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How to Create Passive Incomewith No Money in 2019 & Beyond
Approximate Reading Time: 5 Minutes
Summary: In this article you’ll learn how to create passive income with no money in the year 2019 and beyond. As part of this financial journey, you’ll discover passive income opportunities, as well as learn which passive income investment strategies are right for your financial goals. Read on to discover how you can begin generating passive income today.
Introduction: What are the best ways to create passive income with no money?
What is portfolio income? How much money do I need to invest in real estate? What are some examples of passive income? These questions and more can be answered when you discover the right types of passive income investments that require little to no money. However, before you can choose your investments, you must first understand that there are three unique types of income: passive income, active income, and portfolio income.
Breaking Down the 3 Types of Income
Income comes in a variety of sizes and types. If you want to create the right investment strategy, that allows you to create passive income with no money, then you need to first understand how you can earn income in three unique ways.
1 – What is passive income?
Passive income is defined as the money that is earned from a limited partnership, rental property, or another entity where the investor does not have an active role. With this in mind, it is important to note that the IRS has specific rules with regards to the participation levels that denote passive vs. active participation in an entity. The reason for these rules is simple: passive income is taxed differently than active income. With this in mind, the key rules to keep in mind are as follows:
- Passive income investments require that you dedicate less than 500 hours per year to the business or activity that is generating income.
- Your activity cannot be “substantially all” of the participation for the current tax year.
- Should you participate up to 100 hours, and should that 100 hours match the participation levels of other individuals involved in the business or activity, then the passive income will transition to active income.
2 – What is active income?
Active income is the money earned from performing a service. It is also the most common type of income. For example, active income can be earned through a salary, commissions, income from businesses or activities where you have established material participation, (i.e. you have surpassed the previously denoted requirements for passive income), or tips. To further clarify the material participation requirements for active income, according to the IRS, you must meet the following levels:
- You work 500 or more hours in the business or activity during the tax year.
- You complete the majority of the work in the business or activity.
- You work more than 100 hours in the business or activity during the year and no other staff member involved in the business or activity works more hours than you do.
3 – What is portfolio income?
As its name suggests, portfolio income is the money earned from capital gains, interest, investments, and dividends. Additionally, any royalties that are received from a property that is held for investment purposes, can also be considered portfolio income. It is important to note that portfolio income is not generated from passive investments, nor is it earned through regular business activities. Any interest earned on loaned money is not considered portfolio income.
Best Passive Income Ideas 2018
For many individuals, it is easy to identify where and how they earn active and portfolio income. However, for the beginner passive income investor, it is often harder to determine where and how to start making passive income a reality. The first thing that you must remember is that the best passive income ideas often require you to think a bit outside of the box. For example, you could start a blog, renting out unused space in your home, building a niche website, renting out ad space on your car, or any number of other ideas. While the latter ideas are great ways of generating passive income, there is one tactic that can lead to a far more lucrative investment opportunity … we’re talking about real estate.
How To Save Money To Invest in Real Estate for Passive Income
No matter your age, one thing is certain, you can save money to invest in real estate. The key to saving money to invest in real estate, is to first clearly identify your financial goals by asking the following types of questions.
- Are you planning on using the passive income earned from real estate to build your retirement fund?
- Will the passive income be used to pay off existing debts?
- How much passive income are you hoping to earn?
Through the above types of questions, you can more effectively examine your current financial status, as you seek to create opportunities to not only save money, but to more readily invest it in lucrative turnkey properties that can generate positive monthly cash flows.
How Much Money Do I Need to Invest in Real Estate?
Knowing how much money you need in order to begin investing in real estate is a personal decision. With this in mind, there are a few key guidelines that you should keep in mind.
- If you want to purchase REAL Income Property™ and you want to pay all cash, then you will need at least $60,000. This sum is dependent on a) the type of residential property, b) the location of the property, c) the status of the neighborhood and surrounding area, and d) how much work the property needs before it can be rented to generate a positive monthly cash flow.
- If you want to use an IRA to invest, then you must have at least $50,000 in the IRA.
- If you want to use conventional financing to invest in real estate, then you should meet the following criteria:
- A credit score of at least 680 (although, the higher your credit score, the better).
- At least a two year job history at a U.S. company.
- The cash needed for at least a 20 percent down payment.
- At least six months cash reserves in either a savings account or retirement fund.
- A low debt to income ratio.
7 Savings Ideas
Whether you already meet the above criteria, or you need to save a bit of money, the following seven savings ideas can pave the way for you to not only invest in real estate, but create an effective strategy that generates even more passive income on a monthly and yearly basis.
Savings Idea #1: Prioritize Your Saving Goals
If you truly want to save money to purchase an investment property, then you must make saving not a goal but a priority. If you fail to make saving a priority, then you will easily say, “sure I can spend that daily $5 on a Starbucks coffee before my morning commute,” when you could instead turn that daily habit into a $1,200 in annual savings. When the average rental price across the United States is approximately $1,200 per month, it’s easy to see how your daily $5 coffee actually has a huge financial impact. Think of it this way, if you had instead made saving a priority, then your daily $5 coffee could instead be generated (and paid for, for the entire year) by the passive income earned in only one month from your real estate investment property.
Savings Idea #2: Commit to a Budget
Creating a budget is one thing; sticking to it is an entirely different scenario. In order to commit to a budget you should write down all of your monthly income sources. Next, you should calculate how much you spend in a month. Finally, you should calculate the difference between the two. In the ideal world, you will see a sizable positive difference. However, if you are seeing a negative difference, or if the numbers are too close together, then you will need to start thinking about how you can cut costs (and / or increase earnings). For many people, the easier road is to cut costs, so that you can begin to save money on a monthly basis.
Savings Idea #3: Try a Mutual Fund
If you leave your hard earned money sitting as cash, then you are not maximizing its potential. Instead, you can invest in something that is low risk, such as a mutual fund. In fact, mutual funds can typically help you to not only save money but to also earn money. These funds are designed to diversify investment opportunities to thus reduce risks, while simultaneously maximizing yield opportunities.
Savings Idea #4: Explore High Yield Stocks
As their name suggests, high yield stocks can often generate a large payday via dividend or cashing in a stock option. However, while high yield stocks can often make you quite a bit of money, it is important to note that they are typically high risk. In other words, a good rule to live by when investing is “the higher the yield, the higher the risk.” If you invest in high yield stocks, it is important to recognize that you might in fact lose all of that money. With this in mind, it is always a good idea to speak with your investment consultant before you place all of your eggs in one basket and solely invest in high yield stocks.
Savings Idea #5: Use Cash Back Credit Cards for Money You’re Already Spending
Cash back credit cards are a great way to “earn” extra money. Most cash back credit cards will offer a one to five percent cash back earning opportunity for purchases made throughout the year. With this in mind, not every cash back credit card is a great deal. For example, some credit cards require a yearly enrollment fee; if you don’t earn more in cash back than the latter fee, then the card isn’t actually “earning” you money. Additionally, if you can’t afford to pay off the credit card each month (in its entirety), then you will be subject to interest rates and once again the card won’t be “earning” you money. In other words, if you want to take advantage of a cash back credit card, then you need to do your research first, ensure that you can always pay off the credit card, and recognize that this money “earned” can help to offset some of the money spent on your purchases but does not mean that you should ignore your budget.
Savings Idea #6: Get Out of Debt
This might seem like a no-brainer, but whether it is student debt or credit card debt, the longer time that you spend in debt, the harder it will be to save. The reason for this is simple: often times debt comes with higher interest rates. For example, let’s say that your credit card has a 20 percent APR (on a monthly basis this equates to an interest rate of 1.6676 percent). Now let’s say, that you over spent by $1,000 and can’t pay off the statement balance on time. This means that the next month, you will have to pay an additional $16. Like the $5 daily coffee that was mentioned earlier in this post, that $16 interest fee can quickly add up. The moral of the story is simple, if you want to start saving to invest your money in real estate, then you will need to get out of debt as quickly as possible, otherwise your hard earned money can’t be put to good use.
Savings Idea #7: Get Educated to Find Real Estate Investments that Work for You
Education is the key to not only saving money, but to finding the real estate investments that will work for you. For example, instead of spending all of your money on one $500,000 investment property, perhaps the smarter strategy is to instead purchase five $100,000 homes that will each generate passive monthly income. The money earned from these homes can then be used to a) pay off any of the associated mortgages, b) be placed into a savings or retirement fund, or c) used to purchase additional homes to thus create a long-term strategy for increased passive income earnings.
In conclusion, if you want to start earning passive income, then you must first create opportunities to save money. While you can invest in various passive income opportunities, such as renting out a room in your home, selling ad space on your car, becoming a social media influencer, or creating a blog, real estate offers the opportunity to create a long term strategy that can generate even more lucrative results. To learn more about how the right real estate investment strategy can create higher passive income yields on a monthly basis, contact a trusted investment consultant today.