Is Passive Income Real?

[Hurdlerwayne]

If you have money and lend it, thats pretty passive. If I take a $150k note from a person, and pay them 10% on that over a year, thats $15k they literaly didn't lift a finger for.

The catch 22 is you need money first to lend. But money makes money.

Lets say I do have the money to lend what would be the process I would have to go through too ensure that I get the money back that I lend. Should I just conduct myself as a loan department and write out extensive contracts?

 

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[arch2724]

There is no process to ensure you'll get the money back. That is the risk you assume as a lender. In my industry (merchant cash advance), the lenders make about a 30-60% APR on their funds but the money is NOT collateralized. The rates are high but so is the risk of default.

And yes, passive income is real. I provide credit card processing services for about 120 merchants and I get a small residual from each one at the beginning of every month. It takes hard work to get there and hard work to maintain the portfolio, but it's nice to see a deposit of several thousand dollars in my bank account every month. Whether I work or not, the money will be there but you leave the portfolio untended for a long time it can eventually whither and die as merchants go out of business or switch to other competitors.

 

[Blueskies4me]

Notes are passive until one goes south, than you have to work to recover your mone

Meh. Sell it. Notes are great.

 

[Blueskies4me]

Let's be clear that when we say "passive income" that doesn't mean that money falls out of the sky into your lap. PASSIVE INCOME means that the time you have to put into your business becomes less and less proportional to the return on that time i.e. the money you make.

For example, traditionally in a J.O.B I'm exchanging one hour of my time for one hour's worth of pay at whatever my employer sets. This is zero passive income. If I skip an hour or stay home for the day, I can't recoup that nor can I receive ANY "passive income".

No one is arguing the fact that there is effort. What is being said is that there is a winding of the gears so to speak at periodic intervals that creates a long term cranking out of cold hard cash. Leveredge of your time so that it's no longer a 1 hr to $20 ratio but a 1 hr to $200,000 ratio and so on.

Take notes for example: It might take you a year to study notes, build a network, fail a few times but one day when you have wound the gears and have a staff who buys and manages your notes you're suddenly making $50,000 NET a month in payments.

So what if you walk in one day a week, spend a few hours fine tuning and double checking and have the freedom to take your whole extended family (who by the way has to ask their boss for time off at 1 hr to $20) to Hawaii for the weekend, week or month. It's passive because you changed the ROI on your time not because you get money handed to you.

 

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[Blueskies4me]

Just thought I'd bump this thread. This is a great discussion about passive income...

 

[MJ DeMarco]

I just got back from the gym.

I was gone 90 minutes doing a chest workout and 6 sets of jump rope. Between the time I left, pushed iron, and returned, I made $260.

Does that count?

 

[Gale4rc]

I literally wake up every morning and all I have to do is ship some products that I sold online and I make $

 

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[stranger]

When some people hear "passive income" they get that as "lazy income".

 

[stranger]

"I work 16 hours a day, so I can earn money while I sleep!"

I got fun

 

[Rawr]

Passive income to me right now is inertia. You push...then it goes as far as it goes. At some point it needs another push, wherever you feel you need to get.

 

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[Blueskies4me]

I was gone 90 minutes doing a chest workout and 6 sets of jump rope. Between the time I left, pushed iron, and returned, I made $260.

Sounds like work to me man... Awesome though!

 

[throttleforward]

I licence one of my dealer agreements I made when I had my ecommerce business to someone who knows what they are doing. I get 20% of what they sell under my agreements. I get a check for between $500-1500/mo without any work whatsoever. In fact I'm buying back the agreement, and will be making a lot more money for not much work.

 

[lleone]

The way I look at passive income is as a spectrum. On one end you have government notes, bonds, etc. which are essentially risk-free. If you have worked hard and made enough money you will get very little return, but it will be enough to do what you want with no time required on your part. On the other hand, you have passive income that involves either a lot of time and money upfront, on-going influxes of resources and higher on-going market and/or financial risk exposure. The goal is to start where you can and build up cash to move from the "higher risk" passive income ventures to the lower risk. Making passive income for years only to get hit in the end with a lawsuit, capital loss, diminishing return, etc. starts to make it less appealing.

 

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[Blueskies4me]

...lawsuit, capital loss, diminishing return, etc. starts to make it less appealing.

This is just business. I get the mitigation of risk part of what you're saying but personally I can't think of anything that makes passive income NOT appealing. It's ALL appealing. Passivity is pure leveredge - a result of working smarter not harder. I don't think it's fair to associate normal business risk (high and low) with it's intrinsic potential for passivity. If someone's not great at mitigating loss and managing the business that creates that passivity, they should not be in BUSINESS they should have a job. IMO It has nothing to do with the pursuit of passivity.

 

[lleone]

Passivity is pure leveredge

Passivity isn't the same as leverage. Passivity has to do with how much time you have to put into the investment. You might not be leveraged at all and make 30% returns or you might be leveraged to the hilt and make 30% returns. Leverage is about how much investment you use to control a larger investment.

It's ALL appealing.

Passive income doesn't have to be from a business. It could from real estate partnership, bond, etc. The only point being made was that they are not all equal. All passive income vehicles may be interesting, but some stuff is definitely more appealing than other stuff.

 

[Dan Willis]

What I find interesting whenever I meet people discussing passive income is how active they are in creating it.

 

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[Blueskies4me]

Passivity has to do with how much time you have to put into the investment. You might not be leveraged at all and make 30% returns or you might be leveraged to the hilt and make 30% returns. Leverage is about how much investment you use to control a larger investment.

You're talking about capital leveredge. I'm talking about leveredge of time and resources, so yes it applies to passive income in controlling all of your investment including capital.

What I find interesting whenever I meet people discussing passive income is how active they are in creating it.

Well, then I hope you're taking notes...you might want to see how it's done here before you jest.

 

[Dan Willis]

You misunderstand its no jest. I actively enjoy building my own passive income. It was more of a tip of the hat to all those here who are active in not only building their own passive income but helping other to do the same.

 

[Blueskies4me]

tip of the hat to all those here who are active in not only building their own passive income but helping other to do the same.

Then awesome Dan! I look forward to watching you cruise the fastlane here!

 

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[Dan Willis]

Then awesome Dan! I look forward to watching you cruise the fastlane here!

Thanks! And look forward to seeing you around as well

 

[AroundTheWorld]

I would like to stress the benefits of "passivity" via notes. You can have a business that has ZERO passivity, but the act of selling it, could create passive income via the standard method -- take the proceeds and invest it into fixed income instruments -- or via the carry-back note.

I just want to re-iterate this. This is EXACTLY how I survived the last two years, financially anyway.

We developed a self storage facility from the ground up (adding value to a mobile home on two acres / highway frontage) and then sold it on a note. It was the income from this note that allowed me to make it through my divorce free of financial concern.

Do you want / need financial security? Create value (through ebiz, real estate, etc.) then sell and either invest proceeds in something "stable" or sell on a carry back note. This process literally saved my bacon and allowed me to focus my energy on areas other than financial security, during a very unstable time in my personal life!!

 

[Lathan]

I'm not understanding this "notes" thing. If you are selling a company for X million, why not take the cash? Why get it paid to you in payments. Forgive my ignorance. I'm sure that's not how it works but... yea. I did a quick google search but didn't find the info I was looking for. Going to give it a more in depth search to figure out how that works.

 

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[SteveO]

In real estate as a buyer, you get price or terms. You are probably paying more if you get terms. For a seller, that means get paid a bit more now and more later.

 

[AroundTheWorld]

Depending on the stability of the buyers, and their potential for running the business, you can safely get a better return by doing seller carry-back. In my case, I was able to get a better interest rate by carrying the note than I would have gotten in some other 100% passive vehicle. I was confident in the buyers, the financials of the company, their management potential and financial security, so it made sense to carry the note. In the end, it was a better return, and that resulted in a higher income.

 

[Skys]

Passive income is real. Where I went wrong when I first read the book was to make it my end goal to create passive income.
What I realise now, that it's all about building skill, building character and building momentum. It's about the person you become while aiming for a certain outcome.

It's a tough break to finally reach the top of the ladder only to realise you have put the ladder against the wrong wall.

Great post.

 

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[SteveO]

It's a tough break to finally reach the top of the ladder only to realise you have put the ladder against the wrong wall.

I am assuming that you have moved the ladder to the other wall now. I am also assuming that it will be easier to climb this time.

 

[Skys]

I am assuming that you have moved the ladder to the other wall now. I am also assuming that it will be easier to climb this time.

Good question, if it was a question. I do have a better understanding of my own value system that's in play. That makes it easier to make certain career decisions.

That's what I have been thinking about yesterday. If you fall deep. If you fail hard and you get up. Next time you fail, the climb out of it is going to less of a distance. Because of the experiences you gained with your 'major fall'.

Have I found my entrepreneurial path? No. I find the jump to becoming an entrepreneur to big of a jump for the life situation I am in, at this moment. I do make career choices which make the jump less and less while growing as a professional.

 

[Blueskies4me]

I'm not understanding this "notes" thing. If you are selling a company for X million, why not take the cash? Why get it paid to you in payments. Forgive my ignorance. I'm sure that's not how it works but... yea. I did a quick google search but didn't find the info I was looking for. Going to give it a more in depth search to figure out how that works.

The note business is usually secondary, not on a property you actually owned or sold. So if X sells a property to Y and holds a note, Y pays X a certain amount until X gets tired of the little monthly payments and sells to you at a discount of the full amount. You can purchase the note and now have Y pay YOU instead of X. The risk is that Y could stop paying on the note but it's often secured by assets so if they default on the note you can always place a lien on the asset.

 

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[Blueskies4me]

'm not understanding this "notes" thing. If you are selling a company for X million, why not take the cash?

In MJ's example, not everybody has a couple million laying around so in order to get out take a note

 

[Lathan]

X sells a property to Y and holds a note, Y pays X a certain amount until X gets tired of the little monthly payments

In MJ's example, not everybody has a couple million laying around so in order to get out with a note

So basically, the whole reason X went the note route in the first place is because Y didn't have the money in hand to pay for the property in full?


But then I come along and I have the money to pay X a lot more so he decides to sell it to me for a discount because he is tired of waiting around.

Or...
Instead of me buying the property outright at a discount, I can just purchase the note that X owns, and Y will begin making the payments to me instead of X. The risk with this option is that Y could stop paying.


Do I understand correctly? Forgive me if not.