Oh, yes, there is a difference. More than you know. Want more articles like this? You know there is a difference and you may know generally what that difference is, but it’s likely you don’t truly understand the implications of these variations. For the record, there is certainly nothing wrong with either of these. But if you would like to increase your returns later on, you do want to be sure you really do have a solid feel for how these two differ.
Active Income: Income for which services have been performed. This consists of wages, tips, salaries, commissions, and income from businesses where there is certainly material participation. Passive Income: Earnings an individual derives from a rental property, limited partnership, or other enterprise in which they’re not actively involved. Investopedia continues on to clarify that passive income does not include earnings from “active business involvement”. Active income means you do something in order to receive that income. Some type or kind of work. Some kind or kind of work. You aren’t hands-off.
You have to exert some type of energy and time towards making that income. Passive income means you are making regular income with little to no work necessary to keep it coming. You are for the most part hands-off. Source of Income vs. Why does it matter that you are getting if it’s all income? Oh, it issues. It issues because accomplishing your targets depends upon understanding these terms very obviously.
What is the most typical reason investors give as to the reasons they are getting into real property trading or why they already are in it? Financial independence. Those that want financial independence very clearly specify that goal to be in a position to use real property as a car to eventually break loose of their current career without having to work for their income.
Okay, cool, a goal! And an incredible goal at that. Okay, so financial freedom, let’s discuss that. In theory, and keeping it at the highest most elementary level, financial independence means you should do no ongoing work to be able to get income. So you are financially free once, you no longer have to worry about money.
What does that appear to be to you? There is a term both of these plans are categorized as. It’s called “lifestyle design”. You can design your daily life, how you want it exactly. Isn’t that the idea of financial freedom? If you don’t value lifestyle design, you can just stay at your present job, right? With financial freedom, you can do whatever you want.
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You can actually start forming lifestyle design before you are economically free too, like I have just. Hiking, snowboarding, surfing, margaritas, whatever. Are you totally persuaded that I have diverged from talking about active or completely. I don’t blame you. I’d have overlooked about those by now too. But let’s bring them back now.
Ok, just how do those relate to lifestyle design? Well, I’m presuming we have established that your individual lifestyle design does not involve working, appropriate? Do you remember which income requires you to work for it? Active income. So for complete lifestyle design then, would you like to have to rely on any energetic income? No. You merely want aggressive income because aggressive income doesn’t require much, if any, work on your part. You then are free to travel or play or watch TV all you want.
Now you know you don’t want to deal with any active income, but what trading methods are considered active? 2-3 weeks ago I had written an article that broke out the very broad types of real estate trading that someone can get involved with. See: Which PROPERTY Investing Route Should You Go? Of these categories, the breakup goes 50/50 for which ones produce energetic income and which produce passive income. Active Income Investments: Flipping and wholesaling. You should do work to be able to see money from these. You have to be hands-on.
Note: I really do still stand by my discussion that wholesaling is not actually an investment whatsoever, but also for the sake of so many people considering it is, I am including it. Another note: It is possible, if you are slick and good really, you could be decently hands-off for a flip. But that is long down the road of being a sophisticated flipper so for the present time, I’m leaving it here. Passive Income Investments: Rental properties and paper/notes. If done correctly, both these offers you income whether or not you are hands-on or off.