Here's another example. If a person owns apartments that are rented out at a profit, they earn money each month without working a specific number of hours. If the owner earns $100/month net income from each apartment, the determining factor is how many apartments they own, not how many hours they work. Therefore, they may own 1 apartment and make $100 net income each month, or they could own 500 apartments and make $50,000 ($100 per apartment) each month.
2. Real Estate: Real estate is #2 for one simple reason, leverage – using smart debt and other people’s money. When looking at real estate rents and the potential for income real estate provides, it is the trifecta of residual income. First, a home or rental property can appreciate, so capital appreciation is the first long-term benefit of owning a home. Second, rent. Other people are paying the mortgage, insurance, property taxes and maintenance while you own that piece of real estate. Third, tax protection. Rental income is taxed at a lower rate than ordinary income and you can depreciate real estate by taking a paper deduction on your annual tax return not to mention expensing the cost of mileage, mortgage interest, and updates to the property. Rentals done right can generate almost double what the stock market can in dividends and interest. The fourth and maybe most hidden, but important benefit is that over time rent’s rise, protecting your cash-flow against inflation, while your mortgage interest can be at a fixed rate potentially.
If you’re familiar with the phrase “don’t put all your eggs in one basket,” you know that it applies to just about any area of your life including—and especially—your finances. In addition to retirement becoming an ever-elusive goal, no one has guaranteed job security so by diversifying your income you can feel more secure about saving for your future. You’ll be less likely to find yourself in credit card debt and happier as a result of being financially secure.
That’s a nice read! I love your many tangible ways mentioned to make passive income unlike certain people trying to recruit others by mentioning network marketing and trying to get them to join up and sell products like Amway, Avon, Mary Kay, Cutco or 5Linx. People get sucked into wealth and profits and become influenced joiners from the use pressure tactics.
Udemy is an online platform that lets its user take video courses on a wide array of subjects. Instead of being a consumer on Udemy you can instead be a producer, create your own video course, and allow users to purchase it. This is a fantastic option if you are highly knowledgeable in a specific subject matter. This can also be a great way to turn traditional tutoring into a passive income stream!
The list of passive income ideas could go on forever. As you search for the best fit, keep an eye out for ideas that show positive long-term track records. Do other people make money on the idea? Has it come back to bite someone who tried it? Some people ask me about passive income options like drink, vending, or other rental machines in public places. The bottom line? Don’t fall for any passive income ideas that promise a quick return or require huge amounts of money upfront. They will sabotage your other financial goals. Look for ideas that are steady, profitable, and trustworthy. Do your research. And never go into debt!
After these tenants move out, I'm thinking of just keeping the rental empty with furniture. It sounds stupid to give up $4,200 a month, but I really hate dealing with the homeowner association, move-in/move-out rules, and maintenance issues. Given that the condo doesn't have a mortgage and I have to pay taxes on some of the rental income, I'm not giving up that much. The condo can be a place for my sister, parents, or in-laws to crash when they want to stay in SF for longer than a week or two.
Dividends made sense 40 years ago as a relatively simple rule of thumb, but after all the work done by John Bogle with index investing, and academics with Monte Carlo sims and the 4% rule, dividend investing just isn’t the simplest, cleanest way to invest or receive passive income anymore. It’s actually significantly more risky compared to index investing, because dividend companies are a much smaller share of the total global economy compared to the broader indices.
1) Save Like Nobody Owes You Anything. Passive income starts with savings. Without a healthy amount of savings, nothing works. Your overall “Money Strength” will be an F- if you do not build a financial nut. In our current low interest rate environment, you must save even more than before. It’s important to also realize that the savings I am referring to is AFTER-tax savings. You need to save money after contributing to your 401k and IRAs since you can’t touch pre-tax retirement accounts without a penalty until 59.5. Ideally everyone should max out their pre-tax retirement funds first, but if you don’t have enough funds and want to retire earlier then a decision to have more accessible post tax money will still work.
Department C has earned net operating profit of $300 million for the FY 2011 while department P has earned operating profit of $130 million for the same period. Department C had opening operating assets of $1 billion and its closing operating assets are $1.1 billion while department P had opening operating assets of $0.5 billion while its closing operating assets are $0.7 million.
Passive Wealth is like growing your own money trees! Income that is produced from what you have created, or accomplished, and it keeps bringing in money for you. HOORAY!! Goodbye slave job. 🙂 You are the head honcho, the boss. It’s your ideas and your creation. There are many ways and ideas to achieve financial success through passive income in your life. One way that opens up unlimited ways for you to achieve passive wealth is Blogging.
With $200,000 a year in passive income, I would have enough income to provide for a family of up to four in San Francisco, given we bought a modest home in 2014. Now that we have a son, I'm happy to say that $200,000 indeed does seem like enough, especially if we can win the public-school lottery to avoid paying $20,000 to $50,000 a year in private-school tuition.
Anthony, nice setup! To your question about the rental mortgages, you haven’t said what interest rate you are paying. As a start, if you are paying more than the risk free rate (Treasury bills) which you probably are, then a true apples to apples comparison would be yes, pay off the mortgage. But, if you are comfortable taking more risk, you have other options to invest in which you *hope* will yield you more over the coming years. You also didn’t say whether the rentals generate net income and if so, how much? What is the implied rate of return on the equity you have invested in them? If you pay the mortgages off, you’ll have even more equity tied up, will the extra net income make that worthwhile? Maybe you should use the money to buy more rentals instead, if purchase opportunities still exist in your town. … this is less of an answer than a framework to analyze the decision, hope it is helpful.
Pardon for being a bit of a newbie to true investing outside of a 401k. What about those of us who have 1) Just been laid off, and unable to find work due to lack of a degree (apparently 17 years in the industry with 5 certifications is just simply not enough – which is okay. It gave me the kick in the arse to get back to school finally) 2)Have three children to support (age 11 and under), and 3) Oh yeah – cannot find work. What do you recommend when the only source of positive revenue has ceased to come in and you now have less time than ever – due to responsibilities (i.e. doing well in university = academic scholarships means investment in time, plus spending 20 min breaks with kiddos) – to create positive sources of income ? I truly am wondering from an investor’s point of view how you would handle the pivot point of life if ever you had been faced with it. I realize this may be only imaginary, but at this point, I welcome your “what ifs” scenario on this one. You’ve truly done amazing work and I thank you for being so transparent.
Hi there. I am new here, I live in Norway, and I am working my way to FI. I am 43 years now and started way to late….. It just came to my mind for real 2,5years ago after having read Mr Moneymoustache`s blog. Fortunately I have been good with money before also so my starting point has been good. I was smart enough to buy a rental apartment 18years ago, with only 12000$ in my pocket to invest which was 1/10 of the price of the property. I actually just sold it as the ROI (I think its the right word for it) was coming down to nothing really. If I took the rent, subtracted the monthly costs and also subtracted what a loan would cost me, and after that subtracted tax the following numbers appeared: The sales value of the apartment after tax was around 300000$ and the sum I would have left every year on the rent was 3750$……..Ok it was payed down so the real numbers were higher, but that is incredibly low returns. It was located in Oslo the capital of Norway, so the price rise have been tremendous the late 18 years. I am all for stocks now. I know they also are priced high at the moment which my 53% return since December 2016 also shows……..The only reason this apartment was the right decision 18 years ago, was the big leverage and the tremendous price growth. It was right then, but it does not have to be right now to do the same. For the stocks I run a very easy in / out of the marked rule, which would give you better sleep, and also historically better rates of return, but more important lower volatility on you portfolio. Try out for yourself the following: Sell the S&P 500 when it is performing under its 365days average, and buy when it crosses over. I do not use the s&P 500 but the obx index in Norway. Even if you calculate in the cost of selling and buying including the spread of the product I am using the results are amazing. I have run through all the data thoroughly since 1983, and the result was that the index gave 44x the investment and the investment in the index gives 77x the investment in this timeframe. The most important findings though is what it means to you when you start withdrawing principal, as you will not experience all the big dips and therefore do not destroy your principal withdrawing through those dips. I hav all the graphs and statistics for it and it really works. The “drawbacks” is that during good times like from 2009 til today you will fall a little short of the index because of some “false” out indications, but who cares when your portfolio return in 2008 was 0% instead of -55%…….To give a little during good times costs so little in comparison to the return you get in the bad times. All is of course done from an account where you do not get taxed for selling and buying as long as you dont withdraw anything.
Blooom: Blooom works very differently from many of the other robo-advisors. It helps specifically with your employer-sponsored accounts (401k, 403b, 401a, and 457 accounts). Blooom will go through all the investment choices and make adjustments for you. The service also automatically rebalances the account as it grows. Blooom is very inexpensive when compared to a traditional advisor at only $10 per month no matter how large your 401k grows.
Real estate crowdsourcing allows you to surgically invest as little as $5,000 into a residential or commercial real estate project for potentially 8 – 15% annual returns based off historical data. Such returns are much better than the average private equity, CD, bond market, P2P lending, and dividend investing returns. With P2P lending, borrowers can sometimes default and leave you with nothing. At least with real estate crowdsource investing, there’s a physical asset that’s backing your investment.