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I'm very interested in this thread topic, but it appears that maybe a definition is needed. Passive income, as I understand it, is income you make without working for it. I've been researching and thinking a lot about this. It's how rich people stay rich/get richer and how poor people stay poor. Again, as I understand it, there are basically two categories of passive income (unless you count inheritances, then there's three, or winning the lottery, there's four): investments and cash-back opportunities. Investments, to me, seem to fall into two subcategories: stocks and real estate. For any passive income vehicle, you have to have some amount of money to start it (why rick people make millions this way). I have a little and have been trying to figure out the best/easiest place to park it to let it sit and make more money for me.

I looked at apps that PH has written about, like Fetch, Acorns, etc., but it's literally pennies per month that you are saving and it doesn't accumulate fast enough and the work involved doesn't match the return on investment for me. Acorns' management fees make it ridiculous to me, and you have to maintain at least $5000/mo. in the account to get the management fee to where I want it---under 1%. Why would I pay 12% in management fees to save $100? I don't have any fees with a jelly jar on the kitchen counter, but then I have to think about it, and Acorns saves you the thinking. Still, I can think for myself for 12%.

So, I've been thinking a lot about REITs. The problem, if I understand the vehicle correctly, is that you don't get a say in what commercial properties are bought in what cities, so that's high risk to me. Somebody please correct me if I'm wrong here and you do get to make a lot of the choices in REITs, or if there are REITs out there that allow you to pick and choose cities/property areas.

So then, I started looking at cash back offers and high yield savings/checking accounts, but again here, when you read the fine print, you have to have like $10,000 sitting in the account(s) for at least a year to get $600, which ends up (if my math is right) to only a 6% gain, and that's only a one-time gain for the life of the account. Then you have to make sure you are active on the account(s) with deposits and withdraws each month, and again, it's a bust for me on work/thinking vs. return on investment. So, stocks look better than cash-back to me now.

So, then I started to realize that my biggest passive investment vehicle is my house, as it is with most Americans. We've started to think about how we can modify it for when our teens move out and rent part of it as a separate unit. With that, we could rent half of it for about the mortgage we pay, so that seems like a great passive investment to me. I think we will try this.

Another thing I've been thinking about is trying to save enough for a down payment on another house as a rental property. Unlike REITs, I know my city, my area, the real estate and rental prices, and the economy.

I've even thought about renting out our vehicles when we are not using them---like weekends for travelers---like VRBO for cars/RVs, but my hubby has nixed this idea as he thinks the liability is too high.

But I really want to hear about what other people are thinking about for passive income.

Deanne posted:

I'm planning to turn my house over to a property management company as a rental in a few years. I'll have the management company expenses, but the proceeds should still be able to pay for the rent of a small apartment in a lower cost area. By then, I'll be retired and won't want to maintain a house and yard. 

Your plan sounds great. We've been thinking about this also, but we have a large house in a sought-after area, which would make it hard to rent the whole house (the rent would be a house payment and most people don't want to rent in our area, they'd rather just buy, I think). We've been thinking about whether it would make more financial sense to keep the house and pay it off quicker by renting half of it (which would mean we could charge a cheaper rental price but still make a good chunk of our mortgage), or just sell the whole thing and buy or rent something smaller like a condo that doesn't have the maintenance issues you mention, and invest the rest of the money. Hard to decide for us.

Last edited by Elizabeth Barnett
@sthom posted:

Rentals are considered passive income, but it is not absolutely passive. There is work involved.

Just seen this thread. I totally agree with this. The best form of rentals is housing or apartment types. You may only need to work once or twice a month to collect payments. Something that I would also enjoy doing. 

If you're not yet on that scale, you can do so by renting your own stuff that you don't use much. My best bet are on heavy tool equipment, event collaterals like chairs and holiday costumes.

Yes, @My Garage. I was speaking about rental housing. The hard work is getting it up and ready and then finding and keeping the right tenant(s). After that, the work is minimal. Also important is getting a team in place--handyman, plumber, electrician, real estate agent--and then there is insurance, taxes, property management (though I manage myself)...you get the picture.

I'd like to get into one of those programs like Fundrise that was mentioned above though. I like that idea about renting chairs, costumes though.

I briefly rented out my house after I moved, and it was hellish. The tenants called what seemed like all the time. I am wishing I held onto it though, since it was near the beach. I bought it for $110,000 in 2010, and it just sold for $245,000 this year. I put a lot of money into that house. Oh well.

If I were to purchase something again (probably an apartment or a condo), and rent it out, I would definitely hire a property management company. But things are so uncertain with COVID, maybe the tenants wouldn't be able to pay the rent? I just don't know.

I like getting passive income from investing. My husband and I also rent out a room (not an ideal solution, but it works for us), and we use the money towards our mortgage. So that is passive income - I realize it's not a solution for most people though.

For me, the most important thing is creating multiple streams of income. I have 2 side gigs that are great additional income earners for me, and every little bit helps.

Last edited by lismox

https://community.thepennyhoar...7#515998684783171167



Great call out. And I've noticed there is a lot of gray area in during passive income depending on who you talk to and what their ideas are for creating it. I read a great article on thebalance.com and the write described it as "income you generate by spending very little time and/or money getting started and continue to collect from in the future without putting in extra hours" specifically he was giving instructions on how to set up your own t-shirt selling site and have himself one night to complete it. In the end it was not a ton of money each month but for over two years he collected 300 a month on average for one night of computer work..

I started investing. I paid off my house - renting can be good or bad and is mostly passive to me because you do have to maintain the property. But there's air bnb and such that are more profitable in the right areas. Around texas tiny home parks are starting to pop up. And I've met several ppl that purchase luxury condos and apartments in city locations and hire property management companies to rent them as corporate short term.

In the end the idea is to continue to add one income steam after another becaue they all seem to start well then settle way down. But if 10 projects are generating 300 a month each and you only had to spend a day or so setting up each then bingo

The hard part is coming up with the plan and following it through.

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