Looking for passive investments, but all you see is many kids saying they make millions but still live in their parents' house? Finding a genuinely passive investment is very hard.
Does Passive Income even exist?
Sure. But the only 100% passive income you can have is inheriting money that sits in a trust fund, and you have to do, literally, nothing to make money every month. Everything else demands some attention, even if minimal, to have a great experience of don't have to work to get paid.
Stocks and Real Estate are the easiest way to have passive income. The problems are two: stocks pay meager dividends, and Real Estate, usually is very expensive or demands a lot of YOUR work to make it worthwhile. How do you solve that?
Dividend Yield as an investment strategy
Well, there are several investment strategies available, and all of them can be the right one. But you need to figure out which is the right one for YOU. Your goal is to put your money somewhere that will give you some payment, either monthly, quarterly, or yearly. The Dividend Yield tells you what you need to know if you are looking for passive income: how much money you make over your investment.
A Dividend Yield of 10% means that if you invest $100,000.00 you will make $10,000.00 every year. A 2% dividend yield means $2,000.00 per year. So, the higher it goes, the better for you.
But, making money is just a part of the equation. You also are in the search investments that don't take time and effort from you to manage them. And that's the problem with stocks Real Estate Investment Trusts (REITs).
Don't get me wrong. Stocks and REITS are a terrific investment that everyone should have in their portfolio. But the point here is to have the least "hassle-free" investment possible. And stocks don't fit that criterion. I will tell you why.
To select a stock or a REIT, you need to do a very in-depth research. You can't just go by what your neighbor, Daren, said. He has his goals and his investment profile. You have yours. You are not the same. Of course you can take whatever you hear, evaluate, and make a decision. But copying someone else's strategy is never a good strategy.
After you buy the stock or the REITS shares, you need to still keep researching. The problem with public companies and funds is that they are short-term driven. They need to prove their results every three months. If they don't, their prices will suffer. And so do you. Besides that, changes in the company's or the fund's board may also affect their price and results, which will impact your portfolio and your goals. Therefore, since you don't fully control it, it will never be a truly passive income.
Real Estate Investing Made Easy
Real Estate makes everything easier. You also need to deeply research before buying it, but once you do, you don't need to keep digging reports to see if its price will come up or down in the short term. Real Estate and stocks are long term investments. The difference between them is that you don't see your property's price fluctuating by the second. Once you bought it, it's done!
Nevertheless, someone might say, when you buy Real Estate, you have to manage it, take care of the tenant, etc. Yes, but you can hire a company to take care of this for you. You will make the final decision if something happens, such as changing a broken tile, unclogging the pipes, fixing the washer and drier. But saying "yes" or "no" is much easier and less time consuming than having your lessee calling you in the middle of the night.
The downside of hiring a management company is that it takes away part of your returns and profits. And, sometimes, this can totally annihilate the investment opportunity. These companies charge anything form 10-20% of the revenue you make to manage your property. It usually goes down the higher you make, but if you have several houses, it becomes expensive, since you can't scale it. Sometimes, it is better to have a multifamily project (2 or more units in the same building). But that's a topic for another post.
How much you pay is less important than how much you get, until a certain point. Of course, it doesn't make any sense to hire a management company, and, with that, your investment has no (decent) return for you. If you are getting great deals and don't have to worry about anything, that's your real passive income.
The bottom line is, most of us will always have to work to have income. But if you are savvy enough, you will find solutions only to have to work ONCE to make an income. After that, it's just about enjoying it.