While this is not necessarily wrong – it certainly isn’t accurate.
Passive income means that you don't have to constantly get up and do something to create money.
So you are more passive in this income’s creation, than you are actually active.
What Is The Difference In Your Relationship To Passive Income As Opposed To Active Income?
Most of us are familiar with active income.
This is when we get up, go to our job, get to work, we do something, and we get paid one time for it. And it's done.
Passive income usually means that we bundle our labor in such a way that now we don't have to work every single day for it.
Instead, we've sold our labor. We’ve sold our intellectual property or ingenuity out into the marketplace… and it continues to come back to us in the small streams of income over time.
Your Active Income Is Consistent, But It Limits The Scope Of Your Income.
Let's pretend that right now, at your job, what you earn is $2,000 a month.
So if you earn $2,000 a month, that gives you $24,000 is what you earn over the course of year.
With that active income, you generally have to work 160 hours per month to get to $24,000 in a year. Which means you are going to work, generally, 1920 hours for the year.
That is a lot of time you have to invest in order to achieve that kind of cash income.
Is there a way for you to make that much money by literally doing nothing? Just sitting back and taking checks?
It Is Possible To Sit Back And Do Nothing To Make Money – But You Need Money To Do That.
For the sake of this example, let's use Bank XYZ, so that you can have an understanding of what it would take that same Bank XYZ to be able to produce $24,000 annually.
Let’s say that Bank XYZ’s rate is 2%, meaning that the bank is willing to pay you 2%.
In order for you to make $24,000 for the year, all you need to do is take that 24,000 and divide it by 2%. That will give you how much money you need to have in the bank in order to make $24,000 by literally doing nothing.
24,000 ÷ 2% = 1,200,000
Easy, right? All you need is a cool 1.2 million dollars in the bank to make $24,000 by doing absolutely nothing.
Again – lots of money – and it’s not very practical for everyone.
How You Can Use Real Estate To Make More Passive Income For Your Bank Account.
Do you think that it’s possible for an apartment building to be able to produce $2,000 a month?
Well, obviously, the answer is yes. So let's look at it.
What kind of apartment building would that be? Let's just keep it simple and try to net $100 per door, per month.
If I want $2,000 per month, that would typically mean that I'm looking for a 20 unit building.
Depending on the market you're in, what does a 20 unit building cost?
For some people, a 20 unit building may only be somewhere in the neighborhood of $400,000 or less. For others, especially if you're out in California, that same building could easily be $2 million.
Now, here's the fun and power of passive income.
Let's say that the property is $2 million. In some cases, it is possible for you to be able to only put 20% down – which means you would have to spend $400,000 as the down payment.
Where did that $400,000 come from?
Because it's real estate, it's very possible that even that $400,000 didn't come from you. And if it didn't, that's great.
Sometimes it is possible to be able to use that $400,000 in very creative ways.
But here's the point… how many hours does it take to put this together? Is it less than 1920? Is it less than the time it takes you to earn $1.2 million?
I think you understand that the answer is yes.
Let's just assume it takes an entire month or even two months to put this apartment project together. What does that now mean? If you worked 40 hours for two months straight, that same $24,000 only required 320 hours of your time.
Less time for the same amount of money – and it may not even have to be achieved with your own down payment! You see how the math works?
The bottom line is this:
Passive income does require you to put in the work, the money, and the time.
However, it will broaden your scope of income in a fraction of the time that it takes you to make the same money with your active income.
So what are you waiting for? It’s time to get creative and generate new avenues of money for yourself and your family.
Interested in learning more about real estate investing? Visit my YouTube channel to take the next step in expanding your short term rental business.