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!
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?