Creating Passive Income - T. Harv Eker's Top Tips for Financial Freedom

So we're going to talk about a couple of the primary methods of creating passive income. There's two methods. Number one is investment income. Number two is passive business income. Those are the two fundamental ways. Let's talk about and give you some examples of passive income that comes from investment. So you know that some people buy real estate and they. Some people buy real estate for its appreciation. And so you buy it at, you know, $500,000. It goes to a million dollars. You're now $500,000 richer. Yes, that's passive income. No, it is not passive income. That's called appreciation. They are very different. You can do that. And why not? It's not passive income. Another thing that people do with real estate, for example, is they. They buy at one price and sell at another. So they flip it. So they fix it up or not. They buy something at, you know, $200,000, they put $50,000 into it, they sell it for 300,000 and made $50,000. Passive income. I'm asking you yes or no. I hope you said no. It's not passive income. It is income. But actually, actually in this particular case, you did the work to, to renovate it, et cetera, et cetera. You did active work and you are selling off that property. So you have no more ongoing cash flow from that. So it's not pacific, it's not cash, cash flow. All right, but you've also heard about people, let's say, buy a real estate property and it is a rental property and it spins off maybe, I don't know, $3,000 a month in rent. And plus there's $1,500 or $2,000 in expenses, etc. Etc. Including mortgages. And that leaves you with $1,000 of income, cash flow income, coming to you every month from that property. Is that passive income, yes or no? Yes, that is passive income. Because here I am in my boat right now, and I can tell you that right this minute, like today, just from real estate situations that I'm involved in that are based in cash flow and passive income, I will probably be earning at least $1,000 today. At least. Probably a lot more. But let's keep it real, okay, for you guys, something you can relate to. So here I am on my boat today. I'm going to earn at least $1,000 just for my real estate. Passive income. Right. I'm on the boat. What am I doing? Well, there are renters and situations that are going on in different apartment buildings, offices, homes that I own, or I'm Partners in with other people, managing it. So I could be on the go, right. And, and I derive that income. All right, so that's real passive income. So I love cash flow that comes from real estate because one of the things that's fantastic, first there's good tax breaks in real estate. But also you could be fortunate enough where, where not only are you getting a passive income and cash flow, but it could rise in value. I mean, this is the three headed golden goose here. You got a tax situation that's better, you've got appreciation as possible, but most importantly, you have ongoing cash flow. We love that. All right, so another thing that I do, I love mortgages. I don't like, I don't have any mortgages on my property. I buy everything for cash. I don't like having to pay a mortgage. I love when people are paying me the mortgage. Right. And I'd love for them to pay you the mortgage. Alright, so what does that mean? It means someone needs a mortgage. You think they can all that? Everybody gets mortgages from the bank. No, why? Many, many reasons. I'll give you an example. My daughter Maddie, she's starting a new business. It's festival. And she's been working for seven years as a manager of a retail store. Had a steady paycheck, bought a condominium in San Francisco about maybe six, seven years ago. Now no problem getting a mortgage. Oh, here's your job and here's your.

Steady income and here's the taxes taken off. How perfect are you? Yes, we. No problem. Here's your mortgage.

Well, guess what? Now she's left her job, she doesn't have a steady income. But her, her, listen to this, this is crazy, okay? Her condo that she bought for like less than half a million is now worth almost a million, right? Look at the equity she's got. And she hardly owes any money. She only has a mortgage for a couple hundred thousand dollars out of a million. They won't give her a mortgage. She cannot get a mortgage. I'll give her a mortgage. Yeah, you should give her a mortgage, okay. Because she has the ability to pay it. So yeah, there are first mortgages that people can't get because of their entrepreneurs or they had a one bad incident in a credit situation or the property isn't in the prime perfect location or whatever it is. So the banks won't give them one, give them a mortgage. So this is where private lending comes in. This is where you can hook up with probably your lawyer or accountant, say hey, I've got a little Bit of money to invest. I'm looking for like second mortgages, right? Because in a good second mortgage you're still going to be covered because of the collateral. So worst comes to worst, say they sell the property, you end up getting your money back. Okay, that's worst case. But usually doesn't happen because you've done your homework and second mortgage a lot. I don't go third mortgage, but I like second mortgages that have nice collateral behind them. So we want to start looking and looking at mortgages as another opportunity here. Some other ones that I'm involved in that you might be too. Stocks. So stocks go up and down and they appreciate hopefully, et cetera, et cetera. But there's many, many companies out there that have their great companies that provide dividends. These are dividend stocks. So where it is what Dividends, Right. And dividends means that they are paying an income and they might pay quarterly or semi annually and instead and the stock might still go up or down, but they pay. Some of these companies, I'm involved in a really great company that's been around.

Forever and I get seven and a half percent dividend. It's like, how did that happen?

Well, I guess I bought at the right time or whatever. Now they're still doing five, but you know, seven half percent on the dividend is pretty good from a company that's been around for like 250 years.

So I love that.

All right, all right. So dividends are an excellent possibility too. So so far we got real estate, cash flow, we've got mortgages, first and second mortgages. We've got dividends. Right. And we've got bonds. Now I've got a lot of bonds for safekeeping. You get a passive income off of that maybe, I don't know, 2, 3%. It's just safe, safe, safe money. But it all adds up to where, you know, I make literally. Well, I said a thousand from just real estate. And you had all this other stuff in passively. It's well, well, well, well over a thousand dollars a day. Okay. Probably triple that. Okay, So I didn't say that, but that's what it is. Why? Because I set myself up for, for that. Okay. I use my active income to put money into situations that will derive me passive income either now or in the future. Does that make sense to you? So you can put your money into things that appreciate and go for it. That's great. Or, and, or you can put your money into things that create cash flow and passive income. Good or good or good. I hope you're getting my drift here, because this is what you want. Our. Our gold, our financial God is not piles of money sitting in the bank. Who gives a right? You can't do any of that. I want money coming in to my bank literally every day. And it comes in probably from different situations, probably every week or two. I have piles of money coming into my bank that I can use, that.

I can spend because more is coming in next month.

Does that make sense? So it's spending money. Now, do I have a pretty nice lifestyle? I do. Am I frugal? I wouldn't say I'm frugal, but I'm very value conscious. So I'm going to always be a little careful with my money because it's ingrained in me. And I believe that's what you should be, too. All right, so we're going for passive income. Now, the second. The second arena that we need to talk about after investments is passive business income. All right, what does that mean? Two elements. So here's another area that I'm involved in very heavily. So I'm involved in funds. Funds that provide capital to strong businesses and strong business management teams. And so let's say a company's either starting out or they need money for capital to expand. That's the ones I like to go into. So startups, not as much, but definitely situations whereby companies need money to expand. So they've already been proven and now they just need more capital, you know, 1, 2, 5, $10 million. And I like to. I don't want to manage myself, so I get involved in funds that do this. And again, when the work part owners. So when the. These companies make money, if they make, you know, 5 million or say $2 million this year, you know, I might make a couple hundred thousand dollars more. And what am I doing? I'm on my freaking boat. There's some of these funds that I'm involved in, people that are involved in.

I haven't talked to in like two years. All I do is every quarter I see the checks.

Thank you. Fantastic. All right, so that's investing in other people's businesses. Great. Now what about your own business? That's the other part of this. Other part of passive business income is your own business. You say, but Harp, in my own.

Business, I'm working my ass off.

Yeah, right now maybe you're working your ass off. And you have to do that in order to set up your business so that it can run without you and create passive income. So what do you Want to do the big thing here, number one, is if it's any type of, say, normal situation, normal business situation, you have got to, I repeat, you have got to. Let me repeat that in case you didn't hear it. You have got to set your business up in a way that doesn't need you to be there. All right, I have several businesses going right now. Again, I'm on my boat. Look at this gorgeous day. All right, and so how do you do that? You must systemize your business. And we'll get into that in future videos. You've got to systemize your business so that you don't have to be there in order for it to run well and bring you income. And I have myself and a lot of friends that were in business for several years and then they set their business up and they're never at their business. They're vacationing, they're on their boat, they're on the beach, they're reading, and their business is flourishing. You go, well, yeah, but Harp, don't they ever have to look in. Yeah, yeah, you have to look in once in a while. If you're not and someone else is managing it, yeah, you have to look in once in a while. But is that passive? Yeah, it's about as passive as you're going to get. All right, so you want to set your business up in a way. And so what does that mean? It means when you choose what business you're going to get into, you've got.

To choose a business that will allow you to create passive income.

You've got to choose a business that will allow you to. To leverage yourself and can possibly one day work without you. So, doctors, you're in trouble. Okay? You got to use your hands. Carpenter. Yeah. No, you don't want to be the carpenter. You start off as a carpenter, then you become the contractor. You have a contracting company, you go out and you sell jobs, right? Where you have the job and you have eight contractors working for you, then you actually set that up.

What?

You have a supervisor and a foreman looking after them and a salesman taking care of the business, bringing in. And where are you? You're on your boat, you're on the beach, you're on vacation. That's how you set it up. But if you got to do there everything yourself, hammering nails, you can never be free. You understand that? So you've got to create a business set up from the beginning in such a way where it's going to allow you create passive income. I'm involved in information and in knowledge. And so here's an example. I wrote a. I wrote a couple of books, but I wrote New York Times, number one bestseller. You might have heard of it. It's called Secrets of the Millionaire Mind. This book has sold close to 4 million copies worldwide. It's in 46 languages. And so why am I telling you this? Because from a publishing stand, I had it published by other people by Harper Collins at the time. And I make about, I think about somewhere between a buck and two bucks a copy that's sold. Okay, now the book was written.

Let's do this.

Now I spent. I wrote a course, the Millionaire Mind Intensive, which hopefully you've taken. It's a fantastic program. It changes people's money, blueprints right on the spot. It's a three day course. I wrote that course. After I tested that information for several years, I wrote the book. And the book was a way to help people that couldn't go to the course or to draw them into the course as a promotional tool, but changes people's lives. So here's the cool thing. The book was written, listen closely, it is 2019 right now. 2019, 2020 coming up. I wrote the book in 2005, so it took me about a year to write the book. Lots of active work. Active work. I work on law. Okay, got it. This year I get my royalty checks, January and July of each year. So this year my royalty check from a book that's 15 years old, I don't promote it anymore. I don't know if it's in any stores. I think it's on Amazon, I guess.

I don't, I don't get. I'm not involved in it whatsoever.

So let's see here. Close to 15 years later, in January, I got $160,000. And in July, pretty close to the same thing. 140 or something, $300,000. I don't even know that they really exist. From a book I wrote 15 years ago. Good or freaking? Freaking effing good. Would you like to do that? Then do what I did. Now let's talk about. I think in terms of passive income. All right, so I wrote a book. So now this book is out there working for me. I get a percentage and it just keeps on coming in. Okay, now listen to this. My training business, when I wrote the. All my courses, I wrote literally 19 different courses. And during that time, lots of work. Yes or yes, obviously. So first you work, then you don't work. Say that with me, please. First I work, then I don't work again. First I work, then I don't work. Okay, so you start with working. So here I am. I put or put together. We put this together as phenomenal training company. But this was what I did that was very different than most other trainers or speakers or whatever you want to call them. I came from a business and entrepreneurial background now. And so I said, all right, this business can't be based on me. Unfortunately. I hear me say unfortunately, for the first several years, it had to be based on me. It wouldn't work without me. But as soon as I could, first of all, I wrote everything down almost word for word in every course. It took me way longer than someone, a trainer who puts together a. Scribbled a few notes on a notepad and comes in for three days and hits some points and goes, blah, blah, blah. Okay, took me way longer to write everything down. But why did I do it? Because in my mind, what am I thinking? Active income, passive income. Guess what does Harv think all the time? Active income or passive income? That's right, passive income. What do you think from now on? All the time, active income, passive income. Well, if you're still in the state of active. Active to become passive. Yes or yes. So in my mind, I was always.

Thinking, I can't be the one on stage. I can't be doing this all the time.

I got to get other people. So I hired my first trainer. I worked with him extensively, got him up to speed.

Speed.

Gave him a few little parts of the course. He did pretty well. Pretty soon I gave him a course on his own. People loved him. It was great. He didn't do the numbers that I.

Did, but so what?

We still made a profit. Great. Well, five months after that, I hired another trainer, then another one, then another one. And every course was written out in full, almost word for word, so that I could leverage myself so that one day I would not have to be on stage and somebody else could. Are you following me here? This is really, really, really important. What's the word? Important. Thank you. So, fast forward. So two things have happened. One, because I was able to pull myself out of it, I was able to sell the North American business, the whole North American business, but I kept the rights to everything. So I get a licensing fee for them using my information, and I get checks every quarter. Thank you. Okay. Bless them. Also, I have nine other trainers internationally, kept all the international countries, 29 other countries, we still have them. They've been going for years with another promoter that we work with. And set them all up, the promotion, the logistics. So they're doing a great job with that. And I've nine other trainers going around the world teaching all my courses from the manuals that I gave them, understand the video that I gave them. And what am I doing? Hello, I'm in my boat today. So this weekend, I guess there will be somewhere between two and five programs, my programs that I wrote that I make money on, lots of money on going on somewhere in the world. And where am I? I am in my vacation home. Well, all my homes are vacation homes. I'm on the beach. I'm with my wife, I'm with my family, I'm with my friends. I'm having fun. I'm learning and growing. I'm writing other stuff because I want to. Can you do this? Say yes, you can do this. You now start to change your mind. Switch your mind from active income to creating passive income. Active income is a step. What's the word? A step to amassing finances that you can use to create passive income structures. What are the two kinds? Investment passive income and business passive income. Think passive income all you want to be thinking, because you know what? In the end, that's going to make you free. Give you choice and it's going to do all the work for good or good. Hope you enjoyed this video. See you next time. It.