Anthony, nice setup! To your question about the rental mortgages, you haven’t said what interest rate you are paying. As a start, if you are paying more than the risk free rate (Treasury bills) which you probably are, then a true apples to apples comparison would be yes, pay off the mortgage. But, if you are comfortable taking more risk, you have other options to invest in which you *hope* will yield you more over the coming years. You also didn’t say whether the rentals generate net income and if so, how much? What is the implied rate of return on the equity you have invested in them? If you pay the mortgages off, you’ll have even more equity tied up, will the extra net income make that worthwhile? Maybe you should use the money to buy more rentals instead, if purchase opportunities still exist in your town. … this is less of an answer than a framework to analyze the decision, hope it is helpful.
Many people in the investment world also define residual income as revenue stemming from a passive source. This revenue is created without a direct input of effort or time. The investment itself creates addition revenues without having to be managed. Some examples include royalties, dividends, interest, and rent. Take a dividend stock for example. Once the money is invested once, it will keep producing a dividend every year without having to input additional time or resources. This concept is the Holy Grail for most investors.
It’s a (mostly) short term, higher risk, higher reward place to invest cash that has a low correlation with the stock market, but is far more passive than buying and managing properties, has more opportunity for diversification than private placements (minimums of 5-10K, rather than 100K), and most of the equity offerings (and all of the debt offerings) provide monthly or quarterly incomes. Unlike a REIT, you can choose exactly which projects you wish to invest in.
While this does seem like sound logic on the surface, it is pretty obvious only a moron would put $50,000.00 into a business and not quantify the risks/rewards. If Ethan is worth 5 billion dollars and puts $50,000.00 into a losing business do you think he would just walk away? Obviously he would. If Ethan takes out a loan for $50,000.00 and his business is hemorrhaging money daily to the point he is losing more money trying to run the business than to simply pay back the loan, do you think he would just walk away? Again, obviously he would! These stupid analogies with less than a moment of critical thought being put in is what makes MLMers look incredibly stupid and proves they are not real “business owners”.
Which all goes back to my point – since companies change in a lot of unpredictable ways, it makes more sense for passive income to just ride the market by investing in a Total Domestic Stock Market, Total Bond Market, and Total International index funds, with allocations that depend on your goals and time horizon. For income, withdraw 4% or less, depending on what research you believe, and you’ve got a pretty low risk strategy.
“Where a lot of people mess up is they try to build a business or create a product that serves everybody, and by trying to serve everybody, you serve nobody. You have to specialize and niche down and find a market with a pain point that you, based on your experience, based on your education and based on your passion, can help,” he says. Your earnings will directly reflect how well you serve that particular audience, and the more your message resonates with them, the more opportunities you’ll have to sell to them.
I just can’t seem to get my head around creating my own online product. When you talk about it, you make it sound like its mostly just about putting in the time and plugging away at it. Problem is I can never seem to come up with any ideas for a site or product that seem remotely unique or compelling or that I have any special knowledge about. The stuff I do know about is pretty commodity type knowledge that can mostly be found on thousands of sites on the internet already. Any tips on discovering what your “unique angle” is? I mean, you have a pretty compelling and somewhat unique personal story of working on wall street and then walking away at a young age.
Since David may never be coming back to this site, If anyone other than David can point me in the right direction, Id greatly appreciate it. I live in Chicago, and I need to buy a quality rental to hold long term somewhere but I have no idea where, and I really don’t want to buy in Chicago. Chicago is insanely corrupt and in HUGE debt. I cant leave Chicago in the near term, I take care of an aging parent, and if I left, my salary would drop by 50%. Id still like to diversify into a rental property.. but I feel that if I just call up a stranger, they’d attempt to sell me their best pig with lipstick, and pressure me to jump on the deal before someone else ‘stole’ it. I have no problem hiring a property inspector from a different city, but don’t want to waste hundreds of dollars if the agent is steering us towards crap property after crap property. I’m looking for broad advice. Any constructive reply appreciated. Thanks guys.
The craziest part of this was I’d wake up in the morning and there would be more money in my bank account, from people who had bought my book overnight. When you think about it, an online store that sells something that’s digital is something that’s open 24 hours a day, 7 days a week, 365 days a year. Using tools, software and systems, you can automate the delivery process so you literally don’t have to do anything to serve that audience. That’s super powerful.
Let’s use Jim from our personal finance example. Jim’s furniture manufacturer builds tables and has several large pieces of equipment in the sawmill used to re-saw logs and boards down to the finished dimensions. The sawmill has net operating revenues of $100,000 for year. The saws in the mill cost Jim a total of $500,000 and he is currently earning a return of 10% in his wholesale table business. Thus, he sets a minimum required return of 10 percent.
As the world’s leader in referral marketing, Melaleuca has been providing residual income for tens of thousands of families for over 20 years. The opportunity to make $250 a month, $500 a month or even $2,500 a month is possible for average, everyday families. We invite you to look at our Annual Income Statistics on this page to see what real people are earning with us every year.
In mid-2017, I sold my San Francisco rental property for 30X annual gross rent and reinvested $500,000 of the proceeds in real estate crowdfunding. I’m leveraging technology to invest in lower valuation properties with higher net rental yields in the heartland of America. With the new tax policy starting in 2018 capping state income and property tax deductions to $10,000 and limiting interest deduction on mortgages of only $750,000 from $1,000,000, expensive coastal city real estate markets should soften at the expense of non-coastal city real estate.
I wish I had more time to put into real estate. Given the run up since 2012, I may even be interested in selling my condo that I currently rent out. I need to get it appraised to really see what it’s worth, but I think conservatively it’s gone up ~50%, although rent is probably only up ~10% or so. I am bullish on rents going up in the future… mostly in line with inflation, or perhaps even slightly faster due to constricted credit and personal income growth which should provide a solid supply of renters. At this point, I just don’t want to manage the property. I’ll probably look into a property manager as my time is likely worth turning it into a nearly passive investment.
Affiliate marketing is a great way to earn passive income. You can find products to share via your social media platforms, website, or through an email blast. Once somebody purchases a product, you are given a 20-70% commission. I like to use Clickbank and find affiliates that correspond with my meditation brand. You can also seek affiliates out directly such as Hay House which offers a 50% commission on any courses sold.
All that being said, the residual income valuation approach is a viable and increasingly popular method of valuation and can be implemented rather easily by even novice investors. When used alongside the other popular valuation approaches, residual income valuation can give you a clearer estimate of what the true intrinsic value of a firm may be. (Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one. See How To Choose The Best Stock Valuation Method.)
The most liquid of the private investments are investing in equity or credit hedge funds, real estate funds, and private company funds. There will usually be 6 month – 3 year lockup periods. The least liquid of the private investments are when you invest directly into private companies yourself. You might not be able to get your money out for 5-10 years, depending on the success of the company and upcoming liquidity events.
From what he describes, creating passive income definitely does not sound easy. It requires a serious ramp-up -- often requires 80- to 100-hour workweeks in the beginning, says Flynn. But once up and running, and depending on the content, some sites take fairly minimal maintenance. Green Exam Academy, the LEED exam study site he launched in 2008, takes just him four to five hours a month to maintain but brings in $250,000 annually.
Once you start to see some success, don’t be led astray by the money. While Flynn does use affiliate marketing to make money, he only ever recommends products that he has personally used and likes. He is inundated by offers to earn $50 per sale through commission on products he has never even tried. “I’m like, ‘I don’t even know you, I don’t know what this product can do, and I don’t know if this product will help my audience.’ I only use products I’ve used before, because that trust you have with your audience is the most important thing in the world.” He says if you do recommend a product for the incredible commission but your audience has a bad experience with it, your credibility will be shot.
For those of you who don’t want to come up with a $220,000 downpayment and a $900,000 mortgage to buy the median home in SF or NYC, who don’t want to deal with tenants or remodeling, and who wants to not do any work after the investment is made, check out Fundrise. They are my favorite real estate crowdsourcing company founded in 2012 and based in Washington DC. They are pioneers in the eREIT product offering and they’re raising an Opportunity Fund to take advantage of new tax favorable laws.
For those willing to take on the task of managing a property, real estate can be a powerful semi-passive income stream due to the combination of rental and principal value appreciation. But to generate passive income from real estate, you either have to rent out a room in your house, rent out your entire house and rent elsewhere (seems counterproductive), or buy a rental property. It’s important to realize that owning your primary residence means you are neutral the real estate market. Renting means you are short the real estate market, and only after buying two or more properties are you actually long real estate.
When I purchase an existing online business, I look for cash flow over the past year and where the money comes from. I want the sources to be more passive so that it does not take a lot of my time. Also, typically I will make an offer that is 18 – 24 months of profit so that I know that I will get my money back within the next two years. I hope that helps!
Perhaps a coworker purposefully tries to make your life miserable because they resent your success. Maybe you get passed over for a promotion and a raise because you weren’t vocal enough about your abilities, and mistakenly thought you worked in a meritocracy. Or maybe you have a new boss who decides to clean house and hire her own people. Whatever the case may be, you will eventually tire.
This world is a dangerous place to live, not because of the good people that often act in irrational and/or criminally wrongdoing ways within the confines of their individual minds, core or enterprise groups, but because of the good people that don’t do anything about it (like reveal the truth through education like Financial Samauri is doing!). Albert Einstein and Art Kleiner’s “Who Really Matters.”
I think you should use Financial Samurai to raise your passive income. You’ve already proven that you writing 3 articles a week is enough to not only sustain the site but grow it. Why not have more guest writers post articles? Since you started with the extra post each week I’m guessing traffic is above your normal growth rate. Leverage that up with more posts and my bet traffic will continue to grow.
To create residual income, you need to create something that people will continue to buy on a regular basis long after you’ve created it. A house is a prime example of this as people will continue to pay rent for the right to live in the house. A business needs to have products that are sold over and over again rather than trading the business owner’s time for money.