Financial side of real estate

[Freeman Schultz]

Just like many of you here, eventually I would like to own several properties and eventually be able to live off of them. One of the things that I have been told is to make sure I do not touch my principal. Can someone explain what that means and how do you do that?

Real estate investing is considered to be passive income. But if you are living off the income from a building does that become active income and does that mean you get taxed at a higher rate?

I appreciate any answers.

[Josh C.]

Freeman Schultz
I think you may be mixing up your investments. In real estate the principle is the actual amount that the loan in on the house. But I think the principle who told you not to touch the principle is talking about is a lump sum of money (like a retiree taking a lump sum instead in their pension or a 401k or Roth.) This is also known as the principle. Ideally you'd only spend the interest and not touch the original amount.

Example: you have a million dollars and put into CD paying 4% so your proceeds would be 40k. That year only spend 40k and don't touch the million.

Also, if you live 100% off rental income it's still considered passive. Not the government's job how you spend your money.

Read the beginners guide to REI here in the site.