Passive investment.

6 Replies

Does any body knows, What is a passive investment opportunities?

It means you investment money into the property or investment and don't have to do any work... For instance rental properties CAN be passive investments if you have a management company handle the renting and repairs. In other words passive is you put up money and just get a check.

Another passive investment opportunity is a dividend paying ETF or stocks. 

Well, to extend beyond other people's answers, how about we take a look at it from the IRS stand point?  You might be surprised to learn that some investments we might consider passive, the IRS does not - even things like stocks and bonds.  Essentially, the IRS considers passive activities to be any rental activity or business activity in which the taxpayer (i.e. the passive investor) does not materially participate - yet some of which they consider to nonpassive seems contradictory.  So of course, things like salaries, wages, 1099s, or any other income you receive from "work" is not passive.  However, interestingly enough, according to the IRS, stocks and bonds, interest and dividends, guaranteed payments, sale of undeveloped land, and even royalties are not considered passive investments by the IRS, despite the fact that they seem to be so from the definition of passive.

Now, passive investments (in terms of that of which doesn't require much involvement or labor) are great, because you're essentially using existing money to create new money with very little to no actual participation on your part besides the financial investment - capitalism at its finest.  But from a tax and IRS standpoint, it's important to learn what they do and don't consider to be passive and how passive investments will differ from other income and understand that typically, passive activity losses - that is financial losses as a result of passive investments - can only be deducted against passive income, with some exceptions.  So unless you meet the following requirements, unfortunately you probably can't offset dividend income with rental losses according to the IRS, even though you'd think they're both equally passive.

Fortunately, if your AGI is below $100,000 you can actually deduct passive activity losses up to $25,000.  Unfortunately, if you make over $150,000, you can only deduct passive activity losses against passive activity income.  And if you your AGI falls somewhere in between $100,000 and $150,000 then the deductions against wages are phased out $0.50 per $1.

Hope that makes some sense.  Here's some more information:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Losses-Real-Estate-Tax-Tips

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A passive investment opportunity is an opportunity in which you provide dollars and the partner provides services. For example, working with a turnkey provider will allow for passive income as long as the provider is a jack of all trades (acquires property, rehabs property, leases property, manages, services and refreshes property).


Best,


John Gutman

@Martin C. We are looking for passive investors right now. We have the properties and the ability, but to grow our portfolio quicker we are looking to bring in investors. If you are interested let me know and we can connect. 

Another great way is to do private lending at fixed rates. We also use MANY private lenders to finance properties that we are flipping or in the first stages of buy and hold. 

Erick Harbert, Real Estate Agent in TX (#629658)
281-652-5675

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