{"id":56830,"date":"2016-09-15T16:00:22","date_gmt":"2016-09-15T22:00:22","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=56830"},"modified":"2023-04-01T14:57:27","modified_gmt":"2023-04-01T20:57:27","slug":"2014-04-30-passive-real-estate-investing-four-hour","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2014-04-30-passive-real-estate-investing-four-hour","title":{"rendered":"Passive Investing: How to Have a True &#8220;4-Hour&#8221; Real Estate Workweek"},"content":{"rendered":"<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4391306218&#038;light=true\" width=\"100%\"><\/iframe><\/p>\n<p>You know those moments in life when you&#8217;ve been dead set in one direction and then all of a sudden something crazy happens that changes everything?<\/p>\n<p>It just happened to me.<\/p>\n<p>I&#8217;ll spare you the nitty-gritty details, but long story short, I had a pretty big disappointment happen recently that led me to take some time off\u00a0to\u00a0reevaluate everything in\u00a0my life and the direction of\u00a0my future.<\/p>\n<p>Out of that\u00a0personal reflection came the inspiration for this post, so I hope it serves you well.<\/p>\n<h2>What is Passive Income, Really?<\/h2>\n<p>I want to start off by asking some questions:<\/p>\n<ul>\n<li><em>What does it mean to be a real estate &#8220;investor&#8221;?<\/em><\/li>\n<li><em>Does it mean you are a\u00a0millionaire?<\/em><\/li>\n<li><em>Does it mean you are the owner of\u00a0expensive things?<\/em><\/li>\n<li><em>Does it mean you are powerful?\u00a0<\/em><\/li>\n<li><em>What does that word actually mean to you?<\/em><\/li>\n<\/ul>\n<p>For me, I never really thought of that word until recently. I called myself a real estate &#8220;investor,&#8221; but come to think of it, I haven&#8217;t really\u00a0done any <em>real\u00a0<\/em>investing in my life yet.<\/p>\n<p>You see, my interest in real estate investing started\u00a0out with\u00a0a conversation I had with one of my best friends. He had jumped into full-time real estate about 6 months prior and insisted that in one transaction, it was possible to make\u00a0over $50,000, and at the time, that was more than I could make in a year.<\/p>\n<p>I really hated my day job back then (I loved my employers &#8212;\u00a0I just hated the actual work itself), and I had just discovered Pat Flynn over at the <a href=\"https:\/\/www.smartpassiveincome.com\" target=\"_blank\" rel=\"noopener\">SmartPassiveIncome<\/a> blog and was well versed in the philosophy of the &#8220;<a href=\"https:\/\/www.amazon.com\/gp\/product\/0307465357\/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0307465357&amp;linkCode=as2&amp;tag=biggerpocke0a-20&amp;linkId=19c9f921f812c0a8108aa80dfb9f1e67\" target=\"_blank\" rel=\"noopener\">The 4-Hour Workweek<\/a>&#8221; and the power of passive income streams. I really wanted to\u00a0figure out a way to be financially free so that I could\u00a0pursue my heart in life, and at the time I was depressed because I couldn&#8217;t find a means to get there.<\/p>\n<p>Then this conversation happened, and it was as if\u00a0I was struck by lighting! I got so full of hope and excitement &#8212; real estate was my way out! It was my\u00a0way to my freedom and to my destiny.<\/p>\n<p>So I quit my day job on blind faith, leaving behind both income and benefits, believing this real estate thing was going to pan out\u00a0no matter what happened.<\/p>\n<p>My wife wasn&#8217;t working at the time.<\/p>\n<p>We went from income to no income at the\u00a0snap of\u00a0a\u00a0finger.<\/p>\n<p>Nine months later, as I am writing this post, I am finally about to make my first check from real estate in about a week (luckily, my wife found a job three months in).<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-77582\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/03\/wholesaling-mistake.jpg\" alt=\"wholesaling-mistake\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/03\/wholesaling-mistake.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/03\/wholesaling-mistake-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><strong><em>I&#8217;m living the dream, right?<\/em><\/strong><\/p>\n<p>Not really. To be honest, my day job was way better in a lot of ways.<\/p>\n<p>I&#8217;ve worked 10-15 hour days, day-in and day-out, sometimes going for literal weeks without a day off.<\/p>\n<p>I have a ton of results out of the\u00a0hard work I&#8217;ve put in, with a lot of money now\u00a0pending because of it\u00a0(our acquisition strategy was only going after underwater properties so everything I&#8217;ve brought in for the company I work for just so happens to be in the short sale process), but was this what I signed up for in the beginning?<\/p>\n<p>No.<\/p>\n<p>You see, what was described to me by my friend was the lifestyle and benefits of what I consider a\u00a0true investor:<\/p>\n<p><em><strong>Someone who makes money without having to do anything for it beyond the initial set up and who makes enough of it to pretty much do whatever they want.\u00a0<\/strong><\/em><\/p>\n<p>Though the technical definition from Investopedia defines an investor as\u00a0<em>a<span style=\"color: #111111;\">ny person who commits capital with the expectation of financial returns<\/span><\/em><span style=\"color: #111111;\">\u00a0in terms of the investor concept\u00a0described\u00a0in the <em><a href=\"https:\/\/amzn.to\/2a9uZ9H\" target=\"_blank\" rel=\"noopener noreferrer\">Rich Dad&#8217;<\/a><\/em><a href=\"https:\/\/amzn.to\/2a9uZ9H\" target=\"_blank\" rel=\"noopener noreferrer\">s Cashflow Quadrant<\/a><em>,\u00a0<\/em>I have come to see\u00a0a huge difference between active income investors and passive income investors, and I would go on to argue that active income isn&#8217;t\u00a0<em>really<\/em> investing.\u00a0<\/span><\/p>\n<p>Let me explain.<\/p>\n<h2>Is a 4-Hour Workweek Possible?<\/h2>\n<p><em>Active income<\/em> is defined as income for which services have been performed. For simplicity, if\u00a0you need to be\u00a0constantly working in order for your investment\u00a0to turn out well, then it&#8217;s considered active income.<\/p>\n<p><em>Passive income,\u00a0<\/em>on the other hand, is defined as earnings an individual derives from a <a href=\"\/renewsblog\/2013\/01\/04\/how-to-rent-your-house\/\" target=\"_blank\">rental property<\/a>, limited partnership, or other enterprises in which he or she is not actively involved. In short, you did something with your money that now\u00a0pays you returns for doing little to nothing.<\/p>\n<p>For me, lifestyle is the ultimate measurement of\u00a0success. It doesn&#8217;t boil down to numbers in a bank account or the square footage of your primary residence. It boils down to freedom and how much control you have of your time.<\/p>\n<p>Now, I want to be clear about what I&#8217;m saying and what I&#8217;m not saying. With the popularity of Tim Ferriss&#8217;s\u00a0<em>4 Hour Work Week,\u00a0<\/em>there has been a lot of confusion as to what lifestyle design is and what it isn&#8217;t. I&#8217;ve seen a lot of that confusion here in our community at BiggerPockets, and I want to clarify somethings for you.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-80205\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/wholesaling-newbie.jpg\" alt=\"wholesaling-newbie\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p><strong>Tim Ferriss typically works more than 4 hours a week.<\/strong><\/p>\n<p>He has actually said it multiple times in countless interviews. The &#8220;4-Hour&#8221; concept isn&#8217;t to eliminate work entirely.<\/p>\n<p>The point of it\u00a0is to free you so that you can put the majority of your work hours into things that you are passionate about and that make you come alive inside.<\/p>\n<p>The &#8220;4-Hour&#8221; in the title is the sum total of the dreadful labor &#8212; the stuff you couldn&#8217;t care less about doing, that is ultimately necessary to have the income to support a life of your dreams.<\/p>\n<p>Does this mean traveling the world, winning tango competitions, and defeating wrestling foes in exotic Asian countries?<\/p>\n<p>Sure, if that&#8217;s your passion.<\/p>\n<p>But it can also look like being a stay-at-home family, where both mom and dad&#8217;s primary focus is the kids.<\/p>\n<p>It can look like you running a summer camp for the underprivileged or you starting\u00a0a small bookstore downtown.<\/p>\n<p>It can look like anything you want it to because ultimately, your passion is what governs it.<\/p>\n<p><em><strong>Lifestyle design is freedom, not laziness.\u00a0<\/strong><\/em><\/p>\n<p>It actually takes a crap-ton of work to be able to it\u00a0set up, so don&#8217;t think I&#8217;m\u00a0saying otherwise.<\/p>\n<h2>How Do I Engage in Real Passive Real Estate Investing?<\/h2>\n<p>Bringing it back to real estate investing and my personal experience, if lifestyle and freedom to pursue your passion is the hallmark of success, then certain components of the real estate industry cannot be looked at as a good long-term strategies.<\/p>\n<p>I have categorized the components of\u00a0active income investing to include the following:<\/p>\n<ol>\n<li><a href=\"\/renewsblog\/2015\/01\/31\/ultimate-beginners-guide-real-estate-wholesaling-2\/\" target=\"_blank\">Wholesaling<\/a><\/li>\n<li><a href=\"\/renewsblog\/2014\/01\/07\/flipping-houses\/\" target=\"_blank\">Fixing and Flipping<\/a><\/li>\n<li>Traditional Buyer\/Seller Agent or Broker<\/li>\n<li>Developing<\/li>\n<\/ol>\n<p>In every one of these sub-niches of real estate,\u00a0in order to be successful in\u00a0them, you have to be constantly on the move. You can&#8217;t really ever let your foot off the gas peddle because if you do, both your deal flow and cash flow will stop.<\/p>\n<p>All of these strategies have\u00a0great upsides, but in terms of lifestyle,\u00a0you can pretty much throw them out the window. You have to work and work and work to make things happen.<\/p>\n<p>So be aware (did you notice that the top two are the things most talked about by the gurus?).<\/p>\n<p>On the other hand, real estate has some of the most incredible passive income vehicles available, and I&#8217;m going to take the time to go over them with you.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-80094\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/multifamily-benefits.jpg\" alt=\"multifamily-benefits\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<h2><strong>1. Multifamily<\/strong><\/h2>\n<p>Buy and hold investing is probably the most popular form of passive income in real estate. The concept is pretty straight forward &#8212; you purchase a property that you can rent out at a large enough\u00a0amount that there is a profit after paying for financing fees and expenses.<\/p>\n<p>Something you can do to truly automate your buy and hold investments\u00a0and\u00a0completely remove yourself from the management process is to outsource\u00a0the headache\u00a0to a property management company. In an ideal situation, they will handle all the dirty work while you collect your check. If you go this route, make sure to\u00a0really do your due diligence on the\u00a0property management company\u00a0you&#8217;re looking to hire\u00a0because they\u00a0have a reputation of not\u00a0really having your\u00a0best interest in mind.<\/p>\n<p>I&#8217;ve heard a lot of horror stories regarding\u00a0property management companies, but it&#8217;s not to say there aren&#8217;t good ones out there. You just need to be intentional\u00a0on the front end to make sure\u00a0that you are working with good people and creating good systems.<\/p>\n<p>You see, on the passive income side of investing, the work is 99 percent in actually\u00a0setting things up &#8212; i.e. finding and buying your property, <a href=\"\/renewsblog\/2013\/01\/27\/tenant-screening\/\" target=\"_blank\">finding good tenants<\/a>, finding a good property management company and maintenance man, etc.<\/p>\n<p>Once these things are set up, you pretty much can sit back and enjoy the fruits of your labor, and what&#8217;s awesome is that the checks will be there\u00a0<em>month-to-month<\/em>, whether or not you do any additional work.<\/p>\n<p>Now, you could argue that multifamily investing is not 100 percent passive because even if you outsourced the day-to-day work to\u00a0a property management company, you would still need to be in touch with and &#8220;manage&#8221; the management company, so to speak.<\/p>\n<p>I would agree if this is the case, it&#8217;s not 100 percent passive, but again, going back to the &#8220;4-Hour&#8221; concept of Tim Ferriss, this is the\u00a0minimal pain needed to reap the freedom and lifestyle one can enjoy as a full-time landlord. <em>So it&#8217;s worth it!<\/em><\/p>\n<p><em><strong>Related<\/strong>: <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\" rel=\"noopener noreferrer\">How to Buy A Small Multifamily Property: A Step by Step Case Study<\/a><\/em><\/p>\n<h2><strong>2. Triple Net<\/strong><\/h2>\n<p>Triple net investing is probably my favorite type of investing in all of real estate. This is a true step up in automation from multifamily because instead of outsourcing everything to a property management company that you ultimately still have to manage, you actually end up outsourcing all responsibility to your <i>tenant!<\/i><\/p>\n<p>You read correctly.<\/p>\n<p>You see, essentially a triple net investment\u00a0is a free standing property\u00a0that is leased to credit-worthy tenants, such a Walgreens, Walmart, Bank of America, Starbucks, McDonald&#8217;s, etc.<\/p>\n<p>Once these tenants move in, they are responsible for\u00a0all maintenance, property expenses, everything. Once you get everything set up, the tenants are usually on 10-25 year leases, so all you really need to do is cash in your checks!<\/p>\n<p>Now, the downside to this type of investment is the fact that\u00a0they&#8217;re typically expensive. These are commercial buildings, so naturally they cost more, and because of that, you really want to be careful at purchase or you could lose a lot of money. If you get stuck with a triple net in a terrible location, no tenant will want to lease from you, and the month-to-month vacancy cost can be pretty crazy on some of these properties.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-80043\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/investment-plan.jpg\" alt=\"investment-plan\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p><em><strong>Related<\/strong>: <a href=\"\/renewsblog\/2013\/02\/04\/triple-net-lease-nnn\/\" target=\"_blank\" rel=\"noopener noreferrer\">Triple Net Lease Investing (NNN): The &#8220;No Toilet&#8221; Method to Real Estate Investing<\/a><\/em><\/p>\n<h2><strong>3. Notes<\/strong><\/h2>\n<p>Another passive income stream in real estate is owning and selling promissory notes. These are &#8220;proofs&#8221; of debt borrowed from one party to another. To put it simply, when you invest in notes, you actually buy the loan that the property owner owes to the bank or individual who lent him the loan.<\/p>\n<p>This is a great passive income stream because you essentially get to function as the bank! The principal and\u00a0the interest goes to your pocket!<\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"\/renewsblog\/2013\/02\/18\/cash-flow-notes\/\" target=\"_blank\" rel=\"noopener noreferrer\">Cash Flow Notes: Step by Step How to Invest in Performing Notes<\/a><\/em><\/p>\n<h2><strong>\u00a0<\/strong><strong>4. REIT Investing<\/strong><\/h2>\n<p>Though I don&#8217;t know a ton\u00a0about these, a\u00a0Real Estate Investment Trust (REIT) is a real estate holding company that offers public shares that pretty much act like stock in a company, but instead of investing in ownership of a business, you&#8217;re investing in\u00a0ownership\u00a0of a piece of property and\/or mortgage.<\/p>\n<p>REITs\u00a0are given some pretty cool tax advantages, and their shares can be purchased and traded straight from your\u00a0computer screen\u00a0&#8212;\u00a0so that means your office could be a coffee shop off of Santana Row (shout out to San Jose!).<\/p>\n<p>Imagine that.<\/p>\n<p>From what I hear, there\u00a0are pros and cons associated with this asset class, being that the returns are typically higher in multifamily properties and other forms of investments,\u00a0but with REITS, you don&#8217;t have to deal with the headache of tenants, and your cash has\u00a0a lot more liquidity.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-80003\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/09\/wholesaling-tools.jpg\" alt=\"wholesaling-tools\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p><em><strong>Related:<\/strong> <a title=\"REITs: Invest in Real Estate Without Leaving Your Computer\" href=\"\/renewsblog\/2013\/02\/25\/reits\/\" target=\"_blank\" rel=\"noopener noreferrer\">REITs: Invest in Real Estate Without Leaving Your Computer<\/a><\/em><\/p>\n<h2><strong>5. Tax Liens<\/strong><\/h2>\n<p>Our final asset class of passive income real estate are tax liens.\u00a0The easiest way I can describe a tax lien is to compare it to\u00a0the\u00a0bank\u00a0foreclosure process.\u00a0When a borrower is behind on their mortgage payments, they begin to get severely penalized by the bank as an incentive for the borrower to get current. If the delinquency of the borrower continues to no avail, then\u00a0the bank will end up selling the borrower&#8217;s property at a foreclosure auction.<\/p>\n<p>Tax liens are a very similar process, only it&#8217;s not with banks and loans, it&#8217;s with the government and property taxes, and as a means to ease the tax loss, the municipalities have decided to sell\u00a0the payment demand, or <em>lien,<\/em>\u00a0to investors. The government gets their taxes, while the investor gets the right to collect the delinquent tax, an additional penalty charge and interest on the late payment that can go up to 12-36% a year, depending on your state.<\/p>\n<p>This is a great passive income source because after your initial research, that&#8217;s all the work you have to do. <em>And<\/em>\u00a0if the delinquent homeowner ends up not paying you within the set given period of time, you can actually foreclose on the property. So you win either way!<\/p>\n<p><em><strong>Related<\/strong>: <a href=\"\/renewsblog\/2013\/06\/05\/otc-tax-liens\/\" target=\"_blank\" rel=\"noopener noreferrer\">OTC Tax Liens: How We Made 6% in Less Than 120 Days with Tax Liens<\/a><\/em><\/p>\n<h2>Passive Income Through Real Estate Summary<\/h2>\n<p>As you can see, these type of investment strategies are more accustomed to the lifestyle driven investor.<\/p>\n<p>What came out of my life reflection is that if these types of investments are available, then obviously they are what I need to be studying for and striving for.<\/p>\n<p><em>But how do I get there?<\/em><\/p>\n<p>A lot of these asset classes have a higher learning curve and demand higher capital to get started.<\/p>\n<p>That&#8217;s where a choice needs to be made, and active income investing comes into consideration.<\/p>\n<p>If you want to grow into the passive income-supported&#8221;4-Hour Workweek&#8221; lifestyle through real estate investing, what better place to start than with building capital and experience\u00a0actually\u00a0<em>in\u00a0<\/em>real estate?<\/p>\n<p>I mean, yes, essentially you&#8217;re starting out as an entrepreneur and bootstrapping your way to the top (which sometimes looks like struggling in the beginning), and it&#8217;s maybe a little smoother to have a day job to support you, but in active real estate, you&#8217;re essentially killing two birds with one stone, and there is no better education than being hands-on.<\/p>\n<p><em>[Editor&#8217;s Note: We&#8217;re republishing this content to help out those exploring various real estate niches who haven&#8217;t run across this article yet. Let us know what you think with a comment!]<\/em><\/p>\n<p><em>What are YOUR thoughts on this?<\/em><\/p>\n<p><strong>Leave a comment below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Is a 4-hour workweek just a dream? Let&#8217;s take a look at how real estate can be a means for designing your ideal lifestyle through passive income investing.<\/p>\n","protected":false},"author":1609,"featured_media":80552,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,5524],"tags":[],"class_list":["post-56830","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/56830","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1609"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=56830"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/56830\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/80552"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=56830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=56830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=56830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}