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  • Property-a-holics

    Passive income not all its cracked up to be?



    Wikipedia defines passive income as follows:  "Passive income is generally defined as a stream of income earned with little effort, and it is referred to as progressive passive income when there is little effort needed from the individual receiving the passive income in order to grow the stream of income". 

    My definition of passive income is where you no longer exchange your time for money.  You only have 24 hours in the day, so once those are over, you cannot make any more money.

    Passive income is where you are generating money 24/7/365 without doing a great deal or renting out your life.

    I came across this video by Gary Vaynerchuk about generating passive income and thought it worth sharing.

    He says that the quickest way NOT to be on a beach in Mexico is to think that passive income exists.


    Gary says that passive income can be generated from two sources - the stock market and real estate, but it is far from "passive".

    I would say there is a third way of generating passive income, and that is to create by writing a book, a song, or painting a painting where you can sell prints, or take a photograph that can be sold multiple times. 

    You can also create one youtube video and then monetise it - the video by Gary has been watched 715K times at the time of writing.  You earn approx. $15 per 1,000 views so do the maths on that!

    You only do this activity once, but you can sell what you create in perpetuity.

    In property, some activities are fairly passive and others are not.  I think sometimes that people get confused.

    Buy to let is passive.

    Buy to sell is a job.  Property sourcing is a job.  Training and mentoring people is a job.  This because you are exchanging your time for money.  You can still of course become very wealthy but you will be a very busy person.

    See - Buy to let vs. Buy to sell - trying to compare an apple to an orange.

    To build passive income, I like to use the analogy of building a herd of cows.

    You buy one cow and you take the milk (cash flow) from it.  You take an equity release from this cow (breed it) and create another cow.  Now you have two cows you can milk for cash flow month on month.  These cows are working producing milk every day, rain or shine.

    At your retirement, you end up with a herd of cows.

    With buy to sell, you buy a cow, you fatten it up, and then you sell it to get the profit.  Then you have to go and buy another cow and repeat the process.  There is nothing really passive about this at all.

    Whilst buy to let may be one of the most passive forms of income there is, it's still not truly passive.  You have to be involved at some level, even if you have your properties fully managed.  You have to make decisions and you have to solve problems.  You have to spend money to maintain and repair the asset.  You may have a cow that cannot produce milk (problem tenant or void) and you have to have contingency for that.

    Buy to let is far less "passive" than I thought when I started out with stars in my eyes 15 years ago.

    Every week, I am dealing with something, solving problems, making decisions, spending money to maintain or repair.

    I am interested to hear the tribes' thoughts on this.  Is BTL as "passive" as you thought?!

    SEE ALSO  -          How to generate passive income from £30K?

    UP NEXT -              Best passive income for £150K? Urgent input!

    DON'T MISS -         The £1000 passive income question

    NOW WATCH:

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    When I look how busy my life is with BTL its anything but Passive

    I have been up since 6am this morning doing paperwork for the Company and my Own Bussiness

    This is my Diary for today

    Meet Mortgage Broker  10.30

    Meet Loss adjuster  for a Flood in City Center  11.45

    Collect rent arrears from Tenanat at 1pm

    Meet Solicitor re purchase new property 2am

    Meet Joiner at 3.30 for repair of property

    My diary can be very busy indeed but there are days when not much happens

    This game of monopoly is time taking

    My time really ramps up with voids turning them around decorating new carpets cleaning and updating  can take a lot of time

    I really enjoy doing what I do but its not passive in anyway


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    I am very avid Youtube viewer and I'd take $15 for every 1,000 hits with a large portion of salt. Generally, and almost certainly Youtubers do not earn anywhere near this per 1,000 views. Only the most most most popular creators are turning over somewhat close to that figure.

    Still a nice semi-passive earner though. Takes alot of hours to edit and record videos though. So work longer hours than a normal 9-5 job.

    T

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    Good post.

    I don't believe BTL (single let) is completely passive, however I don't find it to be too time taxing either......certainly there are peaks and troughs - but on average it is far LESS time taxing than other strategies. Even our HMOs are not too time intensive - but I certainly wouldn't call them passive.

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    DON'T BE AN OSTRICH and bury your head in the sand! Well that's how the saying goes Smile 

    This could be diametrically linked to the myth of 'passive income'. I say it's a myth but there are some examples where an income can truly constitute as being passive. I think an extremely simplistic way of would be for an individual to first define their idea of "wealth"; which could be: Wealth = Revenue Created > inflation + Lifestyle expenses. I've intentionally used the term Wealth rather than Income because income doesn't necessary mean you're becoming wealthy.

    Now I don't know many instruments that allow you to generate income without the person's involvement. Most require some degree of involvement to ensure you're on track to maintain or grow the aforementioned Wealth. The amount of time required as an investment into creating the wealth will be relative for different people . I think BTL and BTS are both instruments that are by no means passive.

    There are some instruments that could be deemed as being passive - for example - Stocks & Share ISA, where once you've put money into it, the statistics say that over long term it will generate "wealth". You just park your money and watch it compound and grow - in theory. Here you've effectively outsourced both time and effort to someone else and compounding element of this instrument will mean that you can earn passive income from growth of stocks & shares as well as the dividends you get.

    I tell my friends that the Property sector is by no means passive despite the perceptions. I tell them that instead of speculating, I'd rather that you put money into a pension scheme - which I think is one the best forms of investment for people who are not financially savvy or Stocks & Shares. Both of these have a higher chance of generate the 'passive income' they are striving for rather than get into the Property market.

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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 


    Yes, when you are dealing with folks, its never passive. You can limit poor timekeeping, unprofessionalism etc by working with large corps, but it still leaves some room for disappointment from time to time. Dealing with numbers on a screen, you rely on just yourself, so nobody to let you down...

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    Hi Vanessa,

    Thank you for sharing this. It was such an interesting read and I really liked the analogy of building a herd of cows you gave. I think people call property investing a passive income as they don’t view it as working a day job. Even if they are putting in the same hours or more they may still feel like they are not doing a job as such. Wonderful thoughts so thank you!

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    Transparency notice: OneandOnlyPro is a commercial partner of Property Tribes.

    BTL can easily  become passive once you built the portfolio but only if you want it

    Work at it for 20 years at 30 and retire at 50 and take the rest of your life off

    So say you have built up 50 units x 400 pcm = 240K pa income

    It just depends how much of your rental income you then decide to delegate to achieve passive

    Many want the 240K for themselves to buy stuff with so they continue to be active and busy

    But if you  keep 100K pa for yourself and spend 140K pa on staff you become passive

    It takes 5 mins a day to say yes or no 10 times a day

    5 mins  in 24 hrs is passive income of 100K pa

    8hrs a day in 24 hrs is active income for 240K pa

    So you have to pay to be passive and many don`t want that trade off

    Shield yourself from work if you want to be passive

    Trouble is most entrepreneurs are greedy and don`t want  to stop working

    And I get that .

    The reasons they started are the reasons they don`t stop 

    Just don`t leave it too late to figure it out if not stopping makes you happier than stopping


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    Jonathan Clarke. http://www.buytoletmk.com


    It interesting you talk about delegating to staff JC.  Every business person I know who has staff says that it is one of the biggest hassles and bugbears - unless of course you mean outsourcing to lettings agents, and outsourced personnel, who are not directly employed by you and on your pay roll?

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    I was thinking as far as myself is concerned just on a personal basis

    I outsource to multiple of people as opposed to have staff which i agree adds another layer of hassle .

    My aim was to build a load of people as shields for me and have it say 3 deep to cover for holidays / sickness /moving on etc

    Once that ad hoc  structure is built then it frees my time and mind

    The test for me is when my outsourcees  have me have both reached that mutual understanding

    I text  ring  or  e mail them depending on my mood and say......

    Hi mate - can you do this for me and they answer  - Yes no problem leave it with me

    And that ends the interaction .

    The trust and bond is there that they will do a good job and i will pay them for that job

    With staff its about employing someone to deal with staff problems so we are talking HR

    And if HR are a problem you need a PA to deal with HR

    I think the default mentality tends to be  to employ one less person than you need to save money

    I would say employ one more than you need and earn a bit less but take the heat off you

    This frees your mind and allows you to think - Thinking is free

    And then you are free to  think of new forms of passive income if that`s what you want to do

    Its the old working on the business not in it thinking

    And a property entrepreneur skills is not necessarily in  property  -  Property is just a single vehicle

    The skill is to be a visionary and then pay someone to do the bits you dont want to do

    Far easier said than done of course with a small fledgling company so a hybrid system is maybe best

    My mate had 50 staff earning a million a year but  was running himself ragged

    I told him slow the F*** down .

    He saw it,  but he said he was too busy to sort it but in fact he didn`t want to sort it

    That was his problem  - the need of super control and domination over his baby at all times

    But i went hard on him . It worked

    By just employing a couple of staff at 30K pa  he did sort it and that  shielded him

    He now takes about 10 holidays a year ( show off )  and is far more relaxed and passive

    Sometimes its hard though to step outside the bubble you create

    Money is often there to be much more passive but people get greedy

    If I needed another layer now i  would get a PA . Its nice to have the option to be passive

    Having the option to be passive  but just not taking it is quite a sneaky thrill in itself though

    Bit like saying I can afford a new Q7 but I am just not taking that option . Yes, what a buzz

    But passive is  a goal  and should be built into any business plan

    You cant do at 60 what you could do at 30

    And you cant do at 90 what you could do at 60

    And  at 120 you wont be doing anything at all and you will be totally passive like it or not

    I like to be passive within my lifetime.   At 120 I will have  left it a little bit too late me thinks

    50 is a good compromise if you live to 100 ...

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    Jonathan Clarke. http://www.buytoletmk.com

    Over the years I have used a number of agents

    and I know one thing I manage better than they do

    The reason is all about service ??? Let me give you an interesting sanario

    I had a call from an agent advising that there was a leak and They sent out there contractor to stop the leak

    The report I got back was worktops need changing because the leak was in kitchen tap and it had caused the worktop to warp  the quote was £750  for work tops and and refit the sink and tap

    I went to look at the Job and met the tenant  and looked at the problem

    My solution was to remove the sink and tap fitted to the work top Fit a new sink with drainer (Larger then the one Fitted ) and not to renew all the work tops which were not damaged

    It took a mornings work with my contractor and the cost was £259 inc sink and tap

    A £400 saving and without much effort

    I could hand over my business to agents but I wont because I know I can do in general a better job because Its my own property and I have the time to do it







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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.