For many years, passive income was something that real estate investors talked about A LOT… but very few other people did. Today, the concept has expanded out and is now a popular discussion in the broader financial world. Unfortunately, there are a lot of misconceptions about passive income so I want to set the record straight about what it is… and show you how to get more of it!
Two Types Of Income (And, Does Passive Income REALLY Exist?)
At a very high level there are two types of income: Active income and passive income.
To a lot of newbies, passive income sounds AMAZING because it sounds like income that comes to you without you having to work for it. Winning the lottery seems to be passive income in that definition.
But here’s the misconception: you do have to work for passive income. Make no mistake about it. The difference between active income and passive income is not the level of work. The difference is: active income is income that is tied to your effort or time, while passive income is not. Therefore, if you want to earn more active income, you have to work harder or put in more time. With passive income, you still work for the income but the income is “uncoupled” from the effort or time you put in.
People who earn passive income still work for it, but usually that work is very intense at the beginning, and then lightens up over time, even though the income continues at the same level.
Take a cash buyer of turnkey property as an example: They work hard to earn the money they need to invest. But once they invest in that cash flowing turnkey property, they don’t have to put in anymore work because the property management company takes care of everything. That’s passive income… the investor still needed to work for it, but the income is uncoupled from their effort.
Or consider someone who writes a book or sells information products as another example: they put in a lot of time and effort at the beginning to create the book or infoproduct but once it’s done it sells. Sure, they might need to market it from time to time, but the income trickles in day by day without being strictly tied to time or effort.
So, passive income DOES exist but it’s not what you think. Passive income requires some work but the income itself does come in once the work is finished.
How Can You Get More Passive Income?
Here’s the most surprising thing, and this is something that my mentor taught me. Passive income can be created in many ways that you don’t realize if you understand the above definition of passive income.
What I mean is: I am a turnkey investor (among other things) and I acquire properties, clean and fix them, and rent them out to tenants, put a management company in place, and then wholesale that cash flowing investment to a cash buyer.
And some turnkey investors do one deal at a time because they do all the work themselves (the marketing, the acquisition, the fixing, the renting, and then the wholesaling). But, with the help of my mentor, I built a business that turned this very hands-on and typically active income into a passive income stream… because I built a team to do the work for me. The active work is done by someone else; I generate a passive income that is uncoupled from the amount of time and effort I put into leading my team.
See the difference? You can do that in all kinds of ways in your business, no matter what business you’re in. Whether you want to create information products or build a team or even invest in technology and systems that do the work for you – you can turn a lot of active income into passive income streams, which will give you the time and freedom to build even more passive income streams in the future.
So, what’s stopping you? Start today. What active income streams do you have that can partially or completely uncoupled from your effort?