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HOT TOPIC The Passive Income Lie

Solais

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Please watch this 3x if you're still looking for that perfect "passive income" unicorn.

View: https://www.youtube.com/watch?v=EFe0v49ueC8


Funny how videos like these have 1K views while your typical "Shopify millionaire/blogging/Adsense/Amazon FBA" videos have 1M views. Snicker.
 

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Solais

Solais

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That statement about "MrMoneyMustache" (in case you don't know who he is, he started a famous blog about FI/RE after "retiring" from his job and penny pinching his way to $1M...I won't promote his content here by linking to it) is also spot-on...another Slowlane preacher but Fastlane practitioner. <_<
 

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It seems like this guy has never read the fastlane millionaire, because if he had, he would know that you can make passive income if you have the right system. Being a landlord can be passive - if you hire a property management firm to collect the rent, manage repairs, advertise the property etc.

Last week my employee made me 5 figures (the low end) - and I worked less than 1 hour, all I did was check my stats for like 5 min. a day.

Again, passive income is real, but you need to have the right systems in place and you need to have a in-demand product that provides value.
 

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Last week my employee made me 5 figures (the low end) - and I worked less than 1 hour, all I did was check my stats for like 5 min. a day.

Again, passive income is real, but you need to have the right systems in place and you need to have a in-demand product that provides value.
But just the fact that you worked that hour and you are a business owner means it is not truly passive. It's a high reward/low time expenditure business. Which, granted, is as close as it gets for most business owners.

I used to have a business that required me to work 1-2 hours on a Monday morning to do the wages, and count and bank the takings. I never considered that totally passive as it wasn't even though I spent the rest of the week fishing or working on my house.

I was a business owner. I could be called on occasion when problems arose that my manager couldn't overcome. I have been called out when we had a break-in and an arson attempt. I held the responsibilities as a business owner and employer so the business was often on my mind.

All kudos to you for your highly leveraged business. How long do you think you will be able to ride that wave?

The reason I ask is that I have had several products over the years that did extremely well on the Internet. But, as always happens, trends change, competitors spring up, margins decline. In a shorter space of time than you would have liked your golden goose looks more like a dead duck, and you are left looking for the next product that will continue to bring in a healthy return. This is another reason why such businesses are not truly passive.
 

RazorCut

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Just some thoughts. There is very little that can be considered true passive income unless it is derived through something like investments, and you have to earn the money to invest in the first place (unless you are fortunate enough to have inherited it).

If our goal is to maximise our free time we should be striving to build a low maintenance business where there is maximum disparity between effort expended and reward received. We need to capitalise on Pareto’s principle, the 80/20 rule.

There are many of us (including myself) who have built profitable businesses over the years but have found that we were dissatisfied with the effort/reward ratio.

I have recently shut down a business making around 80k a year because it was taking up too much of my time and I didn’t have enough free time to build something more passive.

However building a high reward low effort business takes a lot of effort. Those efforts tend to be stacked up at the front end during the start-up and establishment phase. The rewards come on the back end (hopefully).

The great thing about an internet business is that the time from start-up to established profitable business has been condensed due to lower overheads, direct access to large markets, lower cost delivery methods, and the fact that there is a wealth of knowledge available to act as mentorship in helping you avoid/reduce the mistakes you would have traditionally made.

Yes there are people out there who seem to be able to make a highly profitable, relatively low effort business overnight. However they have probably built up years of knowledge through diligent work and studies and maybe several failed businesses. They have then been able to leverage that knowledge and apply it to a new venture where all the pieces fit. Like an iceberg people only see the 10% above the surface, not the 90% that lays hidden below.

To me this failure to acknowledge that a lot of work goes unseen (perpetuated by the media that seem to love printing overnight success stories), and the desire for the magic unicorn is why you see so many people following these get rich quick charlatans.

They don’t want to hear there is hard work required to get there. Especially work that requires time and the building up of knowledge.
 

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But just the fact that you worked that hour and you are a business owner means it is not truly passive. It's a high reward/low time expenditure business. Which, granted, is as close as it gets for most business owners.

I used to have a business that required me to work 1-2 hours on a Monday morning to do the wages, and count and bank the takings. I never considered that totally passive as it wasn't even though I spent the rest of the week fishing or working on my house.

I was a business owner. I could be called on occasion when problems arose that my manager couldn't overcome. I have been called out when we had a break-in and an arson attempt. I held the responsibilities as a business owner and employer so the business was often on my mind.

All kudos to you for your highly leveraged business. How long do you think you will be able to ride that wave?

The reason I ask is that I have had several products over the years that did extremely well on the Internet. But, as always happens, trends change, competitors spring up, margins decline. In a shorter space of time than you would have liked your golden goose looks more like a dead duck, and you are left looking for the next product that will continue to bring in a healthy return. This is another reason why such businesses are not truly passive.
Come on bro... if you're working 1 hour per week its pretty much passive income. Get outta here with that mess.

I know it won't last for ever ... but I'm hoping to milk it long enough to build my dream / fastlane business that I've had my eyes on for the past 5 years but not been able to fund ... until now :)

So hopefully if it can last a year or 2... that would do me fine. After that, I expect my fastlane business to be able to sustain me for the long term.

I honestly still believe that you can have a passive business, IF you have the right information and the right systems in place. There's no reason why you couldn't have a passive income from an online business.

For example; let's say you and 3 of your buddies want to make some extra money... you all currently have normal 9-5 jobs... however, you have great credit and have no problem raising $25k each using OPM (other people's money / the bank / credit card company).

You now have $100k to fund a online venture, register your LLC or LLP and you hire a project manager with a proven track record to manage the new start up. You tell him, find a good "digital product studio" that can do market research and create a product for that market. The project manager does his job - you guys continue to go about your 9-5 work... the agency with the help of the project manager puts together a really great website that solves a real problem that has a real demand from the public ... however, they are not experts at running ads, so you tell the project manager to find a digital agency with a proven track record, and have them run ads for you on Adwords & Facebook. They of small, running test ads, figuring out what ads work, what audiences respond to what messages... then before you know it, they've got enough data and they tell you, with a $1k/day budget ($30k/month) we'll be able to deliver a 3x ROI on your advertising spend with confidence. You give the project manager the green light... and boom.

You now have a business that was developed using WORLD CLASS TOP TALENT (from the digital product studio) and is being advertised using world class top talent (marketing agency with a proven record) - now you're making $100k+ in profits... split 4 ways, leaving you guys to each take home $25k/month after 3 months of setting your start up.

Point is.... WITH THE RIGHT KNOWLEDGE and the right TALENT and the right SYSTEMS.

Passive income is doable.

Is it easy, No. Will most people be able to pull it off before they run out of money or steam/energy/passion.... No. But its def. possible :) ....
 

MJ DeMarco

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Watched with much trepidation, but I agree with most of what he said.

Passive income is a myth as advertised by gurus, but it does exist and in variable degrees.

The myth happens when one thinks that passive income is permanent and 100% hands off.

My idea of "passive income" is earning income 24/7/365, not set it and forget it.
 

JScott

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Couldn't get through the whole thing...

First, he couldn't stay on message -- He started with, "There is no such thing as passive income," and then quickly transitioned to, "I have lots of friends who work all the time and make lots of money" and "I know people who have tried to retire and they got bored."

Passive income is real, but it's not the magical, "Book the next flight out and sit on the beach the rest of your life" panacea that some gurus make it out to be.

Here are some truisms on passive income:

1. You don't create passive income out of nothing. You either need to invest time or money to generate passive income. If you're investing time, that's active. If you're investing money, you most likely did something active to create that money. So, while passive income is real, it takes active effort to create it.

2. The methods to earning passive income aren't always simple or obvious. It takes time to learn how to create passive income. If you want to invest in real estate, you need to learn about real estate investing. If you want to write Kindle books, you need to have expertise and a marketing machine to convert sales. Etc. Not only does passive income require time and/or money (see #1 above), but it requires expertise, which in turns requires time and study.

3. That said, unlike working a 9-5 job or other types of purely active income, once gain the knowledge on how to create passive income, and once you spend the time or acquire the income to create passive income, it can be done. If you work your butt off for 10 years, save $1M in cash and learn the ins and outs of purchasing performing real estate notes, you can make $100K/year for the rest of your life with relatively little effort.

4. Note that above I didn't say NO EFFORT. I said relatively little effort. Too many people want to be pedantic and say, "If I have to do ANY work, it's not passive income." Sorry, but nobody reputable has ever said that passive income necessarily translates to "no work whatsoever." Passive income simply involves a whole lot less work than what is normally considered active income. The people who refuse to get their head around this concept are the ones who are just looking for an excuse to argue against passive income.

5. MOST IMPORTANTLY, there is a direct relationship between the passivity of an investment and the return and risk of that investment. It's a triangle: RETURN, RISK, PASSIVITY. You set the level on two of them, and the third is out of your hands. If you want a highly passive investment that has low risk, you can get that -- but it will come with low returns. For example, if you're willing to accept a percent or two returns, you can have an almost completely passive investment in Treasury Bonds.

On the other end of the spectrum, if you want really high returns with reasonable risk, you need to shelve your desire for passivity. Businesses, 9-5 jobs, consulting, etc. -- they all provide high returns with relatively low risk. But, there is no passivity.

Now, what most investors consider "passive investments" are somewhere between those two extremes -- there's being a landlord (hopefully with a property management company that does the bulk of the work), there's buying notes, there's angel investing, there's creating/licensing IP, there's silent partnering with business owners, etc. All of these things are RELATIVELY passive (i.e., passive compared to running a business or having a job), and all of these things provide a mediocre return on your investment of time and/or money.

In summary, I just used a lot of words to describe the concept of passive income. Gurus would rather use many fewer words, which doesn't express the nuances of the concept. If you want to understand the concept, don't be scared of the words or nuances. And don't listen to gurus who don't want to consider the nuances.
 

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JScott

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Mj wrote this in 2012 about passive income based on a money system:

How to Never Work Another Day in Your Life, The Money-System Portfolio – Fastlane Entrepreneurs

If he can do it, everyone with enough quantity of money can do it too. So I think, passive income isn't a lie. The big lie is people telling you that you can do it with a little quantity of money.
Yup. Though it's lots of money OR lots of time. If you don't have a lot of money, there are still ways to create passive income streams if you're willing to put in a lot of time to learn and execute. For example, creative real estate deals, creating intellectual property, leveraging option contracts on cash flowing assets, etc.

I typically recommend focusing on the lots of money route (just like MJ says) for a few years, but it's not the only way...
 

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garyfritz

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If you work your butt off for 10 years, save $1M in cash and learn the ins and outs of purchasing performing real estate notes, you can make $100K/year for the rest of your life with relatively little effort.
I'm not at MJ's "lots of money" level, but I could do this. Do you have any guides you'd recommend for learning those ins & outs? 10% on notes sounds a lot better than the ~6% I get on my rentals after taxes & insurance, but before management fees and repair surprises, even though you'd lose the depreciation writeoffs. I've had 8-15%/yr appreciation on my properties so it's worked out well, but I don't expect that to continue much longer.

I assume it can be just as difficult to get on-time note payments as it can be to get on-time rent payments. But it would be nice not to have to worry about tenants trashing the property &etc.
 
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Startup Steve

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All kudos to you for your highly leveraged business. How long do you think you will be able to ride that wave?

The reason I ask is that I have had several products over the years that did extremely well on the Internet. But, as always happens, trends change, competitors spring up, margins decline. In a shorter space of time than you would have liked your golden goose looks more like a dead duck, and you are left looking for the next product that will continue to bring in a healthy return. This is another reason why such businesses are not truly passive.
Best to develop a business and sell it right before it commoditizes, then roll that working capital into the next emerging market. Much easier to do with a services company than a product. We have only ever developed one product (software) after we had delivered services in the industry for a while and knew all the customers, partners, and vendors in the space.

For me, it is information technology professional services firms. Now I am in banking ;)
 

Startup Steve

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I'm not at MJ's "lots of money" level, but I could do this. Do you have any guides you'd recommend for learning those ins & outs? 10% on notes sounds a lot better than the ~6% I get on my rentals after taxes & insurance, but before management fees and repair surprises, even though you'd lose the depreciation writeoffs. I've had 8-15%/yr appreciation on my properties so it's worked out well, but I don't expect that to continue much longer.

I assume it can be just as difficult to get on-time note payments as it can be to get on-time rent payments. But it would be nice not to have to worry about tenants trashing the property &etc.
First, just stay focused on making the capital...

I have had coffee and traded notes with many HNWI over the years. Seems there is a sweet spot with...

Determine an in-demand professional skill, preferably in technology. Right now its AI, BI, IoT, Blockchain.
Go out and do some independent consulting, slowing moving your individual bill rate up to $250/hr, your social proof increases and you are considered an influencer. Now hold out for billing by projects (outcome selling) $25k-$50k month per project. Operationalize your services and outsource people to do the work under your leadership and get 3 of these going at a time. Keep it small as a lifestyle business, or scale and get acquired in 3 years.

Then you become a bank and 9% is more than enough...
 

The Abundant Man

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I guarantee President Trump is laughing all the way to the bank. He's making 400k/year as President plus he's still making billions off of his hotel/real estate companies. His companies is making him passive income. Now he's set for life with Presidential benefits such as US Secret Service 24/7. Same with his Ivanka Trump and Kushner.

I remember watching an interview with Ron Howard and how he still gets Royalty checks of 35ç from when he did the TV Show Happy Days back in the 60's. Sure it's a measely 35 cents but to still get royalty checks after nearly 60 years. Passive Income.
 

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The beauty of this bro-marketing youtube clickbait headline inspired meme is that while you're arguing semantics and the definition of "passive", its generating passive income for all the guys regurgitating it :rofl:
 

Startup Steve

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I guarantee President Trump is laughing all the way to the bank. He's making 400k/year as President plus he's still making billions off of his hotel/real estate companies. His companies is making him passive income. Now he's set for life with Presidential benefits such as US Secret Service 24/7. Same with his Ivanka Trump and Kushner.

I remember watching an interview with Ron Howard and how he still gets Royalty checks of 35ç from when he did the TV Show Happy Days back in the 60's. Sure it's a measely 35 cents but to still get royalty checks after nearly 60 years. Passive Income.
President Trump donates his entire salary every year. President Trump does not have active participation in any of his 515 companies he is delegated that to his children. I haven't stayed on top of what the profitability is of his various Ventures but I don't think netting billions every year.

Sent from my SAMSUNG-SM-G930A using Tapatalk
 

The Abundant Man

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President Trump does not have active participation in any of his 515 companies he is delegated that to his children.

Sent from my SAMSUNG-SM-G930A using Tapatalk
Yeah, passive income. He doesn't work for that income.
 

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I have a few family members who have a TRUE passive income. They sit at home and draw government assistance and have for years! I saw them just today and about 15 minutes ago I asked the lil woman.... is it ME that is doing something wrong? The family members were once again trying to come up with ideas on how to make money and as always they were saying they didn't have any money to start.... and they KNOW I won't give them any. So I waited a few minutes.... then I asked.... do you ever play those games over there (board games)? The answer was NO! They didn't suspect a thing but they know me.... they should have known it was going to lead to something! :innocent: :halo: So I said.... there ya go! You can sell those games and then take the profit from those games to buy other things to sell and before you know it you can be making $100 a week. With these people you can't say some unrealistic number.... but it didn't matter anyway.... crickets..... nothin! So I asked my wife what I did wrong (this happens all the time with these people)!?! She said that she didn't see anything I did wrong but they will never get off the couch. Fair enough, I tried.... again....

On a positive note, for the 1st time ever the lil woman is thinking about doing a business venture with me. She is going to think about it on her trip to Spain but she SEEMS excited. And how does that tie in to this thread..... it should be as close to a real passive income as anything. I've been toying around with a blog the last few months and she has always wanted to make a travel blog... with a twist... it's behind the scenes of traveling with multi-million dollar art pieces around the world. We will see how it goes.
 

Siberia

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24/7/365 ......... magic numbers ...... combine them with those of your personal net assets and evaluate how much they affect it.

Great challenge.
 

garyfritz

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First, just stay focused on making the capital...
I already HAVE the capital. I never managed $250/hr rates but I've put together a small pile over the years. Small enough that 3-4% (e.g. what I can expect from my rentals) would be starvation wages, but 10% would be fairly comfortable retirement income. (Which is just a few years away for me.). That's why I asked JScott for more insight about getting 10% on performing notes.
 

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JScott

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I'm not at MJ's "lots of money" level, but I could do this. Do you have any guides you'd recommend for learning those ins & outs? 10% on notes sounds a lot better than the ~6% I get on my rentals after taxes & insurance, but before management fees and repair surprises, even though you'd lose the depreciation writeoffs. I've had 8-15%/yr appreciation on my properties so it's worked out well, but I don't expect that to continue much longer.

I assume it can be just as difficult to get on-time note payments as it can be to get on-time rent payments. But it would be nice not to have to worry about tenants trashing the property &etc.
Notes aren't easy -- part of why you can still beat rental returns, and most other passive real estate alternatives, with them. I wish there were one great book or resource I could recommend, but unfortunately, there are just lots of average and below average resources out there.

Jim Napier has a book that is VERY difficult to get through (it's not well written), but has some great information ("Invest in Debt"). Dave Van Horn has a new BiggerPockets books ("Real Estate Note Investing") -- I haven't read it yet, but Dave is a very smart guy who runs a $100M note fund that I invest in. There are some decent threads on BiggerPockets, but nothing that lays out the business step-by-step.

The problem is, notes is a diverse business. You can create notes, buy them, flip them, rehab them, use them as debt collateral, sell partials, etc. Smart note investors combine these strategies to maximize returns and reduce risk. But, like I mentioned above, the higher returns you seek, the less passive the income stream is. Though, the nice thing about notes is that you can pay for passivity -- you can higher people to negotiate loan mods on non-performing notes, you can hire companies to handle the services and payment collection, you can hire people to handle the legal aspects, etc.

Basically, just start looking for information and reading books...it will take a bit, but it will all come together to start making sense with a couple weeks of reading and effort.

Happy to answer specific questions if you have them!
 

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I'm not at MJ's "lots of money" level, but I could do this. Do you have any guides you'd recommend for learning those ins & outs? 10% on notes sounds a lot better than the ~6% I get on my rentals after taxes & insurance, but before management fees and repair surprises, even though you'd lose the depreciation writeoffs. I've had 8-15%/yr appreciation on my properties so it's worked out well, but I don't expect that to continue much longer.

I assume it can be just as difficult to get on-time note payments as it can be to get on-time rent payments. But it would be nice not to have to worry about tenants trashing the property &etc.
Even with owning a note, you still have worry about the "owner" trashing the property. You must make sure that you having a low enough LTV (loan to value ratio) in order to protect yourself. Part of the trick is to know the different risk levels on the different types of properties. You can be successful or a rotten failure. It's all in your bid, if you are buying an existing TD. If you are creating the TD, it's all about the terms of the note.

Taking care of my rentals is a full time job. Finding the right trust deed notes is also very labor intensive. Once I get the note and have it set up with a collection escrow, it's very little work -- they do the paperwork... BUT, I do still do a driveby inspection of each property every 6 months or so. My picture snapshot collection for each note, coupled with the ledger, can tell me everything that I need to know.
 

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It seems like this guy has never read the fastlane millionaire, because if he had, he would know that you can make passive income if you have the right system. Being a landlord can be passive - if you hire a property management firm to collect the rent, manage repairs, advertise the property etc.

Last week my employee made me 5 figures (the low end) - and I worked less than 1 hour, all I did was check my stats for like 5 min. a day.

Again, passive income is real, but you need to have the right systems in place and you need to have a in-demand product that provides value.
Liked your comment to push you over the $3k mark. You're welcome. ;-)
 

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That statement about "MrMoneyMustache" (in case you don't know who he is, he started a famous blog about FI/RE after "retiring" from his job and penny pinching his way to $1M...I won't promote his content here by linking to it) is also spot-on...another Slowlane preacher but Fastlane practitioner. <_<
I disagree with this. He slow laned his way to freedom from a J.O.B. with $1M saved and invested at the age of 30. The fact that he chooses to provide value now through a blog preaching financial literacy and minimalism doesn't negate that fact. From everything I have seen he continues to live the minimalistic life that he preaches even though he has a money tree spitting out mid-six figures a year further proving that the minimalism is a choice. Some people would honestly prefer maxing out their utility and grocery bill savings than owning a sports car and that is ok as long as it is by choice rather than necessity.
 

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Licensing is a form of passive income. If you create something truly proprietary, protect it very well, and then license it to businesses, it would be a pretty hands-off income. Mr. Wonderful has offered countless licensing deals in the Shark Tank to people and basically gives them the opportunity to license their invention to businesses and then sit at home and collect a check.

I don't know that I have an inventors mind, so I created a service based business that I offer as a social program. My business can be outsourced to employees to a large degree, but we will never stray too far away so that we can remain active with our business. But quite frankly, our passion is there, so we really don't have any desire to be too far away for too long.
 

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I feel like people who speak against passive income are unable to create a system of their own

i heard the Shopify sale chime on my phone as I read through this thread. It's almost 2:30 am

you can't convince me it's not real

some ppl lack that certain something that allows an individual to create a passive income system
what that is depends on the person....
knowledge, creativity, guts....
 

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It's not a lie; passive income is the very essence of rich.

Sure a lot of new guys think it's easier to achieve than it is (it's damn hard), but it's the only real bright outcome for a man's life.

If you're still walking into an office at 9am, Monday to Friday, when you're 50, because you simply have to, how depressing does that sound? That's profoundly depressing and dreadful -- but it's the norm.

Passive income is the only possible path by which you can avoid that scenario. Even if only 50% of your income is passive -- that's still enough to allow you to avoid that scenario.

Whether it's accumulating income producing assets like stocks & real estate, or starting a business that builds a momentum of its own, there isn't really any alternative but to aim for any sources of passive income you can get, now, if you don't want to end up a miserable old man.
 

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I posted the following on my Facebook page the other day, in response to a discussion I was having with someone who wanted to argue about the term "passive income" and "investor" when it came to real estate and other business ventures. Thought it might be appropriate in this thread...

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I keep hearing the terms "entreprenuer," "passive income," "investor," etc. thrown around by educators and gurus. Discussion of whether certain income is passive or not. Discussion of whether someone should be called an investor or entrepreneur or not based on what they do.

Personally, I don't care about labels. Whether you call the income I'm making Active or Passive doesn't affect how I'm generating that income. And it doesn't matter to me if I'm called an Investor or an Entrepreneur or an Employee or even an unemployed lazy piece of dirt. :)

Now, while none of those things matter, I've found that it DOES create confusion among many of us about what we do, how we're doing it and how it is creating income for us.

So, in order to help everyone get their heads around these questions, I wanted to share how I think about income.

From my perspective, there are only 3 ways to create income and only three classifications for those who earn income in these ways:

1. TRADE TIME FOR MONEY (EMPLOYEE):

People who trade time for money are employees. Even when you have your own company, if you're trading time for money -- and stop making money when you stop trading time -- you're just an employee.

I know a lot of real estate people hate when I say this, but for 99% of people who flip houses (MYSELF INCLUDED!), we're basically just employees. Even if we started the company. Even if we run the company. Even if we make million of dollars per year.

If you stop making money when you stop working, you're trading time for money and are just an employee.

2. TRADE UPFRONT EFFORT FOR MONEY (ENTREPRENEUR):

People who trade upfront effort for recurring revenue are entrepreneurs. Whether you start a business that can eventually run without you or create intellectual property (books, courses, etc) that can generate long-term passive income, if you're trading short-term efforts for long-term income, you're an entrepreneur.

Income created this way may resemble income created by trading time for money (#1 above) at first, but if you're a successful entrepreneur, you will eventually generate a whole lot more income long-term than the effort that was expended.

If you do things right, income generated through entrepreneurship will eventually be referred to "passive" income.

3. TRADE MONEY FOR MONEY (INVESTOR):

People who trade their money for more money are investors. Investors generate income using nothing but capital -- and in most cases, that capital was generated using #1 or #2 above.

This can include buying rental properties, lending, buying/creating notes, etc. All of these things have the potential to quickly generate passive income strictly through the deployment of capital.

Before you jump on me in the comments, yes, I realize that even these activities will generally require some upfront effort, but typically the amount of upfront effort is MUCH less than #2 above -- the bulk of the income is generated by the infusion of capital, not by the efforts of the investor.

And we can always argue about which category something fits into -- in some cases, certain income can fit into multiple categories. It's rarely clear cut.

Also, it's worth pointing out that in addition to time, effort and money, knowledge and expertise are required for all three of the strategies mentioned above to work.
 
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