Ep 289 - Avoid the Trap When Passive Income Isn't Truly Passive

Hey, everybody. Flip and Dandy here, founders of the Freedom Real estate Group family of companies, and welcome to another episode of our.

Podcast, which is called Freedom through Passive Income.

That's right. And welcome to another episode, and today's episode is called Avoid the Trap when passive income isn't truly passive.

This is something that I've seen talked about on Facebook a couple times. I've seen this big, you know. You know when you put a color black background and it's like big. They're like, passive income isn't really passive or, you know, don't let people tell you there's such thing as passive income. And I'm like, dude, we've been in this business for a really long time, and there can be passive income if you know how to do it. Right. Right. So I thought it would be great to actually talk about it.

Did you just say, dude, dude, dude, dude. But no, I love this. We talked about this before starting this episode, and I'm like, that's actually really good. I really like this.

So the first one we're going to talk about is Active, and we're going to relate this to real estate, because that's what we do. And for most of you listening to.

Us, and that's what we do.

Yeah. You like real estate too, and that's why you're actually listening. Active income for a real estate investor. What does it look like?

Fix and flip.

Yes.

You know. Yeah, that. I'm pretty sure that's pretty active.

Yeah.

You know, from start to finish.

Yeah.

Well, and that finishes. You sold it then. Well, then you got to get another one.

Yeah. So it's as active as you can get.

Yeah. Yeah. There's none more active.

And you don't even have the. The great tax benefits because your income is active.

Yeah.

So, yeah, you just get. All that money just gets taxed. That sucks.

Yep.

So not only are you working a lot, Mr. Flippers, fixing flippers out there.

I was like, what me?

You guys are also getting taxed to death. So even though we also have those types of businesses, we built them around doing them for other investors. So it's a service for us. A lot of what we do has always been a service. What do we want to do? We ask ourselves that. What do we want to do? What do we want to achieve? I bet other people want that too. Why don't we just build it and then be able to serve ourselves and other people? So it's not an easy business, and it kind of sucks a little bit when it comes to the stress of it and the money that's coming. Okay. Second type of what people might think is passive income is buy and hold investors.

Right.

Who are doing it themselves. They're self managing and they're finding the properties themselves and things like that.

Right. I think that's the most active passive income there is.

It is, yes. Yeah. In fact, you're right. The very first one wasn't passive at all. There's nothing passive about being a fix and flipper.

Now you're teetering on the passive, but still on the active.

Yep, yep, exactly right. So you're gonna do a lot of work. You're gonna find the property or engage a realtor to find a property for you. You're gonna have to go ahead and evaluate it. Cause I certainly wouldn't trust the realtor. They're getting paid a commission, don't forget.

Unless they're family, you can trust them.

You're gonna have to get a scope of work from a contractor to see how much it's going to need for work. And you have to trust that contractor. There's a, that we do every single day for our companies in actually just acquiring the deal. And then if you are inheriting a tenant, tenant or resident, we say tenants are the ones who don't pay, residents are the ones who pay. So whoever you're inheriting, you gotta hope that they stay. Because typically when there's a change in ownership, your tenant ends up leaving. So you've got that nightmare of having to deal with that and the vacancy and the turn and everything else that becomes unexpected. Because when they leave, did they do damage? Obviously you can already see that there's a lot going on. Now let's just say you've already done it, you've got a good resident in there, you love them, they're paying rent. That's great, that's great, that's great. Oh, sorry, I just did what? I flushed something down the toilet.

Yeah, I just put a GI Joe down the toilet.

Yeah, my kid. Darn it. I'm so sorry. Can you send a plumber? We can't poop at 2am yeah, that's exactly right. So self managing, it's never, never ever truly passive. You're always working. And then let's go to bucket number three. Bucket number three is if you're going to buy a turnkey rental property, which is as done for you for a buy and hold investor as you can get. Because somebody's finding the property, they're renovating the property, they're putting a resident in the property and then they are going to manage the property for you. You're just going to buy it and you're going to expect cash flow.

I would call this one a passive. Active. Passive.

Yeah, yeah, yep. So this is better than doing it yourself as the self managing buy and hold investor. But some people think it's truly passive. It is not. Let us just tell you it is not. Our property manager, Chris Cinnino can tell you it is not. As much as he tries to keep everything off of your plate, he still has to call you if something is over, say five or six hundred dollars, depending on what's in your property management agreement. So if something goes wrong with the ac, unless it's emergency, he has the authority to go ahead and take care of yourself. Otherwise he's calling and saying, hey, this is what happened, this is what it's going to cost. You might go, can you get another bid out there? So it's going to take a little while. You got an angry resident who might turn into a tenant and stop paying if you don't go fast enough.

Might turn into a tenant.

I love that. So it's certainly you are active in some sort and there's frustrations of the turnovers and approving what that bid looks like. You are engaged. The property management can't. Company cannot make decisions for you. You have to make decisions for yourself, which means you're going to have to interact. Then the last bucket is funds and syndications. Right. And funds and syndications, in our opinion is the most passive that you can possibly get. And I'm going to let Flip explain why.

Yeah, I'm going to call that one the passive. Passive. Passive. Well, no. So with the syndications and funds. So say I'm interested in investing in a syndication or funds or investing in a turnkey property.

Yeah.

So initially I'm going to have to review said investment.

Yes.

Right. So now with the syndication and funds, I review it and I say, yep, I'm good. What do I send? My money.

Yeah.

And I send my money and then I don't do anything till the quarterly report. And then every quarter I'll get a quarter of the report and I'll see the numbers that I can do nothing about. And I look at what I'm going to get paid and I can do nothing about that either. Except.

Except those funds and make sure they're.

Correct and make sure the numbers add up and then, and then that's it until the next quarter.

Yep. So how many hours did you put in?

Very few. I would say four or five. And that's to really evaluate the deal. At the beginning.

Yeah, at the very beginning.

And that's excessive, Right, that's why. Yeah, that's if I'm reading every word really slowly. But then after that, I would say.

An hour a year.

Yeah, yeah. Maybe 15, 20 minutes each quarter to go. Yep, yep, yep. That's good.

Yep, yep.

You know, so six hours a year.

Yeah. No, five hours up front. One hour a year.

Yeah.

Because the investment's going to keep on going, right?

Oh, right. So unless you're after that, it's. It's just one hour each year.

Yep.

It's six hours the first year, then one hour every year.

Yeah, yeah. Actually five hours. Didn't you say five hours of our.

Plus the evaluating?

Oh, yes, yes, yes. Yeah. Listen to flip. We always do things opposite. Perfect example. So perfect. So that, in our opinion, is as passive as you can get. And for those of you who used to be in our private lending program, and some of you still are, I'm going to compare you to bucket number three, the turnkey investor, right? You're loaning money, which is very, very passive, but you still have to look at the deal. You say yes to the deal, you wire the money for the deal as soon as it's done. You review the payoff, make sure all the numbers are correct, get it, sign the release of mortgage and then wait for another deal to do that again. That is still just like a turnkey investor. There's some activity on every now and then. That's why most of our private lenders turned into wanting to be investing in the fund, because now they don't have that back and forth all the time. And they're getting paid 247 as opposed to getting their money back, only having to wait like two months for another deal to come. And so their money wasn't earning any interest. So private lenders, you're in bucket number three. With that turnkey investor where it is, there's some activity. I wouldn't truly consider it passive income, but it's, it's close. It's just don't mistakenly think that you don't have to do anything. Bucket number four really is where you say, I trust this team. I love the investment. It hits my goals and I'm going to spend a few hours looking at the opportunity, I'm going to invest the money and then I'm going to spend an hour a year reviewing it while I get my cash flow. It just doesn't get better than that. And that's why we've landed our lane here, because that's what we love the most, is the most passive way to build our wealth. So I hope this was beneficial.

Yes, I definitely hope it was beneficial. Anything else on that? No, no, I think we're good. Make sure you're heading on over to our website, freedomcapitalinvestments.com to join our investor club. If you've been listening lately, you know the importance of this because we have a lot of things going on right now and it is very important that you're joining the investor club. Getting, reaching out to CJ and Ben, talking to them, establishing the communication with us so that you can join us in some super, super exciting things that we've got going on right now. Plus, we've got swag and some other stuff on the website. But the importance is the investor club.

Yes, absolutely. Especially because we're closing out the year. And so we are trying to find a deal that we will close on before the end of the year to give many of you the tax benefits that you want for 2022. Tax benefits. Single biggest expense of your lifetime is taxes. We want to help you to reduce it because we're trying to reduce it ourselves.

Yes, exactly. Well, again, we hope you enjoyed this episode. We like to end all of our episodes with Invest Smart, Live Happy. Bye, everybody. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on the show are not guaranteed. All investment strategies have the potential for profit and loss.