What is Passive Income and How To Make More of It!
TLDRIn this video, J Massey from CashFlowDiary.com dives into the concept of passive income, contrasting it with active income and portfolio income. He illustrates the power of passive income through a hypothetical scenario comparing earning $24,000 annually through active work, the capital needed for portfolio income from a bank CD, and the leverage potential of real estate investments. Massey highlights the efficiency of generating passive income with real estate, particularly apartment buildings, and emphasizes the potential high cash-on-cash return with a smaller initial investment.
Takeaways
- 😀 Passive income is income that requires minimal ongoing effort once it's set up, as opposed to active income which is earned through active work.
- 💼 Active income is what you earn from your job, paid once for each task completed, and is often time-bound.
- 📈 Portfolio income is derived from investments, such as dividends from stocks or interest from a bank CD.
- 🏦 To earn $24,000 annually from a bank CD at a 2% interest rate, you would need to have $1,200,000 in the bank.
- 🏠 Real estate, particularly apartment buildings, can be a source of passive income, with the potential to earn $2,000 per month.
- 🔢 The target of $100 per door per month is a simple benchmark for estimating the passive income potential of an apartment building.
- 💰 The cost of a 20-unit apartment building can vary greatly by location, from $400,000 to over $2,000,000.
- 📊 Leverage, or using other people's money (OPM), is a key strategy in real estate to acquire properties with a smaller initial investment.
- 🏦 A 20% down payment on a $2,000,000 property would be $400,000, which could potentially yield a 6% cash-on-cash return.
- ⏰ The time investment required to set up a passive income stream, such as purchasing real estate, can be significantly less than earning the equivalent amount through active income.
- 📈 The potential hourly rate earned from setting up a passive income stream can be much higher than the wage from active income, especially when considering the time saved.
Q & A
What is the main topic of the video script by J Massey from CashFlowDiary.com?
-The main topic of the video script is passive income, explaining what it is and how it differs from active income and portfolio income.
What is the simple definition of passive income according to the script?
-Passive income is income that is generated without the need for constant active involvement from the person receiving it, meaning the income continues to come in with minimal ongoing effort.
What is the difference between active income and passive income as explained in the script?
-Active income is earned through work performed, where one is paid once for a task and it's done, such as a regular job. Passive income, on the other hand, is income that continues to be generated over time with less ongoing effort, such as from investments or intellectual property.
What is portfolio income and how does it differ from passive income?
-Portfolio income typically comes from investments, such as stocks that pay dividends, and requires using capital to generate returns. It differs from passive income in that it often involves a larger initial capital outlay and may not be as hands-off as some forms of passive income.
How does the script illustrate the concept of passive income with the example of earning $2000 a month?
-The script uses the example of earning $2000 a month as passive income to show that instead of working 1920 hours a year for $24,000, one could set up a passive income stream that generates the same amount with significantly less time and effort.
What is the significance of the 1920 hours mentioned in the script in relation to earning $24,000 a year?
-The 1920 hours represent the average number of working hours per year in the US to earn $24,000 through active income. This is contrasted with the less time required to earn the same amount through passive income.
How much capital would be needed in a bank CD at a 2% interest rate to generate $24,000 annually according to the script?
-According to the script, to generate $24,000 annually from a bank CD at a 2% interest rate, one would need to have $1,200,000 invested in the CD.
What is the appeal of real estate, particularly apartment buildings, as a source of passive income as mentioned in the script?
-The appeal of real estate, especially apartment buildings, as a source of passive income lies in the potential for consistent monthly income with less ongoing labor and the ability to use leverage, or other people's money (OPM), to acquire the property.
What is the 'net $100/door/month' target mentioned in the script and how does it relate to passive income from real estate?
-The 'net $100/door/month' target is a simple goal to aim for in terms of passive income from each unit in an apartment building. If one wants to earn $2000 per month, they would need a 20-unit building, assuming each unit contributes to this target.
How does the script use the example of a $2M property to demonstrate the power of passive income and leverage?
-The script uses the example of a $2M property to show that by putting down 20% as a down payment, or $400,000, one can control a property that generates $2000 a month in passive income. This results in a 6% cash on cash return, illustrating the power of using leverage to generate passive income.
What is the significance of the cash on cash return mentioned in the script?
-The cash on cash return, in this case 6%, represents the ratio of the annual passive income ($24,000) to the amount invested ($400,000). It's a measure of the efficiency of the investment and is significant because it shows the return on the actual cash invested, not the total property value.
How does the script suggest that the time investment for setting up a passive income stream can be less than earning the capital for a bank CD?
-The script suggests that setting up a passive income stream, such as acquiring a real estate property, may take significantly less time than earning the $1.2M needed for a bank CD to generate the same income, potentially resulting in a more efficient use of time.
Outlines
💼 Understanding Passive Income
The first paragraph introduces the concept of passive income with J Massey from CashFlowDiary.com. It contrasts passive income with active income and portfolio income. Active income is earned through daily work, while passive income requires an initial effort but continues to generate returns without constant labor. The speaker uses the example of earning $2000 a month as active income, which equates to $24,000 annually, and then explains the labor and time investment required to achieve this income. The paragraph also introduces the idea of portfolio income, which typically involves using capital to earn dividends or interest, and provides a hypothetical scenario of how much capital would be needed in a bank CD to earn the same annual amount passively at a 2% interest rate.
🏢 Leveraging Real Estate for Passive Income
In the second paragraph, the focus shifts to real estate, particularly apartment buildings, as a means to generate passive income. The speaker discusses the potential of a 20-unit apartment building to produce $2000 a month in net income, which is a common target for such investments. The cost of such a building can vary greatly depending on the location, from as low as $400,000 to over $2 million. The speaker emphasizes the power of passive income and leverage, or other people's money (OPM), to acquire properties with a significant down payment, which can then generate a cash-on-cash return. The example given is a $2 million property with a 20% down payment of $400,000, which would yield a 6% return on investment. The paragraph also touches on the creative use of funds and the potential for even higher returns if the down payment itself is not from the investor's pocket.
⏱ Time Investment in Passive Income Ventures
The final paragraph discusses the time investment required to set up passive income streams, using the previous examples of active income and portfolio income. The speaker suggests that setting up a passive income stream, such as purchasing a real estate property, might take as little as a month or two, significantly less than the 1920 hours required for active income or the time needed to accumulate $1.2 million for portfolio income. The speaker calculates that if the setup takes 320 hours, the equivalent hourly rate for the $24,000 passive income would be $75 per hour, which is a favorable comparison to the active income scenario. The paragraph concludes with an invitation for viewers to subscribe to the YouTube channel for more information on passive income strategies.
Mindmap
Keywords
💡Passive Income
💡Active Income
💡Portfolio Income
💡Leverage
💡Real Estate
💡Apartment Building
💡Down Payment
💡Cash on Cash Return
💡Intellectual Property
💡Ingenuity
💡Time Investment
Highlights
Passive income is income that requires less active involvement in its generation compared to active income.
Active income is earned through daily work and is paid once for each task completed.
Portfolio income is generated through investments like stocks that pay dividends.
Passive income can result from selling labor, intellectual property, or ingenuity into the marketplace.
An example of active income calculation: earning $24,000 a year by working 1920 hours.
Portfolio income requires a significant amount of capital to generate the same income passively.
To earn $24,000 annually with a 2% interest rate, one needs $1,200,000 in a bank CD.
Real estate, particularly apartment buildings, can be a source of passive income.
A simple goal for real estate passive income is to net $100 per door per month.
The cost of a 20-unit apartment building can vary greatly depending on the location.
Leverage, or other people's money (OPM), is a key strategy in real estate to acquire properties.
A 20% down payment on a $2M property for passive income requires an investment of $400,000.
The cash-on-cash return from a real estate investment can be an attractive feature.
Creative financing can be used to invest in real estate without putting in one's own money.
The time investment for setting up a passive income stream can be significantly less than earning the capital for portfolio income.
An example calculation shows that passive income from real estate can yield $75 per hour invested.
Engaging with CashFlowDiary.com can provide more insights into passive income strategies.
Transcripts
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