Passive Income: Money That Works So You Don't Have To (Pt. 2)

The following is an excerpt from the book Smart Business, Stupid Business, written by Diane Kennedy of US TaxAid and Megan Hughes of Smart Business Incorporation.

Is Real Estate Really the Only Answer for Passive Income?

For years, I’ve been known as a real estate accountant. I’ve helped thousands of clients through complicated real estate transactions and have developed systems to help any real estate investor take advantage of the best tax breaks available.

And, during those years, I’ve seen a growing number of business owners who actually step over piles of money to reach for a dime. They ignore huge passive income possibilities from leveraging their intellectual property and soft assets of their business to instead break out in a whole new area: real estate.

Can you make money in real estate? Of course. A lot of people have. But it’s one more thing that you’ll have to learn and manage. There will be a learning curve and it’s going to take a lot of time for possible just a small reward.

Passive Income for 2010 & Beyond

The years 2008-2009 saw a lot of changes in how businesses and investments work. Prior to that, real estate was in a crazy spiral. Good, semi-good, mediocre, and even some downright bad real estate investments made money. But few of them actually created long-term cash flow. Most were just appreciation, fix-n-flip, sell to the greater fool types of deals. As long as appreciation continued, it could cover a multitude of problems.

In the aftermath of the real estate burst, there are probably going to be some appreciation deals still. But they aren’t as prevalent as they were a few years ago, when pretty much anything real estate related went up in value.

Today, people are looking for the cash flow. You might have been told that real estate is the best way (or maybe only way) to get that. In the right circumstances, it can work. If real estate investing is your path to passive income, you may discover that it will take hours and hours of time and thousands of dollars searching out a deal that will get you $200 per month in cash flow.

Passive Income Success Stories

Story 1

Affiliate Marketing. An affiliate marketer puts up web sites, buys, and/or gets traffic through strong SEO (Search engine optimization), and then refers visitors to other sites to buy. An affiliate market gets paid when someone else buys. There are a few other formulas, but this is the most common method.

Bob & Mary had ridden the wave of real estate appreciation in California. They were disappointed, but not devastated, when it turned. They spent a year or so figuring out where they were going to concentrate their next passive income push. They decided to try out affiliate marketing. Mary found an affordable coaching program with an experienced marketer and made him (and her family) a promise to do exact what he said for four months.

The result: Mary was consistently making $50 – $100 per website per month. But she didn’t have just one website, she had over 50. Her plan is to add another 10 per month as long as the business model works. Her total cost was less than $1000.

Story 2

All the people you know. Jon is a very smart businessman. He can take basically any type of business, if the premise is good, and turns it into a winning proposition within two years. That’s because he’s good as a businessman. But he was tired of working. He wanted truly passive income.

So Jon spent a few years looking for a network marketing company that had a good business premise behind it. When he found out that made sense, he developed a strategy to work the business for 18 months then stopped working to let the lines catch up for 2 years. Then he’d go back and work it for 18 months. He’s now in his second cycle of growth and on track for hitting $1 million in passive per year in the next few years.

He’s used his talent for building and growing businesses, coupled with a solid business premise with his business database.