Passive income opportunities are an incredible thing. The more passive income you build, the longer your runway is to build wealth. If it costs you $3,000/month to survive in your market and you earn $3,500/month, you are able to stay afloat. However, if your income stream dries up (like we have seen happen to a lot of people with COVID-19 this past month), you will burn through $3,000/month.
If you have $12,000 in savings, your financial runway is four months.
$12,000 / $3,000 per month = 4 months before you run out of money to support your lifestyle.
If, however, you were earning $2,000/month in passive income, that same $12,000 would last an entire year!
$12,000 / ($3,000/month expenses + $2,000/month passive income) = 12 months before you run out of money to support your lifestyle.
The more passive income you can build, the longer you will be able to survive hardship. More importantly, if you earn $2,000/month in passive income on top of $3,500/month at your job, that leaves you $2,500/month to reinvest for more passive income. The more passive income opportunities you take advantage of, the faster you can build your investment portfolio by reinvesting.
This is how exponential wealth-building can happen!
Why is passive income important?
Passive income allows you to regain your most valuable asset: time. As you build more and more passive income into your portfolio, you slowly replace the amount of time you need to trade for dollars.
For example, let’s say you earn $1000/ week ($4000/month) at $25/hr. Then every $1000/month you earn from passive income equals 10 hours a month that you no longer need to work. Or you can continue working the same amount of time, reinvest the $1000 to generate MORE passive income, and expedite your exit from the rat race.
Once you earn enough passive income to cover all of your living expenses, you can essentially retire and have gained absolute time freedom. I believe that the ability to control your schedule and your time is true freedom!
What are some ways in which you can earn residual income?
My favorite way to earn passive income is through real estate investing. Once I purchase a real estate investment, I can have my contractor(s) renovate it and then my property manager will take care of everything else. I have a portfolio of 13 units (with two under contract) and an ownership interest in 146-unit syndication at the moment. All of that requires less than one hour a month (total) from me.
That hour is just because I enjoy doing my own bookkeeping—otherwise, it would be even less time! You can also invest as a limited partner in larger apartment complex acquisitions. When people invest with me in this manner, the only work they have to do is reading and signing the terms of the deal and purchase documents. Obviously, I still recommend reading the investor package and understanding the ins and outs of the deal, but it isn’t necessary. After that, they simply receive a check every quarter until we sell the asset and they get all of their capital, plus the return on their investment as a balloon payment. Talk about passive!
Alternative Passive Income Investments
There are many other passive investment opportunities available. You can invest in dividend stocks, which pay you a passive return on your investment just for owning the stock.
Another great way to earn passive income is through private money lending, especially in real estate. You can do this with “cold hard cash” or a self-directed IRA. You could lend a real estate investor like myself an amount of cash to invest in real estate in exchange for a set percentage of interest. I will then pay you this interest rate regardless of how my investments are going, which is known as being a debt-partner for real estate transactions. You could also lend me the money to become an equity partner, meaning that instead of a set interest rate, you would receive a portion of the cash flow, depreciation (tax) benefits, and equity/profit in the deal.
There are a ton of opportunities to create passive income streams once you start thinking in the right frame of mind!
It should be noted that all of these investments require at least a little bit of research, effort, or time to get off the ground. Thus they are not completely passive but can become that way with a very little amount of effort to get started.
Passive Income Opportunities through Hard Work!
The very idea of working hard seems to defeat the idea of passive income, but sometimes it can be the best way.
For example, building a business takes a LOT of hard work, time, and energy. Once you build it up enough, however, you can hire your own replacement and minimize the amount of time you need to spend at the business. I have a friend whose wholesaling and house-flipping business grossed over two million dollars last year. He hired a Chief Operations Officer (COO) to handle 90% of the business and personally spends only 10-20 hours working in the business a MONTH!
He is an incredible example of building passive income through hard work.
This blog can be used as another example. When I first started, this website took an excessive amount of time for me to maintain. Now, I have hired four virtual assistants to help with various tasks, and aside from writing/recording content, a large part of the work is completely automated. For the first time ever, I earned more money in March from my online platform than I did from the military. This is not recurring income, but it is a glimpse of what is possible and what is to come. The more I outsource low dollar-per-hour tasks, the more I can focus on improving the revenue stream of this business…while spending less time working on it.
This isn’t necessarily passive income, but it can become that way. Sometimes it takes a lot of hard work, but passive income opportunities can be built or found all over the place!
How can you balance building residual income with your day job/side hustles?
My first alarm sounds at 0355 every day of the week. This guarantees me a couple of hours to invest my capital until I go into my day job. I don’t believe it is necessary to do this though, as many of these investments require little if any, time on a daily basis. For example, if I were to partner with a real estate investor or syndication (buying large apartments), I could simply wait until they email me with a new deal. Then I read through the details, determine if it is an opportunity I want to take advantage of, and then transfer capital to them if I decide to go forward with it.
Or you could do a little bit of homework on dividend stocks every few days and place an order to buy whenever you feel like you’ve found a good deal. You could also set up an automatic allocation to a fund, and then it would transfer cash every month automatically. There are plenty of ways to invest your capital with minimal time and effort!
The Beauty of Passive Income Opportunities
The beauty of passive income opportunities is that you can train your mind to hunt them down. You can learn to find them in many places, and the better you get at this, the more frequently they will appear.
Learn how to turn active investments into passive investments, and you will be set for the future!
I love Pat Flynn’s blog and podcast Smart Passive Income if you want some other ideas!