Passive Income: Not As Passive As You Think – Part 2

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Monday we discussed how I define passive income and how you can come up with your very own definition of passive income. I then went on to discuss whether or not I thought dividend investing counted as passive income. Today we continue by analyzing rental real estate and blogging to see if they’ll pass the test!

Rental Real Estate

I believe rental real estate has the most potential to be passive income. The income is generated on a regular basis… if you don’t ever have vacancies. The thing is vacancies do happen and might happen often. So maybe the income isn’t as regular as we’d like.

If you’re managing the rental property yourself there may be months where all you do is take the rent check to the bank. However, there will also be plenty of months where you have to fix something in the house. You might have to figure out how to come up with enough money to replace the roof at the worst time possible for your budget. That doesn’t even count the time to find a good contractor. If you run your rentals this way rental real estate is far from passive.

If you hire a property manager they’ll take care of most of the issues for you but it will cost of a hefty chunk of the monthly rent payment just for the management fee. That doesn’t count any costs that may pop up such as repairs. Even worse, you may not have as much control over who does the work and how much they charge you. This is the way to go if you truly want your rental real estate to be passive income but it definitely comes at a cost. You’ll likely still be needed to make decisions but hopefully the property manager already has done the legwork and you just have to pick an option.

The stress can run high and real estate isn’t the easiest thing to understand. Many things will feel like they are out of your control. You’ll have to do new tax return schedules and draft a lease or hire a CPA and attorney to take care of those items for you. If you already understand these you will have a great advantage!

Blogging

If you’re just starting out blogs definitely do not qualify as passive income to me. You probably won’t make any money until at least six months to a year out and even then my guess is it won’t be regular for a long while.

As far as time, I spend anywhere from 10-20 hours minimum a week on all of my blogging activities including writing posts, networking, commenting and messing with my site. There is a huge learning curve in the beginning if you aren’t very good with blogging technology and terminology. I often found myself frustrated and stressed because I couldn’t get something to work. Yes, I curse at the computer.

This doesn’t mean that a blog can’t become a passive income source. It does take a lot of legwork in the beginning to get enough traffic to make a decent amount of money. After you’re up to a good traffic and income level many parts of blogging can be outsourced at a cost. Assuming you can keep your costs below your income and don’t mind handing over control of your blog I think blogging has the potential to become passive income.

So there you have it! Rental real estate has the most potential to be passive income in my opinion. Dividend investing could be passive if you hire a competent advisor (thanks to Jason at Work Save Live for pointing that out) and blogging will take a long time before you could even potentially consider it passive.

What are your thoughts? Do you have experience with rental real estate or blogging? Do you agree with my conclusions? Are there other types of “passive income” you’d like me to look into? 

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. I like how you’re thoroughly exploring the topic!

    ON hiring an advisor: I think it’s dangerous to hire someone so your portfolio of investments is “passive.” As you get more passive, you run the risk that your advisor might do something you don’t agree with. That’s how people get burned.

    Although blogging itself isn’t very passive, I do agree that there are niche sites that can be incredibly passive. Set it up and let it run….

    • Niche sites are cool but I don’t know enough about them to be able to speak to them. I bet a bunch of people think they can start one then end up with no income.

  2. I would really like to get into real estate investing but we are not quite there yet. I would agree with you, it is quite passive and can be a big money maker if you do it right. As far as my blog goes I don’t think it will ever be passive. People read my site because they like my take on things which means I will always have to write posts making it not passive.

  3. I agree on real estate as a viable candidate. However, it will push the limit on what is “passive” because all my acquaintances with rental properties have ongoing issues. Getting tenants, ongoing maintenance, and so forth are activities that aren’t enough to qualify as a second job, but definitely more than “nothing.” Looking at how much time I spend on stocks and how much they spend on their business, they definitely need more time than I do.

    But then again, they like doing those things, so they don’t look at it as a sacrifice. Almost a hobby that pays. They dread doing stock analysis, whereas that’s more of a hobby to me.

    So in the end it comes down to what you enjoy doing. And there is a gray area where you can spend more time on something than you need to as a minimum, but that’s more because you enjoy doing it than you are forced to…

    Oh, and I definitely agree with you on the blogging thing. I’ve not seen it become “passive” income for anybody. The moment you slack off and coast, the blog will lose momentum – slowly at first, but more and more as time goes by. It’s a second job at best. :)

    • I think it doesn’t matter if something is passive or not if you enjoy what you’re doing. However, if you’re just trying to get rich without doing work being passive is very important.

  4. I’m with Miss T! I’d love to have rental real estate right now but we’re a long ways off from being able to afford it. While we probably could afford to do it, I’m not willing to take on the risk while we have a bunch of student loans to be paid off.

  5. As a former landlord, rental property is very rarely passive income. I viewed it as a business, probably because I had as many as 55 rentals at one time. Blogging is constant marketing which is a lot of work. Passive income, for me is dividend income or interest earned on a savings account.

  6. Untemplater says:

    I am a blogger and definitely don’t consider it passive income. Perhaps in the future but it takes a lot of hours to keep a site going on your own. Some people outsource everything though. Right now I blog as an outlet and to connect with people. It’s a lot of fun!

  7. You’re doing a good job exploring these topics.

    I know everyone always says real estate is passive, but I just don’t know. Even with a property manager, it still seems like work.

    You already know my opinion on making money with dividends (i.e. I like them). That post on the Dogs of the Dow is coming up probably next week.

    Blogging has been okay. It took a long time to see any money roll in. But things are picking up and I’m working at it less an less as I become more familiar with what do (I hope that’s not reflected negatively with any of my readers).

    One more to add to the list – I’m a part-time musician and have licensed a number of my songs on iStockPhoto. Although this isn’t a lot of money, there are those on there that make some pretty healthy side-cash.

    • Now Licensing. That is something that is passive income! You create something and then someone else pays you whenever they use it.

  8. Rental property can be passive income at times. There are months when we do nothing but collect the rent. Other times, it can be challenging. We had someone move out and do about $6,000 worth of damage once. We spent several weeks repairing the property and lost a month of rental income.

    Overall, if you can get good renters it is fairly painless.

    • I agree, if you hired a property manager I think it might be a little more passive but if you’re dealing with thin margins it might be worth your time not to.

  9. Blogging is not passive income; too much hard work involved – but fun. Real estate is passive – can be hard work as well.

  10. Agree with you on both counts. Great post! And congrats on Business Insider picking up your guest post, that’s huge.

  11. I agree with others that blogging is far from being passive. Even when it builds up there will be a lot of work to write posts, respond to comments and do various marketing tasks. I think it is much closer to being a part time job, but one where you do a ton of work early on to see benefits later.

    I’ve never been involved with property rental, but it seems that it would only be passive in certain situations where you can always find good tenants.

    • Good tenants are gold from what I hear. I’d believe it too! If I ever get into rental real estate I’ll work on finding the best tenant possible.

  12. I don’t believe rentals or blogging are passive income. I would consider both of them as side income where you get back what you put in. I would also recommend that nobody choose either one unless you are genuinely interested. If you don’t like dealing with house related issues don’t buy a house in hopes of making easy money. It simply doesn’t work that way. The same with blogging. Most bloggers will tell you that they do it because they enjoy it.

    I would be interested to see some stats on how much time vs monthly income the average blogger makes. I think many would be surprised at how low the hourly rate is. I imagine at least 50% of blogs barely make minimum wage. I see far too many people jumping on the blogging for money bandwagon with little idea of the amount of work necessary. I also believe that it’s a risky venture, especially when so many people are relying on advertising from places like google. If google decided to cease its Google Ads program, what would happen to the income?

    • In the beginning the hourly wage is non existent but if you can stick around for a couple years I bet the hourly wage starts getting more reasonable. You have to build a huge following in that time frame though. I agree on the rental property.

      • Are you able to disclose how much money this blog is generating for you? It seems very few blogs do that and the for the ones that do, it seems like a full time job. The only two I can think of is Budgets are Sexy and Man vs Debt. It also seems like those blogs fully consume most of their time.

  13. Completely agree! That’s why I buy REITs, and dividend paying stocks. They are by FAR the easiest to manage and have the best tax advantages.

  14. I wish I could make my blog earn passive income. But if I even slow down the posting, my traffic falls off.

  15. Adam Hathaway says:

    I started my blog but never viewed as a passive income generator. I see it more as a location freedom enabler.

  16. I don’t think many endeavors qualify for ‘passive’, they take work to set up and maintain. I don’t care about having passive income, yet rather work that I enjoy. Work isn’t something to avoid. I like Adam’s idea of having work that doesn’t tie me down to a specific location.

  17. I’ve almost given up on blogging as a “passive” income, and instead settled for a pretty decent side gig that has the most flexible hours ever. That’s still a pretty good deal as far as I’m concerned. I’ve tried the niche thing and it still requires a ton of work. Two guys I have seen be successful at this are Sunil and The Financial Blogger. Google those two guys if you don’t know them already and you can get a good idea of how much work it takes to create a real site. The days of 10 page sites raking in adsense coin are gone in my opinion.

    • While I’d love to make money blogging it isn’t my ultimate goal. I feel like with a lot of consistent hard work it can turn into a nice side gig which is what I intend it to be one day. I would think niche sites are pretty tricky so you really need to know what you’re getting yourself into. I don’t really have much background in them.

  18. Blogging takes time and I have been telling friends that you should take it as a hobby because of the time you spend on your blog. Passion first and monetize later.

    • Passion first and monetize later seems to be a great method in blogging. You won’t make a ton of money in the first few months even if you do load your pages up with a ton of ads.

  19. Real estate is easier to manage if you deal in higher end properties, although the cash flow won’t be as great. I live in Hawaii and manage four rentals in the desirable neighborhoods. I’ve been lucky so far that I’ve had great renters, but I take the time to screen them all. I’m not very handy so I have a handyman do everything, it hurts my profit margins but saves me time.
    I’m beginning to learn to blog, and that is much more difficult and time consuming than any of my rental endeavors. You’re right if you enjoy it than it doesn’t matter

  20. Finding your passion is the first step. If you are not passionate about a side hustle, it is going to feel like work anyway, which is not worth the money. To create passive income, you need to sweat a bit first. Make sure the sweat is worth it! Find your passion(s)…

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