Passive income allows you to stop trading your time for money.
It’s an interesting quote, but what exactly does that mean? Each day most American’s spend their day working in a traditional job – exchanging their time and talents for financial compensation, also known as active income. They get this compensation by giving of themselves and their time. This plan works as long as someone is willing to pay them for these services. If their job ends or they choose to retire, this compensation would stop.
This story can drastically change through strategic investing. By investing a portion of your salary while still employed into investments that provide the cash flow, you can grow your investment income to surpass your traditional compensation. Thus, allowing the investment itself to become your source of compensation, known as passive income. Once this goal is achieved, the individual will no longer be obligated to trade their time for the income they need to support themselves.
Active income is the most common form of compensation. It is known as active income because you are required to actively give of your time and talents in exchange for financial compensation. When you stop giving time, the income stops.
Residual income requires an initial investment of your time but allows for continued compensation after the work is done. For example, an author receives residual income from book sales over time.
Passive income is generated from opportunities that require little effort and continue to flow without an investment of time or work. One of the most common and stable sources of passive income is real estate investments.
To create Passive Income, you have a couple of options.
Investing in the Stock Market is an option –
At one time or another, most of us have been encouraged to invest in the stock market through a 401K or IRA. This can be a good option. However, historically, the stock market provides an average return of 8% annually. This rate can make it challenging to generate enough of a return to provide substantial passive income.
Self Directed IRA’s expand your options –
By converting your IRA into a self-directed IRA, your options to grow your wealth dramatically change. Through this IRA type, you can choose to invest in Multifamily Syndications. Each opportunity is unique and we recommend scheduling a call with our Investor team to discuss your individual goals.
When investing in a real estate syndication, it’s feasible to earn monthly or quarterly returns similar to or higher than the stock market. However, unlike the stock market, you will also benefit from tax advantages and the eventual sale of the asset. The average hold for a property is about five years. During this time, building improvements are made and the land market value typically rises. Upon the sale, you receive a portion of the proceeds based on your investment amount.
By reinvesting these proceeds, your overall annual returns will continue to grow rapidly – typically doubling every five years. This can eventually surpass your active income and allow you to live solely on passive income because you made your money work for you.
Ready to learn more about investing in Multifamily Syndications? We are here to help.