a little info from the armchair landlord over here... and I don't know why this would ever come up outside of a legal dispute, but it may be good to know (and you may know all this already).

Under Michigan law, that money is not yours. Duh, right, but seriously... you technically are supposed to put it in an escrow account and then notify your tenant within 14 days of the financial institution where it is being held. The only way you can use it for your own personal gain is if you post a surety bond!

But hey, enjoy that interest! And tell your ex he owes you interest from the last 3 months.... ;)

Dawn said...

Thanks Catie! Actually, I was planning on putting it in an ING account separate from all my other finances. First I have to make sure the check clears of course...

I probably won't inform the tenant of where it is unless she asks. If so, I'd be happy to provide info. I was going to do that not because it was law, but just because it "makes sense" to me. Still it is nice to know that I am doing the right thing, too!

passivefamilyincome said...

Good for you Dawn! Make all that money work for you anywhere you can!

Dawn said...

Thanks PFI!! I am certainly trying! One of the great things about this blog is connecting with people who inspire me on how to make my money work for me!