Positive cash flow from rental income.
Another way to produce residual income through real estate is as an investment property. The two biggest values of rental income are the actual cash flow from the rent and the fact that property values increase.
To use this method, you buy a property with income. By income, I mean a POSITIVE cash flow. So, how do you find out this?
You need to add up the income per year to get net income (rental) and add up the expenses fund (maintenance fee, sinking fund, quit rent, assessments and other misc cost) per year to get the net expenses. Subtract the net operating expenses from the net income to give you the net operating income. Now subtract the debt service fees (monthly bank installment) and that gives you the cash flow.
In order to get a positive cash flow, you must either get a property with a higher rental return rate or put in more down payment to reduce the monthly installment. The choice is yours.