@Austin Montgomery, the interest portion is taxed as ordinary income, which is one of the downsides to lending or note investing, in my opinion.

@Lloyd SilverI agree with Brit that the area investment environment is strong.

@T Lee to add to what @Brian Eastman said, when you take distributions from your 401(k) it is taxed at your ordinary income tax rate (just like W2 wages). 

That allows us to take all ordinary business expenses on Sch E, including education, marketing and anything else from the business overhead world.

Depending on the amount of dividend income and how it is taxed (for example if it is taxed as ordinary income), you may actually be able to qualify for a mortgage without any W2 or 1099 income.

However, if your property manager is not adhering to your written agreement then it may be time to part ways.Your tenant is on a month-to-month and they are running a business in a residential home. my recommendation would be to contact the tenant and let them know you will only allow them to continue running the business if they take on ordinary maintenance (e.g. they pay the first $500 on all maintenance issues), provide proof their business is properly licensed and registered with the city, county, or state, and that they have the appropriate liability Insurance in place (at least $1 million) with you named as the additional insured or additional interest.

It’s an ordinary income. 

They are called ordinary and passive income and the passive (rentals) is lower taxes than ordinary (like flips). 

In a flip, there is no capital gains tax, just ordinary income taxed at your marginal tax rate.

That is, ordinary income subject to self income tax and basically. no different than ordinary wages/salary.