Generating Passive Income In Business vs. As An Investor

What's up, everybody? Ryan? Daniel Moran here from capitalism.com and today we're going to talk about generating passive income, and we're going to talk about passive income in business. And the two are separate conversations. And the reason I bring this up first is because a lot of people who are searching online or starting a business or even who have success and are looking to invest often confuse passive income and businesses. Because most people, I think, ultimately just want a life where they wake up in the morning and do whatever the flip they want. And they believe that the way that they'll get there is through passive income, which is somewhat true. And they believe that the way that they'll get passive income is by starting a business. So I'm of the opinion that passive income isn't a real thing, meaning that something has to be at work in order for income to be generated. Income and money ultimately comes from other people's bank accounts. So there have to be customers of some kind generating income in order to be active or passive for you. But there are things that you can do both in your business and with your investments in order to make them passive for you, which is different. So there's a big distinction between.

Passive income that we think about and passive income for you. So if you want passive income, you can have that. But an income source is only as good as the business behind it. There is no magical place where we can plug in. You know, we plug in the hose and out comes passive income, and it's going to go on forever. So there are sources for you to tap into, and that's what we're going to cover in this video. But it's important to remember that savings. Saying that we're going to start a business in order to get passive income is kind of like saying, I'm going to have a child so that I can have more free time. It doesn't exist. Starting a business to get passive income is a fantasy because it requires a tremendous amount of effort, a tremendous amount of selling to customers in order to get to the point where there is passive income. But again, we're going to go through a couple of things that you can focus on in your business to make it as passive as possible for you. And then on the other side of that, what investment vehicles exist in order to generate passive income, again for you. Forgive me for belaboring the point, but this is such an important distinction that passive income has to be active somewhere. And it can be either active for you or can be active for someone else. You can be generating the income, and that's a business, but it's not passive. Or you can be a passive income earner, but someone else is working. So the distinction might be better defined as a business is never passive, but it is scalable. There is no one who is operating a business that is just hanging out on the beach maybe one or two days a decade, but not kicking it poolside. Right? And then on the other side, a passive income can be the lifestyle of you kicking it poolside, but it's not scalable. It's not going to thing that makes you incredibly rich. So which do you want? Do you want the big upside of a business and make millions and millions of dollars, or do you want passive income so you can live the life that you want? I take a hybrid approach. I make my money in business and I make as much as I want to work, essentially because that is very active income. And then I invest the profits from my business into passive income sources. And we're going to cover all of that in this video. So I believe that true passive income really only comes from your investments. So let's start there. Let's start where your investments, what investments create passive income? So I'm of the opinion a lot of people will get into real estate as a result of a search for passive income. And I think that's kind of a misnomer because even if you buy a house and you fix it up or rent it out and you have monthly checks coming in, that's great, but someone still has to fix toilets, someone still has to make repairs, someone still has to get a renter in there. And yes, you can have a management team do all of that, but at the end of the day, the numbers on that really aren't all that attractive. Unless.

Unless investing in real estate is your primary business. Now if it's your primary business, that's different than it being passive income. And a lot of people get into real estate thinking that it's going to be a passive income source, when in reality the only way the numbers really make sense is if it is a business for you. When you have a portfolio of real estate, you have systems and processes acquiring and operating this real estate for finding the, finding the renters, finding the property managers. Now that's not my business. So I am a real estate investor, but I am not actively going out and trying to buy homes. Instead, I invest in something that's more passive for me, which is real estate funds and real estate investment trusts. So a real estate investment trust, you can Google these REITs.

As they're called, are publicly traded companies that you can invest in where they're investing in the actual real estate and they're paying out their profits as dividends. So you get some of the benefits of real estate without having it to make it your business. My favorite way to invest in real estate is to go to funds. So I partner with or I'm connected to people, people whose full time business is buying up apartment buildings and buying up portfolios of homes and investing in mortgages or doing hard money lending. And I simply am the capital source where I give them money. And I get a rate of return that is passive for me. So I have a podcast, you could probably find it somewhere around this video with someone who runs a real estate, a real estate fund called Four Peaks. It's one of the ones that I invest in. And I get my fixed rate of return, I get to participate in some of the. And I'm an owner, so I get some of the tax benefits, but I don't have to do any of the work. I don't have to be on the front lines scouring for deals. That to me is passive income. And it still requires me to do my due diligence into the investment. It still requires me to do my due diligence into the business, but I don't have to be in that business. I'm simply an investor and I get passive income. Whereas the person running the business, the founder's name is Andrew, that's not passive for him at all. He is very, very active in ensuring that that business grows. He's building a business. I want passive income, but that's my. So as an investor, my first source of passive income is in.

Real estate investments, but not actually buying properties, because that's not my business. Second source of passive income would be municipal bonds. So municipal bonds are issued.

And. Well, actually municipal bonds are local governments when they want to build bridges or fix roads or do city beautification. So they will issue bonds. And to bondholders, they pay a fixed rate of return. And oftentimes municipal bonds are tax free. So anywhere from 4% to 8% rate of return can theoretically be tax free. And the thing I like about municipal bonds is that they trade just like a stock. So there are times that you could buy bonds at a discount. So that bumps up your cash flow and it's still tax free. The problem is I am yet to find a really good source for brokering or buying municipal bonds. So there is, as far as I understand it, there's still brokers that I have to go through in order to create those transactions. But there are publicly traded companies and ETFs that you can buy into that have the same benefits. So Vanguard has a municipal bond ETF and there's a bunch of them floating around. A little bit of Google research will pull up enough of those to get you started. The third source that I like for passive income is dividend paying stock. And I like dividend paying stock, especially what's called Aristocrat dividends or I think I got that backwards, it's dividend aristocrats. Aristocrats are companies that have raised their dividend every year for at least 25 years. So when things are up or they're down or they're sideways, or the economy's left or right or Trump or Obama or whoever's next, it's Drake or the Rock, the dividend amount is still going up every year. So the amount of passive income that you receive has been going up every year for at least 25 years. And you get to own a piece of the company without operating the business. Dividend paying stock are probably the best example that I've seen of the difference between business and passive income because someone's got to be running that business obviously to get shareholder value up. But for you it's technically passive income because you're just getting the dividend from the business. But again, the income source is only as good as the business behind it. So the companies that I really like right now are Johnson and Johnson, Procter and Gamble, Walmart, IBM, Target.

These are all. ATT is really good right now. These are all businesses that have a consistent track record of raising their dividend and still being old long term stocks that have been around for a very long time and probably aren't going anywhere anytime soon. And we could argue, well, IBM is being slow to innovate or targets being slow to innovate. In my experience, what I've seen is those types of businesses are usually either acquired or they acquire someone else who is innovating and that's how they stay around. And yes, of course you have the blockbusters of the world. That's just a risk you take when you're investing in the stock market, regardless of what sector you interested in. But dividend paying stock is how I personally look for passive income in the marketplace. And then the final source for truly passive income would be private lending. This would be using sources like Lending Club or it would be using.

Shoot, what's the Realty One Realty track, is that it or realty shares.com Forgive me, somebody put in the comments what I'm referencing, but this is where you would serve as basically a crowdsourced lender to different investment vehicles or debt consolidation for a rate of return. So I've used Lending Club really for fun and profit, where you can buy fractions of pieces of debt. And there's a lot of really good blogs out there that will share kind of a strategy for finding the best, the best things to buy on Lending Club. And you could put in $10 or $10,000 into someone who is either consolidating debt, raising money for a business, or paying off a credit card for a lower interest rate. All of these are reasons why people would be paying a fixed rate of return on one of these sites. And you're going to participate in the income that's going to come from paying off that debt. You can also do this with real estate crowdfunding where somebody is ra the down payment in order to buy a portfolio of homes. They're going to run the business. You get to participate as a passive investor. So as a quick recap, my favorite sources of truly passive income for you are real estate investments that are not you owning the property, municipal bonds, dividend paying stock and private lending or crowdsourced lending. So the goal of course is to have enough money to be able to put into one of these vehicles so that you're getting passive income that pays for your life. Right. So the question then is, well, how am I gonna, how do I make money so that I could put it into one of these places and that's where we have kind of the chicken egg issue. And you could work really hard in your job, save and put money into these passive income sources. Or you could do what I do and what I recommend, which is to make your money in your business or if you're still working a full time job, to take a percentage of your take home pay and put it into starting a business so that when that is generating enough money, you can put that into your passive income sources. And I talk a lot about this total strategy here on my YouTube channel and on my podcast which is called Freedom Fast Lane. You can just search Freedom Fast Lane in itunes or Google or Stitcher or Spotify or wherever you listen or you can subscribe here to the YouTube channel. Okay, so let's talk a little bit about business and let's talk about generating income in business. So a business has customers. Customers are people. People are not passive. So this is where you must be actively working. Let's make no mistake, business is not passive. It will never be passive. I will share a few things that you can focus on in your business in order to be as passive as possible. But ultimately the goal of this is to have something scalable that spits off a lot of cash so you can put that money into the more passive vehicles and expand your lifestyle. And I talk a lot about these different business models here on the YouTube channel or on my podcast. I made my money in physical products brands. I've built physical products brands for as little as $600 and I have made as much as $15 million.

In that vehicle. I've made a million dollars, I think, five different ways, which will be a future video I'm sure subscribe for. When that is out, it'll probably be called 5 Ways I've Made a Million Dollars. But let's go over them quickly. Remember, a business has customers. Customers are people. People are not passive. But so for example, if you're a consultant and you have three clients, or you're doing search engine optimization for clients, or you are building websites for clients and you're making that as your money, that's not passive. Now you can make it as passive as possible. You could outsource the work. You could serve as a middleman between the buyer and the seller. But it is not passive. There is still work involved. It doesn't mean the more money you make, the more hours you have to put in. It just means it's not passive at all. Here is where some amount of passivity can exist in a business. If we look at plugging into other people's customer models, other people's sales models. So in order to have income in a business, there must be customers. Customers are not passive. But if somebody else already has those systems in place and we're simply taking advantage of those, that's where we can develop some passive income. So, for example, I made my first hundred thousand dollars on the Internet by building websites that ranked in Google and recommending products on those websites. It's called affiliate marketing. So I would create a website. I learned search engine optimization, which is not a passive thing to learn. Took a lot of fricking work to learn that and do it well. But once I had completed that, I was sending the traffic to other people's products and as a result getting checks for sending those customers. And that business was managing the customers. So that business was not passive, but it was passive for me. Within my business once a lot of hard work was done. So what this might look like for you is if you are putting up YouTube videos like this one, and those YouTube videos start to rank for keywords and you're teaching someone how to play guitar. And there are courses out on the Internet that are paid monthly programs that have monthly guitar lessons. You'll get paid for sending people to those guitar lessons. And that YouTube video can theoretically be around for five years sending you money without you having to do any additional work. So the important thing in order, like the work that needs to be done here, is for you to be in front of a lot of people. Not necessarily you, but you having the control of the traffic between two sources. And that requires you to be putting things out on the Internet, whether that is written or voice or it's video, and being in front of the attention that you are then directing into other passive income models. So here are the I've come up with three passive income models that could theoretically exist for many, many years without you doing any additional work. The first is affiliate marketing that is taking the eyeballs that are coming to you and sending them to products that you recommend. Amazon has an affiliate program or they'll pay you up to 8 or 10% for the things you recommend. There's a great one called clickbank.com there's a bunch of them out there. If you are putting out videos about guitar lessons, if you just googled guitar lesson affiliate program, you'll find programs to recommend that. If you put links in the description of your video, or you put links on your blog, or if you send people in your podcast, you'll get paid for that forever. The second would be continuity programs. So one of my favorite favorite things to do is to go to where there's an audience, whether that is your audience or someone else's audience, and launch a continuity program to that audience. So I have a friend who actually partners with people with audiences and he says, hey, I'll build the continuity program for you. I'll manage the website, I'll manage the tech side, I'll manage the promotion. I just need you to do all the content. Because I don't want to be an expert in any of these things and I don't have the audience. So they go out and they do the work of putting together a membership program for this community and.

They have the audience to promote it to. They take a royalty fee and it's passive income for them. Once all that hard work is done and so the person with the audience benefits, the continuity program is set up and the person who set it up is benefiting from Having a royalty check come in for years to come. So continuity programs, whether that is you as an affiliate recommending other continuity programs and getting a monthly recurring check, or that is you launching your own continuity program to an existing audience, these are more passive income models to some extent, because there's monthly profit coming in on a consistent basis. And then the third, of course, is ad revenue. So I have a friend who just does blogging, and they sell ad revenue on their site and make $6,000 a month very, very passively. Whether they write another article this year or not, that money's gonna keep coming in. Now, of course, you can do this on YouTube as well. You can do this with a podcast. If you control eyeballs, there are people who are willing to pay advertising to be in front of those eyeballs. Now, of course, these things need to be maintained because they're businesses. If something loses an audience because you don't blog for 5 years, your ad revenue is simply going to go down. That's because it's a business. It's not necessarily passive income. So my model is to make my money actively and to invest it into other places that are more passive. Now, question, is there a hybrid to this? Is there a hybrid model for this? And the answer is yes. One of the things that I think is most overlooked is buying Internet businesses that are already producing these passive income streams. So buying affiliate websites, buying blogs that have a lot of traffic, and adding the affiliate programs and the ad revenue to them, buying YouTube channels that already are getting a ton of traffic but aren't monetized. If you are buying up businesses that are already in motion, you can add the monetization model and have passive income take that money and use it to buy other things that are more passive investments. I do have a resource for this. I've done a couple of podcast episodes with my buddy Ken Courtright. And Ken runs a management firm for people who have websites that are monetized, and they work on improving the monetization, and then they just send you a check. So I have a couple podcasts that you might find around this video. If you just search Freedom Fastlane Income Store or Freedom Fast Lane buying Websites, you'll find some information that I've done in the past about how and why you might want to consider buying websites as a piece of your portfolio. So these are all ways that you can start to generate income that is at least somewhat passive. But ultimately, your passive income is coming from your investments. And the thing that a lot of people mistake is they think they can just start generating passive income, but that only comes either on the back of hard work or by putting existing capital into places and systems that are built by someone else. That would be someone else's business. So the one two punch is for you to put in the hard work in your spare time, to build up a side business or buy a side business, and to take those profits and to put them into more passive income streams. So I geek out on this stuff. I know I throw a lot at you in this video, so let me know what questions you have or what you thought in the comments of this video and if you found value in this. Subscribe to the channel because I break down each of these models in more depth, both on my podcast, which is called Freedom Fast Lane, or here on the YouTube channel. Thanks for watching.