Imagine going into work, but about the time you went to pour your second cup of coffee, you received the news that you’d been laid off.

For so many Americans, that means zero income earned starting the very next day.

Here is another scenario. What if during your employment you leveraged your income? You decided you’d take some of your money and put it to work alongside you. 

The rich don’t work for money. They make their money work for them. – Robert Kiyosaki

Your money would be making money. Having a job disappear may not be as scary in this case. Or, imagine having enough passive income that you didn’t even need that job anymore to cover your expenses. 

There are LOTS of ways to create passive income streams in real estate investing (even without ever being a landlord).

3 Types of Income: Active, Residual and Passive

Most people’s income comes from a paycheck. This is active income. These people work an hour for a specific amount, or have a contract to work 40 hours a week for a specific amount.  

But wealthy people don’t stop there. They typically earn Residual or Passive income (or both!) in addition to a W-2 job. They often find that these sources of income grow quicker and often focus more attention there as they progress in their lifetime.

Let’s quickly define the 3 types of income.

Active Income

Active income is from your employer and requires your time in exchange for money (paycheck).  Although this income can feel stable or predictable it stops coming the second you stop working.

Residual Income

Residual income means you receive money after the work is done. Writing a book is a great example. Authors receive residual income after every book is sold. 

Passive Income

Passive income is earned with very little ongoing effort and continues flowing to you even when you aren’t working. Real estate investments are one of the most well-known and most stable sources of passive income. 

When Losing A Job Doesn’t Mean The End of Income

Remember the job loss scenario above? Let’s pretend you’d got your money working too. You built passive income, on the side, during employment through real estate investments or partnerships.

Since being laid off, your earnings decreased by your monthly salary amount, but you still have income. Maybe your income can even cover your expenses.

You can take your time finding a new job that you love and will make a positive impact in the world instead of having to take the next best thing.

Heck, maybe you would even decide to travel for a year since your passive income streams cover your expenses. Or start that dream business of yours. Or spend more time with family or out in the mountains.

Suddenly, the possibilities are endless.

This is financial freedom.

Financial freedom is achieved when your earned passive income supersedes your active income. 

Stocks vs Real Estate for Passive Income

You can use your stock dividend payments as passive income. Historically, the stock market returns about 8% annually, which means $100,000 would produce roughly $8,000 per year. That’s only $667 per month.

However, the power of growing money in the stock market comes from reinvesting dividends. This is how to grow your principal amount. 

To replace an income of $4,000 per month, you’d need $48,000 per year, which would be 8% of $600,000. 

However, you can leverage that same investment amount with real estate. Your $100,000 could buy a $400,000 rental home. How? 

The bank brings $300,000 to the table.

The bank puts in 75% of the cost of the house while you only put down 25%. Yet you earn 100% of the profits.

A $400,000 home renting for $3,600 with a mortgage of $2,100 would net you about $1,500 per month (without unforeseen expenses). Theoretically, 3 investments of this size could replace a $4,000 monthly income and then some.

The total rental income plus $25,000 in additional equity (based on 5% annual appreciation) equals $43,000, or 43% return in just one year.

But I Don’t Want to Be a Landlord

These numbers look enticing, but trust us, being a landlord is not easy.

To earn that cash flow and hopefully be able to take advantage of the equity earned in appreciation, you have to manage tenants and maintenance throughout the life of the investment. Sure, you could hire a property manager, but you’ll be saying goodbye to a chunk of that monthly income and you’ll still have to provide lots of oversight (and possibly go through multiple managers to find one that works).

This is where the power of partnerships comes in.

Partnerships in Real Estate

When investing $100,000 in real estate Note partnership, it’s feasible to grow that amount by 10-12% or more in about a year. That’s an extra $12,000 a year. 

The best part is, you’ll only need to review a few emails and respond a handful of times.

No filling vacancies, no tenant showings, no burst pipes, no yard maintenance, nada.

However, the real opportunity lies in re-performing the Note. Helping borrowers get back on track with payments can yield monthly cash flow in Note Partnerships. Additionally, the returns on the upside (or time of sale) are historically even higher.

Finding a partnership team who focuses on this strategy can increase the chances that your Note Investing will see a big return. 

By purchasing Non-Performing Notes at a discount it is possible to add significant value and increase the value of the asset. When a note becomes performing, it may even double in value. 

How to Get Started Adding Multiple Income Streams

If, while employed, you’re able to create passive income, you’ll be less stressed when facing a layoff. You may even find yourself celebrating unemployment.

Imagine having the option to leave a job when you want. What would you do with this reimagined retirement? Train for a marathon? Take the kids skiing in Japan? Or write that book you’ve always wanted to get out to the world?

We love to chat about this kind of financial strategy. When you join our Investor Circle, you’ll get a link to schedule a call to learn more about Note Partnerships. We’ll take time to learn about you as well to see if this form of real estate investing is right for you. Our Investor Circle is also the first to hear when we have partnership or investment opportunities open.