One of major reasons why anyone would be interested in investing in real estate is for the passive income. Even though a lot of money think “money is money is money is money,” the way you earn that money dictates whether it is considered passive income or active income.

Active Income

Active Income is defined as money you earn by “working on something.” Your full time job is the classic example of active income; another example (in the context of real estate) can be capital raiser, or wholesaler, in which you are working on some deal, talking to some people, making things happen, and in exchange you get compensated. It does not matter whether the compensation is based on result (e.g. how much capital you can raise), or based on time (e.g. I put in 8 hours of work today). What matters is if you decide to keep staying home “doing nothing,” the active income will quickly reduce. Another term for active income is “earned income.”

Passive Income

Passive Income is defined as money you earn “whether you work or not.” Collecting rents from rental properties is the classic example of passive income; another example can be collecting dividends from stocks that you purchase. The beautiful thing about passive income is that if you decide to stay home for a few months, or go travel around the world for a year, generally speaking the level of passive income stays the same, or very minimally impacted. You do not need to “work a job” to make passive income. You are basically making money with money. In Rich Dad’s term, “have money work for you.”

Multiple Streams of Income

There is no perfect answer as to whether Active Income is better or Passive Income is better. In general sense, Passive Income can help us gain back our time, while Active Income is the traditional way to make a living. We do not really have to pick a side because why not have both? We can have our full time W2 job, or flipping houses, as our Active Income stream. With the proceeds, we can then turn around and invest for Passive Income. This is what is called multiple streams of income, and this can be a continuous loop to help us build cashflow.

There are many different ways to make either Passive Income or Active Income. If you are interested to learn more about all the current ways, and find out which ways work for you, you should check out https://www.PassiveActiveIncome.com