Passive Income

Definition of 'Passive Income'

Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS).

'Passive Income' Explained

There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset active or portfolio income.

It is important to note that, by some, portfolio income is considered passive income; in which case dividends and interest would be considered passive. The important definition is the one the IRS uses, and to be sure your taxes are filed correctly, it would be prudent to check with the IRS or a tax professional on this matter if you have a blend of active, passive, and portfolio income.

Source: http://www.investopedia.com/terms/p/passiveincome.asp

1031 Tax Code (Deferred taxes)

Austin 1031 Exchange Real Estate Agent to Give Seminar on Investment Property - WCAX.COM Local Vermont News, Weather and Sports-

Austin Real Estate News

A Brief Intro to Limited Partnership Agreement

One smart way to invest is to form a Limited Partnership. In it's simpliest form, an LP includes a General Partner that operates the day-to-day activites of the asset while the Limited Partners are simply investors that get to generate a passive income in addition to their fixed income. It's simple as that. Here's an E-How article on how to establish Limited Partnership Agreement. Always consult an attorney when dealing with these types of agreements.

E-How Texas Limited Partnership Agreement

Wealth Gap Among Races Has Widened Since Recession

The wealth gap might still be growing, experts said, further dimming the prospects for economic advancement for current and future generations of nonwhite Americans.

http://www.nytimes.com/2013/04/29/business/racial-wealth-gap-widened-during-recession.html?smid=pl-share

Comfortably Living Investment Case Study: Barrack at Rock Prairie

Case Study:
Barracks @ Rock Prairie
3327 Cullen Trail
College Station, Texas

$189,900
4 bedroom/4 bath town house

Quickly gaining recognition as one of the BEST investment opportunities in College Station, these luxurious townhomes feature: Granite, stained concrete floors, vinyl windows, black appliances, HUGE bedrooms, & much more! Located only ~2.5 miles from Texas A&M! The Barracks is exclusively offering the much anticipated resort style amenities center featuring CABLE WAKEBOARDING PARK, Sandy Beach, Clubhouse with Arcade, Bar & Grill, & lagoon-style pool! The HOA even provides digital cable & Internet, full lawn care of the fenced grass backyard, and all exterior maintenance. These units will sell out fast!

More information at: http://www.barrackstownhomes.com/ Site Acquisition Analysis

Adjacent/Alternative Land Uses Residential, Retail, Office Distance to Texas A&M 3.4 miles Economic Obsolescence None Open Spacing Yes Price Per Sq. Foot $108.83 Year Built 2013 Access to Quality Retail Yes, Wal-Mart 3.5 miles, >1 to stripe mall Financial Analysis Offer Price $184,203 Equity Needed (10%) $18,420 Year 5 Reversion Gross Potential Income $21,600 $26,254 $231,331 Operating Expenses (9%) ($1,944) ($2,744) $13,878 Vacancy Loss (10%) ($2,160) ($2,625) $0 Debt Service ($9,013) ($9,013) $148,562 Capital Expenditure ($1,000) ($1,000) $0 Before Tax Cash Flow $7,483 $10,871 $68,890 Preferred Return 8% $1,474 $0 $0 Priority Payback 60% $3,605 $0 $0 Share of Remaining CF 50% $1202 $5,435.75

$34,445

Offer Price: Property is valued at 97% of the asking price Equity Needed: This is 10% of the offer price and serves as a down payment (earnest money) Gross Potential Income: This is the most income the asset can generate in any given year Operating Expenses: These include taxes and insurance as well as brokerage expenses at reversion (sale) Vacancy Loss: This is to account for months when the property is not leased and is not generating income Debt Service: This is the annual mortgage payment made to the mortgage lien holder (i.e. bank). The remaining mortgage balance is subtracted from sale price at reversion to get BFTC from sale. Capital Expenditure: This cash is placed in a reserve account and is used for such expenses as new carpeting or repairs needed during the holding period Before Tax Cash Flow (BTCF): This is the operating cash remaining after deducting all expenses from the gross potential income Preferred Return: This is the annual return each investor earns on the money they invest in the deal. There is no preferred return after all equity is paid back. Priority Payback: After subtracting the preferred return from the BTCF the investor is entitled to 60% of the remaining cash flow as priority payback of equity they invested until all equity is returned Share of Remaining Cash Flow: Whatever cash is remaining after preferred return and priority payback is split 50/50 between Comfortably Living and Investors. Profits at reversion are considered remaining cash flow.