If someone promises that you’ll make money while putting absolutely no effort, then well, there is a high chance that they aren’t entirely truthful. You might have heard that some of your friends are making a living out of a passive income, but let us assure you that to reap the benefits, first, you’ll need to work hard.

If you aren’t willing to wait a bit longer to buy a car or a new TV set, and let us assure you, in the beginning, you won’t be earning a lot through passive income, then you might consider taking out low rate personal loans instead.

On the other hand, if you consider yourself to be quite patient, and you’ll keep making good decisions along the way, your financial situation could become much better. In a moment, we’ll explain what passive income is and what are the most common sources of passive income that you should consider.

What Is Passive Income?

In the simplest terms, passive income is when you make money while you sleep. It is a steady stream of income that can potentially come in even after you stop working on something. This is usually the result of a different business structure, such as a franchise or an affiliate marketing program.

What Are the Most Common Types of Passive Income?

There are three common sources of passive income:

Passive Income Through Franchises

It can be challenging to get going in a franchise, but once you grow and build a solid reputation, it will become easier to find new prospects. Most franchises will require that you sign an agreement where you promise to pay a percentage to the franchisor for each sale that you make.

Passive Income Through A Real Estate Investment Trust (REIT)

A REIT is a trust for real estate investments. You can invest in real estate through this investment vehicle. The profits you make through this are then distributed annually to shareholders according to their ownership percentage. There are various types of REITs, and we’ll talk more about them later.

Important Things to Consider Before You Invest In Passive Income Opportunities

There are a few things that you should know before you get started with a franchise or with a REIT. We’ll discuss them all in the following lines.

You Will Need to Take Risks

Before you invest in anything, it is essential to have a clear understanding of the risk factors involved. The last thing you want is to lose your investment because you didn’t know what you were signing up for. It might be tempting to put your money into the hands of an expert and let them take care of your investments, but remember that this is your money, and you’re the one who will be affected if something goes wrong.

Be Aware of Tax Implications

In case you aren’t aware, passive income is subject to taxation, and the percentage of taxation depends on your tax bracket. This means that when you invest in a franchise or a REIT, there is a good chance that you will need to pay taxes on the money that you earn from it. In some cases, the amount you will have to pay will be covered by the company you invested in.

Negotiate and Negotiate Some More!

You definitely don’t want to pay full price for a franchise or a REIT. If there are multiple offers available, then pick the ones that offer the lowest price and best terms possible. The last thing that you want is to get stuck with high interest rates and steep fees. Always go for the best deal possible!

Once you find out the price for a franchise or a REIT, contact them and tell them why you feel like it is too high. Then, ask them if they can offer a better price or terms. Most likely, they will accept your offer and allow you to negotiate some more. Never stop negotiating until they match your offer!

Final Thoughts

It can be tempting to put all of your money into one business opportunity, but this isn’t always the best decision. It is always best to diversify your investments so that your risk exposure is minimal. What do we mean by diversifying? Well, instead of investing in a single business possibility, consider investing in two or three different ones. This way,  if one fails, there are still other ventures that can support you financially.

Having three different passive income sources sounds like a great idea, but it also requires tons of work and, potentially, experience. That’s why it’s better to start with one source of income and then start working on your skills and taking bigger risks. After all, the bigger the risk, the bigger the reward – just remember to stay reasonable!

Categories | Article | Fundamentals | Funding
  • Think Realty

    We believe in the positive, life-changing impact of real estate investing. Our mission is to help investors achieve their goals to build wealth, better manage time, and live a life full of purpose.

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