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  • Jeff Rodriguez

Stop Trading Your Time For Money And Start Creating Passive Income

Passive real estate investments

Imagine with me that your workday began like every other, the usual routine, but halfway through your morning, you received the news, you’re being laid off.

For most Americans, that means zero income starting tomorrow morning. Now, let’s pretend that during your employment, you leveraged your money.

"The rich don’t work for money. They make their money work for them."

– Robert Kiyosaki

Three Types of Income

Most people’s income is active, which means it’s from a consistent paycheck. But wealthy people typically earn Residual or Passive income (or both!).

Active Income

Active income is received from your employer in form of compensation. When you exchange your time for money, this implies you actively work to earn that income. When you stop, the income stops. Examples of active income include salary, commissions, and tips.

Residual Income

Residual income means you receive money after the work is done. Example of residual income includes sale of consumer items such as music you have created, art in the form of non-fungible tokens (NFT's), uploading of digital books; renting out your Airbnb or selling items through your Amazon store. The fundamental goal of residual income is to take into account the costs associated with establishing passive income sources.

Passive Income

Passive income is earned with very little active involvement, generally earned from an income-producing asset and continues flowing even when you aren’t working. Examples of passive income are dividends from publicly traded stocks or a REIT, interest earned from savings account or a certificate of deposit (CD), earnings distribution from a Limited Partnership in a real estate investment or a real estate investment fund.

Passive real estate investments are one of the most stable sources of passive income.

Remember the job loss scenario? Let’s pretend you had built passive income, on the side, during employment.

Since being laid off, your earnings decreased by your monthly salary amount, but you still have income.

Financial independence is achieved when your earned passive income supersedes your active income.

Investing in Stocks vs. Real Estate

Historically, the stock market returns about 8% annually, which means $100,000 would produce roughly $8,000 per year. That’s only $667 per month.

However, with real estate, $100,000 could buy a $400,000 rental home. How? The bank brings $300,000 to the table.

You put in 25%, the bank puts in 75%, and you earn 100% of the profits.

A $400,000 home renting for $3,600 with a mortgage of $2,100 at a 5% loan (including the national average of property taxes and insurance) would net you ~$1,500 per month.

Theoretically, 2 investments of this size could replace $3,000 of monthly active income into passive income; but right now, let's stick to a single $100,000 investment.

The total annual net income, after debt service, taxes and insurance, of $18,000 equals an 18% return right off the top. Then factor in the tax benefit, interest and tax write off, plus annual appreciation, those returns could be much higher.

However, keep in mind that you must set aside some reserves for repairs, vacancies, and any additional expenses you may need for maintenance.

But I Don’t Want to Be a Landlord

The numbers look enticing, but being a landlord does not.

After all, you wouldn’t quit your day job to deal with Tenants, Toilets and Trash.

This is where, instead, you join a small team to acquire real estate. When investing $100,000 in real estate syndication or a fund, it’s feasible to earn $8,000 per year (8%), similar to the stock market.

However, the real opportunity lies in the sale of the asset. Syndications hold the property for about 5 years. During this time, building improvements are made, expenses are lowered, and income is increased; additionally, the land market value typically rises.

Upon the sale, you receive ~$160,000 ($60,000 in profit). This, plus the passive income of $8,000 per year (totaling $40,000), equals $200,000, which is a 20% average annual return.

If, while employed, you’re able to create passive income, you’ll be less stressed if faced with a layoff. You may even find yourself celebrating unemployment.

The material herein is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.


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