When we first got started on the financial freedom road, we were pretty naive. One of the areas of naivety was "passive income." We read RK books and he talked about two types of income... earned and passive.
"Okay, great," we thought. "We want passive income." And so, the journey began. We now understand that many "passive" income businesses are not actually passive. We have also learned that income is on a spectrum.... with earned at one end and passive at the other. Most ventures fall somewhere in the middle. Or, more accurately, most ventures start at the "work your a$$ of for no pay" end of the spectrum, and as time goes on... settle somewhere in the middle of "earned" and "passive."
However, the ultimate goal is still to find that vehicle that delivers true passive income.
Here are a few vehicles that could be considered relatively passive.
Sell a business w/ a portion of the price as a note.
Collect money monthly. It doesn't get any more passive than that. Of course. It isn't passive at first. You have to build and run the business, which means working full time + for a while. Works with web businesses (ala MJ), B and M businesses, Service type businesses (if you position it so that the business is not "you"). Also works with real estate... self storage, etc. You must be very confident in the business as a going concern, and the purchaser. You must also have a willingness and understanding that there is a chance this person may screw up the business, run it into the ground, fail to make payments to you, and hand a disaster back to you. At any time, you may have to make the decision to step back in (repo the biz) and turn it around again.
Bonds, CD's, other "financial" products.
I'm not knowledgable in this area. I've seen other posts on the boards about this. A search should yield some ideas. Other than monitoring markets, this is relatively passive.
Private Placement Deals.
There are people out there that seek investors for their deals... apartment buildings, self storage, etc. The investors in these deals can get an excellent return, and it is relatively passive. It is very important to do your due diligence here. Check out the person making the offering, as well as the deal. Also understand that there is no guarantee. But, as far as passive income, this is a great option. Once your DD is done, it won't take too much time.
Self storage, with one employee.
Relatively hands off. Requires a check in twice a week. Requires a good employee and systems in place to be sure that employee is performing tasks as required.
Mobile Home Park.
There are "degrees of passive" here too. If you are going to expand, that will not be passive. It will take hours, time, and money, but it will also improve your long term cashflow and the value of the property. There are also management decisions. Will you self manage? If so, dealing w/ tenants and maintenance issues will be time consuming. Maintenance requests (and some tenant calls) can be reduced by switching to the "lonnie deal" method .... (sell the trailer on owner financing). Also, obviously, turning it over to a property manager would reduce a lot of the work at make it much more passive.
Web Businesses
Don't know much about this either, but some on this forum, such as Biophase and Jonleehacker seem to have achieved relatively passive income in this area.
B & M Businesses
Funny to add this to the list, because in my last post, I stated that there are much better ways to go than B & M. I stand by that, but there are ways to make these somewhat passive. It is just a lot of work, not something you can achieve immediately, and it is still more work relative to the options I listed above. However, it is less work than a J.O.B. once you have things set up appropriately, so it is worth adding to the list.
Understanding your biz and putting great people in place is key to making this work. You also have to have a system of checks and balances. Many employees work will deteriorate over time if they are not directly supervised and have no incentive to continue to keep the performance level up. Our answer to this was to restructure management, and hire a part time "general manager" to be the "owner" while we are away. Now, the regular staff has a boss that is known to swing by any day at any hour to check in on things. Makes a huge difference.
How to Get There
When we started the journey, the mantra was "passive income, passive income, passive income."
What we didn't understand, at first, is that passive income is not something you achieve right away. There are a few steps to getting there.
Build Networth First.
What does that mean - in practical terms?
It means you have to build a valuable business, or you have to build a portfolio of real estate investments. Either of those options above means work, work, work. But that is how you get there…
Pick something that has "scalable" upside potential. Build it - with a focus on creating value.
Once it is built, then you convert to passive by:
1) Putting key people in place. This is the least passive option, but can still be relatively passive. You still need to check the map and turn the steering wheel. You also understand that at any time, market conditions may change and you may have to step back in to the "work your a$$ off for no pay" or even "work your a$$ off just to reduce the negative cashflow" mode.
2) Sell w/ a portion as owner financing. Much more passive, but you are also taking on the risk that the new owner may fail.
3) Sell and put your proceeds into something that is a passive income producer. (bonds, private placement, etc)
"Okay, great," we thought. "We want passive income." And so, the journey began. We now understand that many "passive" income businesses are not actually passive. We have also learned that income is on a spectrum.... with earned at one end and passive at the other. Most ventures fall somewhere in the middle. Or, more accurately, most ventures start at the "work your a$$ of for no pay" end of the spectrum, and as time goes on... settle somewhere in the middle of "earned" and "passive."
However, the ultimate goal is still to find that vehicle that delivers true passive income.
Here are a few vehicles that could be considered relatively passive.
Sell a business w/ a portion of the price as a note.
Collect money monthly. It doesn't get any more passive than that. Of course. It isn't passive at first. You have to build and run the business, which means working full time + for a while. Works with web businesses (ala MJ), B and M businesses, Service type businesses (if you position it so that the business is not "you"). Also works with real estate... self storage, etc. You must be very confident in the business as a going concern, and the purchaser. You must also have a willingness and understanding that there is a chance this person may screw up the business, run it into the ground, fail to make payments to you, and hand a disaster back to you. At any time, you may have to make the decision to step back in (repo the biz) and turn it around again.
Bonds, CD's, other "financial" products.
I'm not knowledgable in this area. I've seen other posts on the boards about this. A search should yield some ideas. Other than monitoring markets, this is relatively passive.
Private Placement Deals.
There are people out there that seek investors for their deals... apartment buildings, self storage, etc. The investors in these deals can get an excellent return, and it is relatively passive. It is very important to do your due diligence here. Check out the person making the offering, as well as the deal. Also understand that there is no guarantee. But, as far as passive income, this is a great option. Once your DD is done, it won't take too much time.
Self storage, with one employee.
Relatively hands off. Requires a check in twice a week. Requires a good employee and systems in place to be sure that employee is performing tasks as required.
Mobile Home Park.
There are "degrees of passive" here too. If you are going to expand, that will not be passive. It will take hours, time, and money, but it will also improve your long term cashflow and the value of the property. There are also management decisions. Will you self manage? If so, dealing w/ tenants and maintenance issues will be time consuming. Maintenance requests (and some tenant calls) can be reduced by switching to the "lonnie deal" method .... (sell the trailer on owner financing). Also, obviously, turning it over to a property manager would reduce a lot of the work at make it much more passive.
Web Businesses
Don't know much about this either, but some on this forum, such as Biophase and Jonleehacker seem to have achieved relatively passive income in this area.
B & M Businesses
Funny to add this to the list, because in my last post, I stated that there are much better ways to go than B & M. I stand by that, but there are ways to make these somewhat passive. It is just a lot of work, not something you can achieve immediately, and it is still more work relative to the options I listed above. However, it is less work than a J.O.B. once you have things set up appropriately, so it is worth adding to the list.
Understanding your biz and putting great people in place is key to making this work. You also have to have a system of checks and balances. Many employees work will deteriorate over time if they are not directly supervised and have no incentive to continue to keep the performance level up. Our answer to this was to restructure management, and hire a part time "general manager" to be the "owner" while we are away. Now, the regular staff has a boss that is known to swing by any day at any hour to check in on things. Makes a huge difference.
How to Get There
When we started the journey, the mantra was "passive income, passive income, passive income."
What we didn't understand, at first, is that passive income is not something you achieve right away. There are a few steps to getting there.
Build Networth First.
What does that mean - in practical terms?
It means you have to build a valuable business, or you have to build a portfolio of real estate investments. Either of those options above means work, work, work. But that is how you get there…
Pick something that has "scalable" upside potential. Build it - with a focus on creating value.
Once it is built, then you convert to passive by:
1) Putting key people in place. This is the least passive option, but can still be relatively passive. You still need to check the map and turn the steering wheel. You also understand that at any time, market conditions may change and you may have to step back in to the "work your a$$ off for no pay" or even "work your a$$ off just to reduce the negative cashflow" mode.
2) Sell w/ a portion as owner financing. Much more passive, but you are also taking on the risk that the new owner may fail.
3) Sell and put your proceeds into something that is a passive income producer. (bonds, private placement, etc)
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