What is Passive Income

What is passive income: in real estate, Robert kiyosaki, vs active income, examples, vs portfolio income. Have you ever heard of passive income?

Have you ever heard of passive income? If you don’t know what we are talking about, then you are on the most convenient website to understand it.

Passive income is also a type of earning but seems like that except for accountants’ other people are not aware of it.

Passive income is the earning that one derives from a rental property, limited partnership, or any other business or enterprise in which he is not actively engaged and involved.

Passive income just like active income is taxable but is often treated differently by the Internal Revenue Service. The IRS comprises specific rules for what it calls material participation which is used to determine whether a taxpayer is actively engaged in business, rental, and other different income-producing activities. Even a taxpayer can claim a passive loss against income that is generated from passive activities.

A person earning through passive income is commonly referred to as a silent investor and the supporters of passive income are their boss and are free to work from home along with enjoying a professional lifestyle. In recent years the term passive income has been loosely used in an informal way; it is defined as the process of earning money regularly with no or very little effort by the person receiving it.

There are different types of passive income such as rental properties and self-charged interest. In self-charged interest money is loaded to a partnership by the owner of the entity and the business is designed in a way to reduce the effect of double taxation and the interest income can be qualified as passive income.

Whereas rental properties are included in passive income with some exceptions. If you are a real estate professional, then any rental income that you are counting is passive income but self-renting does not constitute passive income if the lease has not been signed before 1988 as in this case you cannot define your income as passive income.

Contents

In Real Estate

If you are new in the field of passive income, then you should also know about passive income real estate? Passive income real estate is regarded as one of the best ways for obtaining an additional source of revenue, attaining security in retirement, and ultimately designing a roadmap for achieving financial freedom.

But before beginning passive income real estate you must know that investing in passive income real estate is not necessarily the right fit for every investor. Would you like to take an active part in your business or relatively a passive role? Reading about passive income in real estate will clarify your thoughts.

Simply, passive income in real estate can be defined as a strategy through which a person investing in a business earns without being actively involved in it. The term passive income is used loosely as the level of the involvement and required activities vary depending on its investment type.

A question that you may face if you are engaged in passive income is why do you need passive income? Passive income is a great way of earning for those who want to enjoy their life instead of spending the whole day working for someone else. Some ways through which you can put passive income into use are:

Build your savings
Achieve financial freedom
Fund your children’s college fund

Pay off your debts
Set up build your retirement fund

Passive income serves as great support for you after retirement as it will create a financial stream for you in your active years for securing old age. Income through rental properties is one of the most popular ways of generating real estate passive income. It is all dependent on the investors who play their cards well for deriving a steady revenue from rental income and they also have the options for improving the property and building equity.

Robert Kiyosaki

Knowing about the thinking of Robert Kiyosaki about passive income will encourage you to step into passive income. Robert Kiyosaki is a businessman and author of Rich Dad Poor Dad and he once said that to obtain financial freedom a person must be either a businessman, an investor, or both, and generate passive income on a monthly basis.

Robert Kiyosaki has advocated some income ideas as a great passive stream that can have a huge impact on your life. These ideas are given below:

Write Books: You should try to write books if you are a creative writer and carry a strong imagination. By selling books one can earn a hefty sum of money but make sure these books sell and are popular and effective. But Kiyosaki advocates writing books and other different materials that you can publish yourself or through a publishing company and in turn, you can collect monthly residual checks as they are sold online and across the country.

Buying House Properties to Generate Cash Flow: Buying homes and other properties and selling them or providing them at rent are great ways to generate rental checks from tenants as a great flow to meet your needs. If you do little work but get heavy rent checks, then you should be thankful for your foresight that you made such purchases in the first place.

Investing wisely in Stocks and Mutual Funds: Investing in stocks is one of the modern and wise moves to earn passive income but only if you know how to play and work on the stock market. Wisely investing in stocks can bring a great deal of money while doing a part-time job, an equation that carries positivity for you and your needs.

VS Active Income

Income falls into two categories: passive income and active income. Most people have heard about passive and active income but they are not sure of the difference between these two incomes.

Active income is the most common type of income that you may have heard of and it includes salaries, commissions, and hourly wages whereas passive income includes dividends, rental property, and money earned from interest.

Interestingly, active and passive income are interconnected as simply the game is that the more you can earn through active income, the more you can invest in passive income. Besides this, if your expenses are covered by your active income the rest that is left behind can be used for setting up a business for earning passive income.

Having both passive and active sources of income will open up new possibilities and opportunities for you and understanding the difference between both these incomes will help you to chart your life in terms of finances.

Examples: What is passive income

One main point about active income is that you can earn money while you are sleeping. Whatever you do, you will get paid for it and unlike passive income, you can engage yourself in active income while lying on the bed most of the time. Some of the examples of active income will clarify the degree of the work that is demanded in active income.

Hourly Wage: One of all forms of active income is hourly wages and you can enter into this work at any age whether you are a teenager or an adult. As a teenager, you can earn hourly wages by delivering pizzas and you can even increase your hourly wage as a side hustle at night.

Salary: Starting work at organizations at 8 am in the working and making efforts till 5 at noon, then you are earning an active income. Essentially, you are trading a year’s worth of your time and skills for a set amount of money.

Commission: If you are working or owing a sales business then the commission that you form is a type of active income and among all active income streams it has the greatest potential to provide you with a significant amount of money.

Consulting and Freelance Service: It may be new to most readers that you can even earn active income through consulting and providing freelance services. It is also reliable on your marketing skills as working as a consultant in a company can improve the area of your business along with generating more revenue.

VS Portfolio Income

There have always been differences between the thoughts of different analysts that whether portfolio income is derived from passive income or not as some financial advisors regard portfolio income as passive income as in their eyes these two incomes have no major difference.

But some opposition is faced in concept too as the second concepts describe that portfolio income is different from passive income and it does not come from regular business activities.

The common sources of portfolio income are interest, capital gains, dividends, interest paid on loans, and many others and these categories are important for tax. Three common ways of producing portfolio income are trading (selling) stock investments for profit. Selling of assets that provide gain over time and selling real estate.

You can earn portfolio income in different ways such as investing new capital, reducing income tax, investing in dividend growth stocks, and reinvesting dividends and interest.

I hope you liked the detailed explanation of passive income.

External resource: Investopedia

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