“Passive income is the key to unlocking financial freedom and living life on your terms.”
– Pat Flynn
A lot of people talk about passive investing, but then they offer up non-passive investments.
Things like starting your own online business or flipping homes.
Those are not passive investments.
In my book, Fire Yourself, I talk about the importance of understanding what a passive investment is.
Passive investments involve some work on the front end, they are not fully passive.
You’re vetting the team and the deal.
But after all that’s done, the deal will hopefully produce mailbox money.
(Which is actually the name of my podcast that you should totally check out!)
Mailbox money will actually pay you every month (or quarter).
According to this article in Technology and Investment, passive investing can:
· Allow people to compete with professional investors without active trading
· Minimize diversifiable risk
· Encourage small, frequent deposits to build wealth over time1
Today, we’ll get into the secrets to developing passive income.
Let’s get into it!
1. Alternative Asset Investments
The first secret is looking at alternative assets.
I was actually a registered investment advisor for a few years.
During that time, I realized Wall Street only wants to get you into traditional investments like stocks and bonds.
I don’t think those assets are necessarily bad.
Having some stocks and bonds can be good.
But if you look at the ultra-wealthy, AKA people worth more than $10 million, you’ll learn a valuable lesson.
A group called Tiger 21, a high-net-worth network, puts out an allocation chart every year.This chart shows about 27% of wealthy people’s assets in commercial real estate.
They’re on fixed income.
Less than 20% are in equities or similar such things.
Middle class people have a lot of money in stocks and bonds.
In this way, alternative assets are a very wealthy investment.
Most people don’t know these assets exist, so the wealthy focus on them a lot.
According to this research paper, wealthy people’s investments heavily favor risky assets.2
There are so many choices of alternative assets.
Some people do coffee farms in South America.
We’ve done ATM machines and car washes.
We’re looking at buying businesses now.
The right alternative asset for you depends on what you’re looking for.
Think about your goals with passive investing.
You want to invest in something where you’re not swinging a hammer or getting calls from tenants.
You shouldn’t be making decisions on the property day-to-day.
When looking for passive deals, you should keep an eye out for a few things.
The first is cash flow.
You should have enough cash coming in to cover your living expenses.
Another thing is appreciation.
What’s the highest possible return you can get over the next 10 to 20 years?
You don’t have a short time frame if you’re trying to get appreciation.
The last thing to look for is tax benefits.
A lot of real estate investors are able to reduce their taxes to almost zero.
You can write expenses off if you have a business.
Different assets have different routes you can take, so make sure to pay attention!
2. Real Estate Investments
The second secret of passive investing is real estate.
I really like multifamily and larger syndication.
Real estate is kind of an unfair investment because it gives you an unfair advantage.
It’s like if you play a basketball game with shoes that make you jump twice as high.
Investing in real estate is almost like cheating, but it’s written into the way the asset works.
If you’re doing stocks, you have to pay taxes every time you buy and sell.
With real estate, you’re able to use other people’s money to buy the asset.
You can use debt.
Depreciation is a huge advantage when it comes to this.
It helps with tax advantages.
We’re also seeing some really great real estate deals that are significantly discounted.
Warren Buffett talks about being fearful when others are greedy and greedy when others are fearful.
I also love debt or debt funds.
First position debt fund is the safest position.
It’s not a US Treasury.
It’s not a money market fund.
But it’s a fairly safe investment.
We’re seeing some first position debt funds pay 13% to 15% a year with monthly payouts.
There’s always risk in deals, but these investments carry a lot less.
That’s what I love about real estate investing.
3. Up Your Learnings
I’ve had 2,500 interviews with millionaires. Wow! That’s a lot.
And while doing this, I was surprised to find that these people are committed to learning.
They want to read, to grow, and to understand.
In the past, we thought people were either born with money or they’re not.
86% percent of millionaires are actually self-made.
That means that they did not inherit the money.
So, how do they earn their wealth?
They did it through learning.
I gotta quote Buffett again: “The more you learn, the more you earn.”
You can learn through books or podcasts.
In 2023, I read 98 books.
My goal this year is 90, but I’d love to break 100.
The conclusion of all of this is that true passive income leads to steady, reliable income.
It allows you to put in minimal effort to achieve financial freedom and also time freedom.
You can do the things you want to do when you want to do them.
That sounds pretty great!
Now I want to hear from you.
What alternative assets are you looking at?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
Works Cited
1. Dan Ramos. “The Layman’s Guide to Passive Investing.” Technology and Investment (2021). https://doi.org/10.4236/ti.2021.123007.
2. C. Carroll et al. “Portfolios of the Rich.” NBER Working Paper Series (2000). https://doi.org/10.3386/W7826.
