Almost everyone that I come across in property circles wants to achieve a passive income.
What does passive income actually mean? Simply put: you have an investment portfolio, a group of properties that you own and manage, that earn income and pay expenses and tax; also known as operating assets. The passive income in question is the net cash flow into your pocket derived from or earned from this portfolio of properties. By inference, it means enough of that type of income to replace your active income, or income earned directly from your time.
The silver bullet is …..
Over a period of time, the investment properties you buy grow in value (capital appreciation with grateful thanks to a market that is growing and not shrinking) and so does the rental income from those properties. And this growing rental income eventually far outperforms the running costs of the properties, producing more and more net cash inflow which you can live on.
This is the dream
…this is your ticket out of the proverbial rat race, this is where you start to derive real wealth and value from the properties you hold in your portfolio and this is what people mean when they say they want “passive income”.
Income earned from operating assets vs income earned from your time and effort.
Generally, investors want to achieve their goal in 10 years’ time from now or 15 years’ time from now, or in 20 years’ time from now. They relay that they want to achieve a passive income so that they have the option not to work; they don’t know if their health will allow them to continue working in the way that they are now, or if married, hopefully, one can stop working so that the other person can continue working, or both can reduce hours, so they can spend more time with the kids and things like that. All very normal, goals that everyday people have.
But I find that when it comes to property investing, although everyone has these very noble goals, not many investors actually have a clear STRATEGY on how to get there and I think the word STRATEGY gets thrown around a lot and leaves most people baffled, confused and filing it in the “too hard basket”.
So, what really is passive income from property?
In a word – STRATEGY
Mostly, people think that strategy means what property to buy and where to buy the property, right?
They assume that strategy means going onto a website like realestate.com and then figuring out the type of property that you should be buying or going on realestate.com and figuring out which suburb to buy in or within the suburb which street you should be buying on, etc…..
But really STRATEGY means only one thing.
How am I going to achieve that passive income target that I’ve set for myself and my family?
