WHAT IS PASSIVE INCOME?
Think if you can earn money just by sitting and doing nothing. Believe it or not, this is something countless people do every day. This is a concept known as passive income investment, and it is one that allows people like you to accumulate wealth without lifting a finger.
Passive income essentially works like this: You make an initial investment, which usually requires you to not only invest some money, but also do some legwork or research. But from that point on, you sit back and enjoy an income stream without too much effort. Some common investments known to generate passive income are investments in stocks, bonds, rental property, or private businesses. All these considerations allow you to maintain cash flow over time.
Keep in mind that the IRS has its own (strict) definition of passive income, which only covers income from rental activity or business activity in which the investor does not materially participate. Because there are tax benefits associated with true passive income, it is important to keep in mind. But for our purposes, let’s talk about different ways that you can walk without earning money, play an active role in earning it.
Bonds are another easy way to get some passive income. When you buy a bond, what you are essentially doing is paying money to an issuer in exchange for a half-year interest payment. Once your bonds mature, the issuer is required to repay your principal investment, and at that point you must have collected a reasonable amount of interest in an ideal manner. However, bond interest, like dividend income, is not technically guaranteed (you never know when a company may default, if you buy bonds issued by highly rated companies, to experience default payments Chances are very low – meaning you can sit back and continue to hold that interest and, like stocks, always have the option to sell your bonds at a price you paid for them. Pakistan has, is disproportionate in this way.
If you are ready to dub into real estate, it can stop paying in a very big way. This is because buying a rental property, or multiple properties, can set the stage for years of steady monthly income without having to do much other than remembering to cash those checks.
Now I know what you’re thinking: “Don’t I have to manage that rental property?” Not at all. Simply hire a property manager and deal with tasks such as maintenance, repairs, lease agreements and tenant placement of that person.
Given, investing in rental properties requires you to get a mortgage, which can be a process. This requires a potentially large investment of capital, not to mention a lot of up-front market research. But once it is done, there is no need for you to take an active role.
Investing in a limited partnership is another good way to generate passive income. In this type of arrangement, you are essentially financing a private enterprise with the ability to make money, but your liability is limited to the amount you want to invest. And any associated income will be passive in nature until you agree that you are not going to play an active role in that venture.
Of course, these are just a few passive income streams you can pursue. There is a world of opportunity out there, and if you are ready to be creative, you stand to collect even more money to do very little.
For example, if you are a web developer, you can create an app that you can then sell to users so that every time someone signs up, you are getting cash. Likewise, you can write a musical composition that, eventually used in commercials, brings in some decent royalty. Do all these examples count as actual passive income? Not by every definition. But let’s like them for owning rental property. You can spend the week researching which area you want to buy.