We've all heard about the dream of making money without breaking a sweat. Passive income promises just that – earning cash effortlessly. But before we get too excited, let's dig into the simple truth and find out if it's as easy as it sounds.
The idea of making money while you sleep sounds amazing, right? But the catch is, the road to passive income often needs a lot of work upfront. Whether it's starting a blog or investing in something, you've got to put in the effort first.
Active nature of passive income:
Passive income, surprisingly, can be quite active initially. Rather than an instant reward, it involves putting in work upfront before the income becomes truly passive. It's not about avoiding work altogether but about delaying when you get paid for it.
Risks:
Passive income isn't risk-free. Investments can go up and down, and things change. For example, if you own a rental property, it needs care and attention. Stock markets can be unpredictable, so thinking it's all smooth sailing is a bit of a stretch.
Keep an eye open:
Even so-called 'passive' stuff needs looking after. Renting out a place? You've got to manage it. Running an online business? Regular updates and new stuff are a must. It's not like setting it up and forgetting about it – you need to keep an eye on things.
NO days Off:
Thinking you can set up a passive income and then go on vacation forever? That's not how it works. Successful folks will tell you that it's not a 'set it and forget it' deal. There's ongoing work to make sure things keep going well.
Need Active Management:
One major misconception is the idea that something can generate income without ongoing management. In truth, most passive income sources require continuous management to keep the money flowing.
The claim that passive income is a scam stems from the fact that it often requires a substantial upfront investment, ongoing management, or both. Remember, there's no such thing as a free lunch.
Top comments (5)
Yeah, I think there are basically two possible realities which could lead to passive income: Big upfront investment or luck and timing.
There are certainly lucky timing ways to quickly achieve passive income, but this is inherently rare. Economics would dictate that if it were common and easy, it would trend towards equilibrium. Sometimes there are new enabling technologies which make things "easier". You might say the launch of the Apple App Store as an example.
The other scenario is a sufficient upfront investment to a scenario which yields persistent returns later. This is not easy, but it might be inherently fulfilling for some and worth the investment. I.e. the goal of achieving passive income might make the hard work more enjoyable vs an activity where there is no light at the end of the tunnel. People should be prepared to try and enjoy the journey for journey's sake, as there is a good chance it won't amount to persistent returns.
They call them "get rich quick schemes" for a reason. It's a great idea for all of us, and not usually one worth pursuing.
Absolutely, your insights make a lot of sense! If it were common, everyone would be doing it. It's about finding fulfilment in the process and being realistic about the potential outcomes. Thanks for sharing your thoughtful insights!
One of the problems that supports the myths involved in passive income is that some folks did make that perfect investment (bitcoin, microsoft, amazon, ...) and made 10x, 20x, 40x their investment and from there on out it really can be set it and forget it (with low risk investments). There still are amazing opportunities, but if they were easy to find ... we'd all be hundred millionaires by now.
I have retired after 35 years in IT ... and while I was doing that, i was building up a Single Family Home (SFH) portfolio of rentals. This was anything but passive. I tended to buy fixers, fix them up, rent them out, manage them, and maintain them. I remember 1 night years ago when I looked and saw I needed another coat of paint in one bedroom (and thus I would be working until 2AM and then getting up at 5:15 AM for work) ... and I just kept hearing the words of a popular politician saying "You didn't build that". So I have to say that the revenues are great in my retirement now that prices and rents have gone up so much (long term tenants are far below market value ... but turnovers bring a house more in line with market rates). I am still doing most of the management and most of the maintenance myself. This is my choice and could farm out much more than I do (even all of it). But you must remember that everything you farm out ... you pay for. So your unit profit goes down. If you have unlimited funds or funding (and funding can be another item that reduces profit) and can be dealing with 200 units instead of 20 ... then you can make far more ... as long as real estate prices stay strong. So remember the rule that the more passive you are, the lower your per unit profit.
It sounds like you've had quite the journey in real estate, and I can relate to the challenges you've faced. Building a Single Family Home portfolio isn't as easy as some might think, and I appreciate your honesty about the hard work involved.
It's true that farming out tasks can eat into profits, and your choice to stay hands-on makes sense, even if it means more work. Balancing the trade-off between being hands-on and maximising profit is a real challenge.
Keep up the good work in your retirement, and thanks for sharing your story!
It has been work but I actually have some good skill folks ... and working with them has greatly increased my skills. I'm probably ADHD anyway, so activity is healthy (although sometimes it is overwhelming). I do believe real estate has been a good road ... but it is definitely not a road for everybody (as some seem to imply). And I have to say, I look at so many HGTV shows which make it look like a few hard days work and you can renovate this dump into that palace ... it doesn't work quite that way ... but it is still nice looking at Before and Afters. Hope your passive income journey has worked well for you (and I do believe it is a journey for most of us).