What is Residual?

Published by Thomas Herold in Investments, Real Estate

The term 'Residual' is included in the Real Estate edition of the Herold Financial Dictionary. Get yourself a copy now on Amazon - available as Kindle or Paperback.

Residual refers to residual income. Residual income can have several different meanings depending on the context that you use. For an individual, residual income proves to be the money that remains at the end of a month after all financial responsibilities for the month are covered.

These include living costs, taxes, and housing costs. Where business is concerned, residual incomes are the operating income that is additional as compared to the typical minimum amount of operating assets that are controlled. Residual income furthermore refers to passive income that is earned. In this form of the term, it relates to all income that is created as a result of activities that are indirect. These might include royalties, rental income, investment portfolio returns, website revenues, or passively managed businesses, all of which qualify as residual income.

The word residual is a variation on the word residue. Residue means anything that stays behind because of some other substance or cause. So, residual income proves to be additional money made because of another activity like penning a novel and collecting royalties for the sale of every book.

Rental incomes are residual as they remain from the action of buying a house and then renting it to a tenant who pays you a monthly rental fee. Work is involved in this activity, although a property management company can do it on your behalf. The rewards for this rental project can be significant, as you enjoy the continuous rental stream as well as any increases in the value of the real estate property underlying it. Rental income can be utilized to pay for potentially an entire mortgage.

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Income from investment portfolios is similarly considered to be residual income. Both dividends and interest are acquired as an additional, passive benefit of possessing stocks, bonds, mutual funds, and other instruments. This residual income is not guaranteed from these investments, but it is common for investors.

A form of residual income that is growing in popularity these days is website, or Internet based, revenues. Internet revenues are commonly those that you make from having advertising on a given website. The dollar value of the advertising is mostly based on the number of visitors to the page. A significant amount of start up work is required to create the website and get it highly ranked on the major search engines. After this, you can see continuous monthly profits that you earn as a result of the advertising, which builds up a residual income. This amount of money could be as little as a few dollars a month to possibly thousands of dollars per month.

A last form of residual income can result from a business. If your company becomes large enough, you may be able to hire a manager to run it. The income that supports you while the manager runs the business is then considered residual income.

The term 'Residual' is included in the Real Estate edition of the Herold Financial Dictionary. Available now on Amazon in Kindle and Paperback.