Real Estate

Passive income? The basics

The ‘rat race’ popularized by the guru of ‘Rich dad, poor dad’ Roberto Kiyosaki it’s what most of us find ourselves in when we have to get up every morning to go to work.

Although many of us may be happy with this situation, very few of us realize what we are doing with our lives and think that there might be a better way to make a living and ‘get by’.

The job is essentially selling your time for money at a fixed rate, which is your salary. For the economy to work as a whole, the employer buys your time and gets more out of it than he is paying you, so the old adage applies: “You, as an employee, are working to enrich your employer.”

To begin breaking free from this ‘linear’ method of making a living, you must learn how to supplement your income with ‘additional passive income streams’. Additional, because they can be additional to your salary and liabilities because they “take care of themselves” and work in the “background” of your life.

Passive income usually involves a little work to get set up, and then you can build a regular income (which can be forever!) by doing a little “work” to maintain it.

The best, though not the simplest example of passive income is renting a property. The downside to this is that it has a large initial capital outlay. Actual passive income ‘streams’ start with no money outlay and build up into substantial ‘rivers’ of income over time.

The idea is that when you rent a property, the tenants pay you rent on a regular basis, so you can calculate how much you will earn each month. This is fixed passive income. The initial “job” is that you need to set up the rental property with furniture etc, decorate it, and then advertise it.

As a bonus, if the real estate market is buoyant, you’ll get some capital appreciation on the asset in addition to getting the rent, so this is doubly good. However, capital appreciation is not part of the passive income equation.

As stated above, you’ll need to do some work to keep the project on track: replacing furniture, paying bills, and maintaining the property, but overall, the work is minimal; The bottom line is that it doesn’t require ongoing care, so you could go on vacation and still earn rent on your property. This is the real benefit of passive income: it works when you don’t!

Another example of passive income is buying and selling stocks and shares. Now I know this involves risk (as many passive income businesses do), but the idea is simple. Buy shares of a solid company that you are pretty sure will be around for years to come and hold on to it.

The important thing to learn here is that the passive part of the income is any ‘Dividend’ paid on the shares, not the increase in the value of the shares. As in the property example, there may be a substantial increase in the ‘Capital Appreciation’ part of the equation, but the passive part is in the regular dividend payments. These will vary, so this model is not as fixed as the rent in the previous example.

Both examples require a lot of money up front, but they are not the only examples.

Now that you know the term “passive income” when it comes to money, you can start thinking of ways to make money without having to “work” for it!

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