John: Hey, John Sonmez from simpleprogrammer.com. I got a question about passive income. This
is sort of a loaded word. I think a lot of people say passive income but they don’t
really mean passive income. When I talk about passive income I’m talking about real passive
income. This email says, “Hi John, my name is Vlad and I’m from Romania. I’m watching
your YouTube videos and I subscribe to your channel. I have financial questions which
has inspired me from what I’ve read in Rich Dad Poor Dad.”
So Rich Dad Poor Dad is a pretty good book, I recommend it but it doesn’t give you very
much—my only problem with Rich Dad Poor Dad is it doesn’t give you actionable items
on how to actually achieve the things that it talks about but it’s a good mindset book
so I definitely still recommend it. “We have things that produce money, I house that
we rent, interest from money at the bank and things that spend money, that we spend money
on, a car for personal use. What can we do if the things that produce money become things
that spend money? We can’t rent the house, the interest is negative. We pay to have money
in the bank. I heard that happens in some countries in Europe. For example, you said
that you have 26 properties that are rented. What can you do if you can’t rent part of
them? From your experience what are the most safe sources of passive income? I hope you
understand what I mean. Thank you, have a nice day.”
I think this is a fear for a lot of people starting out when they’re going to do some
real state investment is what if I can’t rent my property out? What if don’t get
a return on that? Typically that’s not going to be a problem. I mean I suppose there are
certain economic situations where you could be stuck with a rental property that you couldn’t
rent out in which case you would have to cut your losses and sell it at a loss, but for
the most part that’s not going to happen, the more that you have the more that you’re
going to diversify that risk so you’re not going have as much of a risk.
Typically I rent my rental properties for 10% under market value so they are always
100% occupied. As long as you come in with that mindset when you buy a rental property
then I think you’re going to be in good shape. A lot of people buy rental property
and they think, oh—they’re actually thinking that they’re going to rent it for 10% higher
than market value because they think their place is so good or they’re being very optimistic.
I tend to be pessimistic when I look at the value because I want to err on the side of
thinking that it will rent for less than it actually can because that’s going to ensure
that it’s rented out and it’s going to make sure that my calculations—that I’m
never going to end up on the wrong end of it if you know what I mean. That’s what
I would say about that. As far as passive income like what are the
safe sources of passive income, I’ve talked about this a lot but obviously I think that
the only real safe source of passive income that makes sense is real state investment.
It become passive when you get a good system in place where you have a property manager
that’s able to manage that property and you’ve made a solid investment where you
know that the rent that you’re getting is going to more than cover the mortgage and
put some money in your pocket or you have it paid off. I think that’s a good investment.
Like I said, it depends on where you’re at in the world obviously. You can get usually
a pretty good rate of return. Real estate has an actual value. It’s always going to
have a value. People always need a place to live and people are always going to rent and
pay money for that. I think that’s a really good source. There are some other sources
of passive income. I suppose if I had like $100 million I suppose that I wouldn’t—and
I wanted to be super safe and secure and be totally passive and not have to worry about
it at all I’d probably do something like invest in TIPS which are Treasury Inflation
Protected T bills basically so it’s a government bond, US government bond but it’s an extremely
poor return rate. I mean you’re talking like after inflation, well that composites
for inflation but it’s like 1% or something like that. You have to have a lot of millions
of dollars to invest there passively and generate income.
I think real estate, my average returns on real estate they’re somewhere between 10
and 20%. That’s a pretty dang good return. Pretty hard to beat and it’s mostly passive
so that’s why I recommend that. There’s obviously other choices that you could choose
in between there, dividend yielding stocks, again, the return usually not that great and
usually have a high risk. For me as long as you have enough real estate properties and
you’ve got it managed well there’s very little to no risk involved and you get a decent
return on it. That’s what I think is smart passive income move.
The other possible category I would say that isn’t totally passive would be building
a business, building some kind of business that can operate with minimal involvement
from you. Maybe you can hire someone to run it or operates online and you’re selling
a digital product where it’s simple distribution and all you have to do is support emails and
things like that. it’s still not 100% so I wouldn’t quite call it passive income
but if you’re just looking for ways to make money, to be able to make more money with
what you have investing and creating a business is always a good idea, but you got think about
making this passive as possible from the beginning. Anyway Vlad, great question. Thanks for emailing
me and hopefully that you are able to figure out what you want to do. I’m glad that you’re
thinking this way. It’s good that you are. Keep down the road. A good book I’d recommend
to you is called The Millionaire Fastlane by M.J. DeMarco. It’s a little bit more
detailed than Rich Dad Poor Dad. I think it gives you a little bit more actionable advice
so I would definitely recommend you read that book. If you’ve got a question for me email
me at john@simpleprogrammer.com and if you enjoyed this video definitely subscribe. Talk
to you next time.