I own several rental properties in the mid west and I live in CA. I have never even seen them in person. With good property management in place (not easy to find but possible) it is definitely possible to own cash flowing properties across the country. Not for everyone and not without it’s drawbacks, but it seems to be working for me so far. I’m happy to answer any questions about my experience with this type of investing.
The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.
Almost all of these ideas require starting a personal blog or website. But the great thing about that is that it's incredibly cheap to do. We recommend using Bluehost to get started. You get a free domain name and hosting starts at just $2.95 per month - a deal that you won't find many other places online! You can afford that to start building a passive income stream.
stREITwise offers a hybrid investment between traditional REIT fund investing and the new crowdfunding. The fund is like a real estate investment trust in that it holds a collection of properties but more like crowdfunding in its management. The fund has paid a 10% annualized return since inception and is a great way to diversify your real estate exposure.
Diverse income streams are a cornerstone of wealth creation. For busy entrepreneurs, putting all of your eggs in a single basket – even if that basket is your startup – is a bad idea. As you begin to generate revenue, place at least 10% of your revenue into an investment fund. I personally leverage mutual funds to provide consistent returns of the stock market while minimizing my risks associated with the volatility of individual stocks.
The practice of day trading refers to buying and selling mostly cheaper varieties of stock. These traders don’t hold onto stock like traditional investors do. Instead, they earn profits by day trading. Now, this type of trading can be very risky because the market is volatile. Also, the cheapest types of stocks are highly likely to be negatively impacted by scams and fraud. Regardless, some traders do manage to master the art of day trading by researching the companies from which the stocks originate. Studying price history charts and understanding trends in a particular sector can help traders become proficient in their craft. Thanks to new tech, anyone can become a trader from the comfort of their personal computer or smartphone.
Similar to making a website or blog, but more passive, is creating an online course. If you have a specific skill you know you can teach and that others want to learn, you can easily create an online course. Sites like Udemy can help you do this. It requires some work to make it, but after that, users simply need to sign up for the course and pay a fee.
This is certainly not in my wheelhouse, but time and again people have been able to make a lot of money from creating and selling an app. You can offer the app for free to users, and if enough people use it you can then charge for businesses to advertise (just like #5) with you. You can also offer a version of the app that has no advertisements, but the user must pay a nominal fee to have this version. Either way once you have created the app and it is in the marketplace, it has a ton of potential to generate passive income. Depending on the app, you could also be bought out by a larger company and given a lump sum to walk away. This happened to Garret & Jessica Gee. Garret developed an app that was eventually sold to Snapchat for $54 Million!
Typically, in IRC §§ 162 212. The IRS then may determine whether the activity is passive under Section 469 and disallow the deduction subject to certain exceptions. This case is different than most because the Hardy’s reported income as passive for 2008 through 2010 and claimed a passive activity loss carryover from the previous years. The IRS then determined that the activity was non-passive. IRC 469 disallows a deduction for any passive activity loss subject to a few exceptions.
This is simple. Do your research and choose a paid price point. Once your app is released you can tweak your pricing to find the optimal value. From personal experience, I’ve noticed I generally make more money when choosing to go the premium route vs the budget route. Meaning, I price the app higher than my competitors to let them know they are purchasing a more premium product. Of course, this is not always the case. Sometimes the $0.99 apps do better since they generate more downloads and climb the app rankings easier. Higher app ranking means more visibility.
I wanted to specifically call out one particular strategy within equity investing that bears mentioning – dividend growth investing is when you focus on stocks that not only pay a dividend but have a history of strong dividend growth. When I was first building my portfolio of individual stocks, I focused on buying companies with a history of dividends, a history of strong growth, and financials that supported a continuation of both.
The amount you have at risk in any activity is reduced by any losses allowed in previous years under the at-risk rules. It may also be reduced because of distributions you received from the activity, debts changed from recourse to nonrecourse, or the initiation of a stop loss or similar agreement. If the amount at risk is reduced below zero, your previously allowed losses are subject to recapture, as explained next.
Generally, to determine if activities form an appropriate economic unit, you must consider all the relevant facts and circumstances. You can use any reasonable method of applying the relevant facts and circumstances in grouping activities. The following factors have the greatest weight in determining whether activities form an appropriate economic unit. All of the factors don’t have to apply to treat more than one activity as a single activity. The factors that you should consider are:
3. Travel Resulting From Rental Activity: Far too many passive income investors are not aware of the tax deductions that extend beyond the physical upkeep of a property. Having said that, it is entirely possible to deduct the amount of money you spend traveling for the sake of running and maintaining the property. Anywhere you drive for the sake of the rental, which includes visits to the property itself, can mount to travel expenses. Most notably, you can deduct the actual expenses incurred while traveling (gas, upkeep, repairs, etc). To clarify, travel expenses must be common, helpful, appropriate for your rental activity and — above all else — be solely for rental activities. Much like the repairs made on a property, deductions resulting from travel costs must be made in the same year they were incurred.
You must sacrifice the pleasures of today for the freedom you will earn tomorrow. In my 20s, I shared a studio with my best friend from high school and drove beater cars worth less than 10% of my annual gross income. I'd stay until after 7:30 p.m. at work in order to eat the free cafeteria food. International vacations were replaced with staycations since work already sent me overseas two to four times a year. Clothes were bought at thrift shops, of course.
Chase Freedom Unlimited lets you earn a $150 bonus after you spend $500 on purchases in your first 3 months from account opening. You earn unlimited 1.5% cash back on every purchase. There is also a 0% intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.99-25.74%. The balance transfer fee is 3% of the amount transferred, $5 minimum. The cash back rewards will not expire as long as your card account remains open. There is no annual fee.
For a closely held corporation, the passive activity loss is the excess of passive activity deductions over the sum of passive activity gross income and net active income. For details on net active income, see the Instructions for Form 8810. For the definition of passive activity gross income, see Passive Activity Income , later. For the definition of passive activity deductions, see Passive Activity Deductions , later.
The biggest surprise is real estate being second to last on my Passive Income Ranking List because I’ve written that real estate is my favorite investment class to build wealth. Physical real estate doesn’t stack up well against the other passive income sources due to the lack of liquidity and constant maintenance of tenants and property. The returns can be huge due to rising rental income AND principal over time, much like dividend investing. If you are a “proactive passive income earner” like myself, then real estate is great.
Active Income Investments: Flipping and wholesaling. You have to do work in order to see money from these. You have to be hands-on. Note: I do still stand by my argument that wholesaling is not actually an investment at all, but for the sake of so many people thinking it is, I am including it. Another note: It is possible, if you are really slick and good, that you could be decently hands-off for a flip. But that is long down the road of being an advanced flipper so for now, I’m leaving it here.
In 2006, Dr. Hardy purchased a 12.5% interest membership in MBJ for $163,974. During the year following this purchase, the Hardy’s decided to build an office for Northwest Plastic Surgery next to MBJ. Dr. Hardy had no day-to-day responsibilities at MBJ, never managed it, and did not have any input about management decisions. He primarily performed surgeries on MBJ's patients on Mondays, and he did not pay rent to perform surgeries at MBJ. He received a distribution from MBJ regardless of whether he performed any surgeries at MBJ, and this distribution was not dependent on how many surgeries he performed. Physicians cannot refer their patients to the surgery center when they hold a financial interest. However, the patients often choose the surgery center because it was cheaper.
The IRS defines depreciation losses as “allowances for exhaustion, wear and tear (including obsolescence) of property.” According to their website, “You begin to depreciate your rental property when you place it in service. You can recover some or all of your original acquisition cost and the cost of improvements by using Form 4562, Depreciation and Amortization, (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings.”
A loss is the excess of allowable deductions from the activity for the year (including depreciation or amortization allowed or allowable and disregarding the at-risk limits) over income received or accrued from the activity during the year. Income doesn’t include income from the recapture of previous losses (discussed later, under Recapture Rule ).
Nobody gets early FI investing in bonds, CD’s, or even stocks unless they make a huge income or are extremely frugal or a combination of both. Paper assets just don’t provide enough returns. Business income can be great but it is typically not as semi-passive as I would like and there is a relatively high failure rate. That is if you can monetize an ideal to begin with. RE investing needs to be higher ranked IMO as a way that the “average guy” can become FI.
MBJ is an LLC formed by a group of practicing physicians in 2004 for the purpose of operating a surgery center. For income tax purposes, it is treated as an LLC, and it hires its own employees. It bills patients directly for facility fees and then distributes each members' share to him or her based on his or her share of the earnings, which is the facility fees less expenses. It uses a third-party accounting firm to prepare the Schedule K-1, Partner's Share of Current Year Income, Deductions, Credits, and Other Items, and all other accounting matters for the members. MBJ does not pay members/managers for the procedures they perform.
Investing in coins and collectibles: Buffalo nickels and Spiderman comic books are good examples of coins and collectibles that can rise in value, and thus offer opportunity for passive income investors. You'll need to get up to speed on the value of any coin or collectible under consideration, but once you do so, you're on the way to price appreciation on a commodity you'll be paying a lower price to buy, and will garner a higher price when you sell.
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If you need cash flow, and the dividend doesn’t meet your needs, sell a little appreciated stock. (or keep a CD ladder rolling and leave your stock alone). At the risk of repeating myself, whether you take cash out of your portfolio in the form of “rent”, dividend, interest, cap gain, laddered CD…., etc. The arithmetic doesn’t change. You are still taking cash out of your portfolio. I’m just pointing out that we shouldn’t let the tail wag the dog. IOW, the primary goal is to grow the long term value of your portfolio, after tax. Period. All other goals are secondary.
According to Uncle Sam, you need to be "materially involved" in an enterprise to earn active income. With passive income, it's just the opposite, as the IRS deems you to be earning passive income if you're not materially involved with a profit-making enterprise. By and large, expect income to be taxable if you are engaged in a passive income enterprise. You will need to report earnings to the IRS.
Our favorite platform for this is RealtyMogul because you get the flexibility to invest as little as $1,000, but can also participate in REITs and private placements – typically not offered to the public. Investors can fund real estate loans to gain passive income or buy an equity share in a property for potential appreciation. Their platform is open to both accredited and non-accredited investors.