In this episode, we are telling you everything you need to know about passive income by giving you the ideas on how to create it. Therefore, allow yourself to spend less time working and more time enjoying! Stay with us and learn what passive income is, how to build it quickly, and how many options you have for creating it.
What You Will Learn About Passive Income. Everything You Need to Know in 2019:
- Why you should focus on creating steams of money instead of saving it
- What passive income is and what should you expect from it
- Why you must create it
- The 3 options of earning passive income
- How to do it simply and quickly
- The success stories
- The categories of actions you can take today to start creating passive income for yourself
- Watch the full video version of this episode on YouTube!
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Speaker 1: This is Theriault Media.
Matt Theriault: Hey, rockstar Matt Theriault. here from Epic Real Estate and today, passive income. I’m gonna give you everything you need to know about it. I’m gonna show you what it is, why it’s a must. I’m gonna give you several ideas for how you can make it happen for yourself so that you can spend less time working and more time living while you’re still young enough to enjoy life on today’s episode of Financial Freedom Friday.
All righty, so here’s the problem. The biggest fear of today’s retirees is that they’re going to run out of money before they run out of life. They fear it more than death itself. That’s what the studies are saying. And sadly, that fear is a reality for anyone that is following that antiquated plan of go to school, get a job, work, sacrifice, and save. I mean it was a plan that had a shot at working 50 years ago, but life expectancy has increased by 10 years since then, so people that still subscribe to that plan what they need to do, they need to save a bunch more while they’re working, or they need to work a lot longer, or they can change the plan.
You see, rather than focusing on saving their money for 40 to 50 years hoping they did it right, and hoping they saved enough, they could just shift their focus a little bit to creating streams of money, and if they did that for just a few years they would create the option for themselves to retire decades earlier knowing that they did do it right, having the confidence that their money will last indefinitely. And if you like the sound of that plan better go ahead and do my a favor, smash that light button for me, and then I’ll know that you and I were on the right track, we’re on the same page. This is really important because that’s what’s available for all that shift their focus towards passive income, all righty.
I’ve got three points that I want to touch on. That’s gonna be everything you need to know about passive income to start making it happen for yourself, and then just stick around. Stick around until the end where I’m gonna give you nine simple actions that you can take today before the end of the day even, all righty. First, the three points that you need to know.
- What is passive income and what should your expectations be?
- Why must you create passive income?
- How many options do you have for creating passive income for yourself? I came up with more than 30 viable options for you, but let’s go ahead and start with our three points. We’ll start with point #1.
What is passive income and what should your expectations be all righty? Passive income, what it does it includes regular earnings from a source other than an employer or a contractor. The Internal Revenue Service says, “Passive income can come from two sources. It can come from rental property or a business in which one does not actively participate.” That’s the formal definition. Informally, it’s income that doesn’t require your time or effort like making money while you sleep. However, it doesn’t mean uninvolved incomes. That’s one of the big myths of passive income.
I mean there’s no such thing as set it and forget it income that’s gonna last forever. You do have to be involved but done right minimal management is all that can be necessary to create everlasting passive income. To set it up right you’re gonna be required to do some work, actually quite a bit of work right up front in the interest that you won’t have to work much at all later. It’s funny because that actually there lies a little bit of irony inside the world of passive income because the amount of work it takes to put yourself into a position to not work is a lot of work, and that brings us to point #2.
Why passive income is a must, and why must you take this on? Why should you take on this work? Well, I guess if you enjoy what you do for a living, and you wouldn’t mind doing it forever then maybe, I don’t know, maybe it’s not a must for you. But if you find yourself dreaming of what you’d rather be doing instead of what you do for work then it is a must. It’ll be your only means of escape. This is what I mean, we live in a society where money is important. You need it to function as a member of society. You have a few options in how to generate that money. These options have different relationships to your time, the amount of time that’s involved by you, or from you.
I’m gonna give you three examples, and what you should be focused on really here is the time, and the effort that it takes for each option, for each form of income. I’m gonna use just the median income in America to demonstrate, and to make the math easy I’m just gonna round the median income to $40,000 per year, $40,000 per year. I’m not gonna factor in taxes. I’m not gonna factor in inflation. I’m not gonna do that. I’m just gonna use simple math to give you an idea to help you decide, which road that you want to travel, all right. Again, focus on the time and effort that will be required of you in each option, okay.
Per the IRS, there are three types of income that you can earn. Per the IRS, the first one is active income. Active income. To make $40k a year that equals essentially $3,333 a month, okay. Doing it this way you’d essentially have to work forever, okay. For sure, it’s going to be indefinite, indefinite okay. What that really means is if you don’t work you don’t get paid. It’s through active income you’re exchanging your time and effort for dollars. That’s what I wanted you to focus on. And with this option the time and efforts that are required it’s indefinite. It’s pretty much forever, okay. This is what we call the rat race, right. That’s the rat race.
Like I said if you like what you do, and you can see it keeping you satisfied forever, the active income it’s an option. I mean maybe you don’t want to escape. That’s okay. Some people just love what they do. But for most, this is why passive income is a must as it eliminates exchanging time for dollars. It represents the escape, your access to actual freedom. And that brings us to option number two, the first type of passive income that you can earn, and that number one is a portfolio, portfolio income. To make the same $40k a year through portfolio income you’re gonna need some money to put into that portfolio, right, to make the $40k a year. This money that you put in the portfolio you’re never gonna be able to touch it because what you’ll be able to use is the income that, that money creates.
As of the recording of this video, the highest yielding savings account that I could find offers a 2.35%, annual percentage yield at 2.35%. That’s annual percentage yield, all right. Do you have any idea as to how much money you’d need to put into this savings account, into this portfolio to produce this $40,000 a year of passive income? Well, here’s how you’d figure this out. You take your $40,000 a year, and you just divide it by 2.35%. Your answer is 1.7 million dollars you would need to put into this portfolio to produce $40,000 a year of passive income, and that is why this is typically not an option for most people. They simply just don’t earn enough to save enough to get to an amount like 1.7 million dollars fast enough to have much life left over.
But let’s say you’re going to get really aggressive, right. You were going to be super disciplined in saving this amount. You made the decision you’re just going to reduce your lifestyle, and you were going to live on $28,000. Why did I say $28,000 a year? Because what that’s gonna do that’s gonna free up $1,000 a month to save, so you got $1,000 a month to save, okay. Let’s say you found a good mutual fund, at say 5%, something that averaged 5% the whole time that it was in there, 5%, that’d be a good one. It averaged that 5% the entire time that you were saving to your goal. How long would it take for you to save 1.7 million dollars investing $1,000 a month at 5%, how long would it take? It would take ya 42 years. The time and effort in the portfolio income it’s gonna take you 42 years to create. Up here it’s indefinite, and potentially forever. Down here 42 years. Now let’s look at our third option.
3. Passive income. Passive income, so to make $40,000 a year from passive income, the same $40,000 bucks a year, we got $40,000 up here, $40,000 here, $40,000 here, so to make it happen through passive income what you would need are 11 of these little income properties just like this producing $300 a month. 11 properties producing $300 of cash flow a month. That would generate $40,000 a year, all right. I’m gonna give you several more options for creating passive income in a moment. I came up with more than 30 of them, by the way, for you. But for this example, I’m just gonna use investment grade income-producing real estate. The reason being is it’s going to be the easiest and fast way for the average person to do it, and for two reasons.
First, it is simple, right. It’s simple to understand. It’s simple to understand. You see, people they need shelter to live. People pay for shelter, and if you own the shelter then those people are going to pay you for its use. That’s what makes it the easiest because it’s simple. It’s simple, and it doesn’t take any extraordinary talent to execute.
Now second, this right here, this is what makes it fast, and that is leverage. Leverage. You see, your ability to use leverage in real estate is unmatched in any other passive income opportunity. Here’s what I mean, let’s say each of these 11 income producing properties you purchased averaged say, they were $100,000 each. They’re $100,000 each for this real estate. That would be 1.1 million dollars of real estate. $100,000 each time 11 gives you 1.1 million. In this previous example, you saw how much discipline and time it would take to save an excess of 1.7 million dollars. We’re up here at 42 years, right, so because of your ability to use very traditional and conservative leverage in real estate you wouldn’t need 1.1 million dollars to acquire these 11 properties.
You’d only need 275 … Oh, where should I put it? I’m running out of room. $275,000, so if you’re going to implement the same aggressive plan in the previous example and live off of $28,000 a year, right here, while stashing away $1,000 a month, you’d cut your time almost in half of the portfolio to 23 years, to 23 years when you purchased those 11 in rental properties. That right there cut in half that’s really two extra decades of life you get to live supported by passive income. Two extra decades of it being able to enjoy life without having to work. That’s what a little bit of effort and discipline backed by leverage can do for you.
But here’s where it gets really exciting. When you add a little bit of intellectual currency to the mix just like Epic Pro Academy private client, [Cory Kindig 00:13:18]. If you did that you could add, or acquire these 11 income properties in less than two years. That right there that’s 10 Xing this over here. You could do it 10 times faster than the 23 years. Real estate combined with leverage, and a little bit of specialized knowledge can 10 times your results, or at the private client Josh Miller, by incorporating one simple tool the Epic Pro Academy’s Three Optional Letter of Intent you could 10 times it again. 10 X one more time. Acquiring those 11 properties in just four months, four months.
It almost makes me cringe a little bit to even share Josh’s story because I can almost hear you calling BS right now. I get it. I might not believe it either if I were in your shoes. I probably wouldn’t. But I’m a witness, I saw it. In fact, I was actually the catalyst. You see, I showed them how. I showed both Cory and Josh how to do this. I gave them the tools to get it done, and I was there for support, and guidance when they got stuck. I mean all credit goes to them though. I mean they traveled as far as they could see, and when they got there they could see further. And if they got stuck they asked for help, and then they just kept on going. Both of them they’re still going.
As I was preparing to create this video for you the stories, and these numbers I bounced them off of Miguel, my partner Miguel. And I asked, “Should I even share this in public? I mean will people even believe it? Should I say that it took Cory and Josh much longer to do than it actually did just so, it’s actually more believable?” Well, as you can see I just opted to simply tell it like it is, and really that’s the only way that I know how. It’s not like those two are mega exceptions either. I mean I could’ve mentioned Jeremiah from Kansas, or Brad from St. Louis, or Catalina from California, or Tony from Texas, or Parker from Atlanta, which all of the,, all of them too created enough passive income in less than just a few years to sustain themselves for the rest of their lives.
Now as I suggested to do upfront I want you to compare your three options through the analysis of the time and effort required for each one. All three options, all three of them require work. I mean every person that I just named worked their butts off to make it happen. And whether you choose to pursue active income, portfolio income, or passive income to support your time here on earth, they all require hard work. The question for you to answer for yourself is just how long do you want to work hard, your entire life working for active income, or 42 years working for portfolio income, or like Josh Miller working for four months for passive income? You see, through real estate leverage, and a little bit of specialized knowledge, and a disciplined work ethic that’s what’s possible. And that brings me to the third point, the third thing that you need to know.
Point #3. How many options do you have for creating passive income for yourself? If real estate doesn’t excite you, if that’s not your thing you do have options, there are other things that you can do. And then after I share these other things that you can do with you to give you different ideas for you to go out and research on your own, stick around because I’ve got those nine simple actions that you can take today before the day is over even to start creating passive income and start planning your rat race escape. I mean we’re gonna put it in motion with these nine action steps, all righty. What it is, I grouped these ideas for you into four categories. I grouped these ideas for you into four categories, all right, four categories.
Category #1. Let me just call it Cat #1, The Sharing Economy. Now you could rent unused portions of your home, like whether a spare bedroom, storage, or parking through a service like Airbnb. You can rent the use of your car. There’s a service out there for that called Toro, or peer to peer lending through a service like Prosper, or Lending Club. I mean the sharing economy has introduced multiple more options for creating passive income to today’s generations than previous generations had available to them. But volume here, the volume is needed for these options to produce significant streams of passive income of which removes some of the passive from the passive income, but still, still very viable options.
Category #2. Investments like index funds, or dividend stocks, real estate investment trusts. You could become a silent business partner. Annuities crowdfunded real estate, or other investment options through a site like Betterment, Betterment.com. All very traditional forms of passive income, but money, money is needed, and a fair amount of it at that for these options to really produce significant streams of passive income for yourself of which can eliminate these options for most people.
Then there is Category #3 Business. Business, some traditional ideas, some outside the box ideas, like starting a YouTube channel and creating videos, selling photographs through sites like Shutterstock, and iStock Photo. You could write a book, whether a real book or an E-book. You can do it online or off to sell and collect royalties. You could start a blog, or buy a blog. You can create an app that solves a problem. You can create an online course on Udemy, or Teachable. You can sell affiliate products. You can sell your own products. You can build an E-commerce business through a service like Shopify, or you can start an Amazon business through their FBA program.
You could advertise with your car through a service like Carvertise, or Wrapify. You could design and sell T-shirts on a service like T Spring. Vending machines, laundromats, automated car washes, or I don’t know, can you draw? Can you paint? Do you compose music? Do you design stuff? Because through a service like Patreon, patrons support creators of all types like podcasters and You Tubers, and bloggers, and musicians. I mean so much of these ideas are common fixtures in society today. But if you lived in a world pre-internet, I mean it’s pretty remarkable the passive income opportunities that are available if you have the talent.
Now Category #4, have you guess it? Yeah, Real Estate. Specifically income-producing real estate like single family residences, multiplexes, multi-family residences, storage facilities, notes. It’s really here where the average person has a legitimate shot at creating enough sustainable passive income for themselves in a reasonable amount of time to support themselves indefinitely.
Each of these four categories that I shared they’re all viable options. They all work. But unlike the sharing community where volume and a fair amount of management is needed, investments were here where a fair amount of capital is needed. And then the business ideas where a fair amount of, face it, talent is needed. Real estate, anyone can do that. Okay, now you know. You know everything you need to know about passive income to go out and create yours. Now it’s time to do what you know.