Real Estate Investing Basics

The Power of Passive Income: How to Free Yourself From Your 9 to 5

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Do you realize how powerful passive income really is? Do you?

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I bet you know generally what passive income is, but have you really weighed out how passive income could change your entire life — in ways you likely never thought possible?

What would you do with your time if you didn’t have to work a full-time job?

The Definition of Passive Income

According to Wikipedia (one of my favorite go-tos!), Passive Income is defined as:

Income received on a regular basis, with little effort required to maintain it.

What does this really mean? This means you don’t have to work (or put effort in) for your income. I know you probably could decipher this on your own, but I want to elaborate more on this because I doubt most of you have really taken the time to think about the reality of how big this really is.

Related: 3 Key Lessons for Avoiding The Dark Side of Passive Income

How Can You Get Passive Income?

There are two main ways you can earn passive income:

  1. Invest
  2. Start a business

Easy enough, huh? Well, you can’t just invest in anything or start any kind of business and get passive income from it. Well, maybe you can, but you have to know how to do it right in order to make sure you are actually getting passive income and you aren’t working for the income.

  • Invest. If you make an investment, you have to make sure the income from it really is going to be passive. This would be in contrast to active income. What's the difference, exactly? The question to ask yourself is: Do you have to work to get the income? The biggest example of active income investing and passive income investing in real estate is flipping versus rental properties, respectively. With flipping, you are required to do active work in order for the income to appear. With rental properties, in theory you don't have to do any work for that income to come in (also assuming correct setup). The IRS agrees with these assumptions about both types of investing because they label the income from each as either active or passive, and each type of income has a completely different taxation.

For a deeper explanation of passive income versus active income, check out “The Truth About Active Income vs. Passive Income.

There is room to make active income investing passive, however. For instance, flipping properties can be extremely lucrative. Why pass up that kind of income, if you have an interest and skill in flipping, if what you really want is passive income? In this case, there are two ways to make flipping, which is active income, passive:

  1. Invest whatever income you earn from flipping directly into passive income investments.
  2. Outsource as much of your flipping business as you can, until eventually all of the work required to earn the income is being covered by people other than yourself.

Once you do either of those with your active income investments, you have learned to master the art of passive income! The latter option, outsourcing, leads to the second option for getting passive income:

  • Start a business. This won’t happen initially in whatever business you start, but you eventually have to get to where the majority of your business is outsourced. Therefore, the income you receive from the business is money you didn’t specifically have to work for. That doesn’t mean, nor does it with outsourcing your flipping business, that you can’t be involved at all in order for the income to be passive, but you should be at a point with it that you’ve outsourced enough so that if you disappear for a month or two, or a year, business will remain just as profitable as it did when you were around.

Once You Have Passive Income, Then What?

Okay, now here is the fun part. And I want all of you involved in this part, as well, in the comments.

Not having to rely on a full-time job means you have enough passive income, whether through real estate investing or running an outsourced business (can be an outsourced real estate investing business, too!) to pay all of your bills by doing… not a lot!

I’m going to start a list of things you can do once you don’t have to rely on a full-time job. Once I’ve started it, I want you to jump in and add either things you do now because you have passive income that allows you freedom from a real job, OR add things you would do if you didn’t have to have a real job!

Ready? Here we go.

  • Sleep in! Omg, you can sleep in all you want — which may not appeal to everyone, but for those of us night owls — you hear me!
  • Unlimited travel. No more asking for vacation time, no schedules to work around, no limitation on how long you can be gone, and you don’t have to report to anyone where you are going and for how long. In fact, you can change your mind as much as you want on how long you will be gone, even after you are there!
  • Say yes to lunch dates. You have a friend who wants to do lunch, you can say yes! You don’t have to be anywhere else.
  • Say yes to out-of-towners. Someone wants to come visit you? You can say yes now! Even if it’s during the weekdays and not just the weekend! Woohoo.
  • Hobbies and activities. Now you have time to do whatever hobbies and activities you have always wanted to do but didn’t have the time to do or the energy leftover after your real job. This may even be as simple as going to the gym — now you don’t have to only hit the gym during the really crowded times when you can’t get a machine! You can go at noon, if you want. Or you can go at noon one day, 3pm another day, morning another day… it doesn’t matter! You pick.
  • Learn. Learn what? Learn anything! Go back to school for some random topic that you never went to school for before because you were worried about it not looking good enough on your resume. Or go to classes for something totally off the wall and learn a new skill! Learn a new language, learn to dance, learn history, psychology… learn anything!
  • Volunteer. Ever wanted to help out with a good cause but didn’t have time? Ever wanted to volunteer your time doing things locally, like coaching a kids’ sports team or teaching after-school classes or being a local dog walker? Now you can do any of those.
  • Commuting. Or lack thereof! No more worries about traffic, you can drive whenever you want!
  • Primary house. It can be absolutely anywhere you want it to be. You no longer have to live where is accessible to your job. This may be one of the most powerful things on this list!
  • Wardrobe. You can officially dress however you want. You can even be covered in tattoos and piercings if you want because you don’t have a boss to yell at you. You never have to match an expected look in terms of your wardrobe again!

This is only a start to the list of what freedoms you can have when you build passive income. There are so many out there. This list is just things that really click with me. You may have completely different freedoms (and tell us what they are in the comments)!

I know what you are thinking. It will take so long to have that much passive income, though! Yes, it is going to take a lot of hard work and it will take some time, but it’s not unrealistic either. Plus, you can start building it in pieces. For instance, I started my real estate career by investing in rental properties (which is passive), but then I ended up starting a business, which is my main income driver. My rental properties give me great income, but I don’t have enough of them to fund my entire life (which will take a while since I live in LA where the cost of living is atrocious, and I have an expensive outdoor and travel bug embedded in me). My business, though, is 100% online so all I need to work is an internet connection. That ability alone gives me all of the above options in terms of taking advantage of a passive income life. See how that works? A piece of passive income here, a piece of passive income there, and with mobility? I’m free! I even started back to school this past year just for the heck of it. Why? Because I can!

Related: A Slow, Boring, Incredibly Awesome Strategy for Building Wealth Through Passive Real Estate Investing

I will tell you, though, had I not quit my 9-5 job so fast to start my business, I could have kept buying properties and had I done that, I could have easily had most of my bills covered with just those! I chose the “starting a business” route instead, but you don’t have to do that. You can just keep buying passive income real estate investments. As long as you are buying good cash-flowing properties, you don’t have to buy as many or invest as much money as you think. Still think you’d have to buy too many for it to be feasible? No way. Check this out: “Gaining Financial Freedom is Easier Than You Think!

This article is obviously not a how-to on the specifics of passive real estate investing, but an overview of how powerful passive income can really be is worth taking a look at. I don’t think most people really comprehend how crazy-powerful this really is. If everyone did, there’d be more of us out there!

What are your thoughts?

Be sure to leave a comment below!

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating t...
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    Jason Reinke Investor from Hewitt, Texas
    Replied over 5 years ago
    Those are all nice reasons, Ali. The most important one of all (to me at least) is you can still pay your bills, eg food, housing, etc,, if you get sick or hurt and cannot work.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Very good point Jason! Being able to pay bills while not working is the BEST.
    Marvin Tu Homeowner from EASTVALE, California
    Replied over 5 years ago
    Thing to do once I developed my system of passive income: To be out there, hiking or just bush walking when the sky is just as beautiful as it can, whenever and wherever i want…, instead of sitting in the dreaded office cubicle looking out windows when everything is so beautiful out there…….
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    I love that Marvin! Life is definitely too short for a cubicle (unless you really love what you do), at the expense of missing out on nature’s beauty. I’m totally with you on that.
    Sogo Adeleke from Silver Spring, Maryland
    Replied over 5 years ago
    Great article Ali!! Just starting out with real estate investing and i’m still in the learning phase. when i do achieve enough passive income to replace my corporate job then i’ll pack my bags and travel the world, help the less privileged (really passionate about this) and just spend more time with my family.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Awesome Sogo! Where do you think you will travel to, everywhere? I absolutely love traveling. Anywhere internationally I can go, I’m all over it!
    Tom Cyr Flipper/Rehabber from Grand Prairie, TX
    Replied over 5 years ago
    Passive income is the ultimate, though so many spend too much time in the capital-raising phase like wholesaling real estate or even self-managed rentals. Our goals should be to raise the capital and get out of the active investing as soon as possible, and then climb the ladder of higher and higher yield. Once many folks have their expenses met and they are free, they become complacent. The urgency is no longer there to demand that their money works for them harder each year. Also, I would move “volunteering” to a high place in the list. Not only does taking the focus off ourselves make a difference for others, it also adds healthy years to our lives and fulfills our natural purposes. It’s not about “us.”
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    I totally agree Tom! Do you volunteer now? If so, who for? And definitely agreed on the complacency thing. I know I always want to keep doing new things and learning new stuff, so I don’t think complacent will be a thing for me (I get bored easy), but I’ve definitely seen it happen.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    I totally agree Tom! Do you volunteer now? If so, who for? And definitely agreed on the complacency thing. I know I always want to keep doing new things and learning new stuff, so I don’t think complacent will be a thing for me (I get bored easy), but I’ve definitely seen it happen.
    Aroldo Villarreal Specialist from San Antonio, TX
    Replied over 5 years ago
    One way I also see it is thinking, “How many rentals do I need so that I can buy myself that BMW?” Now I have a goal of rentals (estimating cashflow at $100/month per rental) that I must acquire to make it enough income to pay that monthly payment. Best of all, it is my tenants buying me that vehicle, not me! That is the same approach I’m taking for my bills. I need three rentals for my student loans, one rental for my car insurance, two rentals for utilities, and so on and so forth. Basically trying to outsource my bills. Great article!
    Doug W. Flipper/Rehabber from Alexandria, VA
    Replied over 5 years ago
    This is a GREAT way to think about passive income as a goal: “outsource my bills”. I love it!
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    I love that Aroldo! That’s exactly how I look at my investing–I need a rental to cover my groceries, two for my playtime activities, (who knows how many for my rent payment since I’m in Venice Beach…ouch), etc. It’s such an amazing practical way to look at it, and it makes it way less intimidating once you realize how few properties you need to cover your bills. Fewer than most assume, at least.
    Katie Rye from Plano, Texas
    Replied over 5 years ago
    Love the article and keeps me motivated. Can’t wait to “retire” and do what I really like to do- volunteering, church, hike, travel.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Love that Katie! Where do you want to travel specifically?
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied over 5 years ago
    very great article Ali! Passive income is something I’m working towards. I like your list of things one could do if they didn’t have a 9-5 job. I would have to include spending more time with people you love and using the time assist other people to achieve their dreams. Volunteering is definitively up there and definitively traveling the world. Did you put your properties under an LLC or an umbrella insurance?
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Mine are under an umbrella policy, Ayodeji. Here’s an article as to why- https://www.biggerpockets.com/renewsblog/2013/08/17/rental-properties-llc/
    Randy E.
    Replied over 5 years ago
    Great article! I can personally attest to the “wardrobe” item. I put on an old pair of shorts with an equally worn shirt to work in the yard. My wife asked me where I was going “all dressed up?” She was serious! I spent 25-years of my life dressed in a suit five to six days a week, so I consider my current choice of wardrobe a nice perk of having passive income. I spend most of my days pushing numbers across a spreadsheet, looking for investment properties and reading. It has taken awhile for me to get to this point in life, but it sure is a lot of fun!
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    I can relate Randy! My clothes are so bad I just finished filming a makeover reality show for TLC (should air in June!) because my clothes are so bad, supposedly. Haha. But it’s so worth it!! What was your past life job that you wore the suit for? And what kinds of properties are you buying now around working in your yard?
    Randy E
    Replied over 5 years ago
    I was in charge of a national sales team. In fact, I started out selling a high-ticket product on a full commission basis. I worked for a benevolent company that tracked your performance on a quarterly basis: that is, if you hit your quarterly number you were “allowed to participate” the following quarter; if not, they wished you luck in your next profession (that’s the benevolent part). My goal was to make enough money over a two-year period to transition into a more stable career, so imagine my surprise when my run ended 20-years later. I learned some valuable lessons during this period of my life: 1. Risk-taking is a critical component to achieving financial success. I left a comfortable operations job with a good salary, retirement program and health insurance to pursue a career that had no security, no retirement program and no health insurance. It did, however, provide me with financial opportunities to invest in my dreams. Getting “too comfortable” in a job has killed more dreams than failure ever will. 2. “My best thinking was done by other people.” My clients were multimillionaires in every aspect of real estate (e.g., hotels, convenience stores, apartments, etc…). They were generous with information providing you asked in the right way. They became unwitting mentors. It was a great learning experience. 3. The art of delayed gratification. Making a choice to limit your ability to get something now for the pleasure of having something bigger and better later is a pretty simple and effective concept. 4. Focusing on net worth is a way to build financial security over time. It is a get-rich-slow scheme. There were many other lesson learned from this period of my life, but these are the four that stand out. I own commercial and multifamily properties in a resort location. I’m having a lot of fun every day looking for investment opportunities. BiggerPockets has been a big help in my continuing education!
    John Thedford Hard Money Lender, Broker Associate, Investor from Naples, Florida
    Replied over 5 years ago
    Excellent article. I showed this to my wife. All she knows is that we have rental income…now she sees the big picture and the benefits.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Yay John!
    Sarah W. Real Estate Investor from Charlotte, North Carolina
    Replied over 5 years ago
    Great article! I have been reading a lot about passive income on different blogs recently. I love your list of things to do. As a fellow night owl, sleeping in ranks as my #1!
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Mine too Sarah! It sounds ridiculous, and possibly lazy and maybe even shallow, but truly–sleeping in is one of the biggest joys of my life.
    Jace Mattinson Investor from Austin, Texas
    Replied over 5 years ago
    Passive income is the best! Great article.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Thanks Jace! And I agree 🙂
    David Bennett Investor from Methuen, Massachusetts
    Replied over 5 years ago
    This is great. Can’t argue the benefits of passive income, of course. However, keep in mind that getting to substantial levels of passive income in order to say bye to “9 to 5” is not easy (logistically and mentally) when you have a family. Best regards
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Absolutely David, if you have a family you have to take care of, it definitely becomes more difficult. But still not out of the question, even if it requires some kind of passive income + mobile work.
    Robert Steele Investor from Lucas, Texas
    Replied over 5 years ago
    I didn’t see “spend time with the kids” up there. Especially over summer break.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Oh, good call Robert… I don’t have kids so I didn’t even think about it. But yes, absolutely, kids and family are a HUGE reason to not have to go to work all the time! If not the biggest reason.
    Evelyn Jordan Residential Real Estate Agent from Los Angeles, California
    Replied over 5 years ago
    Another great post Ali! Passive cashflow has allowed me to get into real estate full time and become a Realtor. The fact that I dont have a 9-5 job has actually freed up so much of my time that I used to spend in traffic, in line at banks, stores, etc. It s incredible how little changes make big differences in your entire lifestyle. Corporate employment is great if you like it and benefits you get from it Work for You. If you feel like a prisoner who lives from one weekend to another to enjoy themselves – then Dont waste a minute of Your life in it. Be your own boss and make your own decisions. Even when that means you want a hire a boss to work for.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Couldn’t agree more Evelyn!!
    Rachel
    Replied over 5 years ago
    Great reminder Ali! I remember when I first read about the concept of passive income in Kiyosaki’s book. It blew me away and changed my perspective completely! Though, there are definitely pros and cons in investing in real estate and owning a business. Even with the cons, the pros tend to outweigh them in the long run! Sometimes I do have a love/hate relationship with it but in the end I’m glad I chose it. Entertaining and informative article, thanks for sharing! 🙂 p.s. I’m working on a piece about passive income. I’ll have to share it with you once it’s published!
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 5 years ago
    Yeah, definitely do Rachel! And oh, you aren’t kidding…. I can definitely speak to the cons of running a business and it certainly isn’t for everyone. The nice thing is, between passive income investments and running businesses, there are tons of options so everyone can do something within their skill set (or patience set, haha).