Passive Income vs. Active Income: Maximizing Income in Real Estate

In generating income in the real estate industry, you must realize that it is a great yet a challenging venture. There are two main ways in generating income with your property investment, namely passive income and active income i.e. creating a job for yourself. These ways in making revenue comes with their own set of pros and cons. Under standing these trade-offs will define how your success in the real estate industry be, and choosing the right option either passive or active income will have to depend on your individual goals, your resources, and of course risk tolerance.

If you have the energy, we have seen some investors leverage one (creating a job) to fuel the other (investing for passive income)! We love this because it gets you in the trenches and helps you learn. There is no better way to learn than to get the real experience!

Editor’s Note:

Combining active income with passive income can be a great way to learn and grow as an investor. You can gain real-world experience in the trenches and build your passive income portfolio at the same time.

Passive Income: What is it?

When talking about an income that is generated without a need for active participation, it refers to what is called a Passive Income. One common example of the source of this income is by investing in rental properties where in property investors rents out a property and collects rent from residents. This also means that the property investor does not need to be involved inn the day to day management of the property. The property generates income by itself, the quantity of the revenue typically depends on the value of the property which directly influences the agreed upon rent price. Passive income streams allows for a hands-off approach to investing and is a sure source of income when managed properly.

Despite its easy revenue stream, passive income can be challenging. Purchasing, renovating, and setting up a rental properties would require you a significant amount of capital upfront, and of course, you will have to pay for ongoing expenses such as maintenance, repairs, and vacancy costs that you must allocate a budget for. In addition to these costs, passive income through rental properties is often vulnerable to changes in market with fluctuations, which can affect the amount of passive income made. As mentioned earlier, understanding how the market plays in your area is important, and gaining comprehensive knowledge and instinct about this can be attributed to carefully researching and evaluating potential investments to minimize risk and maximize returns.

Active Income: Creating a Job For Yourself

If you, on the other hand, want to become more involved in the real estate industry, you may want to pursue an Active Income. It involes involves active participation the real estate industry as a real estate agent, a property property manager, or real estate investor. While this way requires you to be more involved actively in the industry and may not generate as much passive income level as propertyu investments as rental properties, it can still give you a more flexible and a profitable option.

Commissions are the main source of income for real estate agents, which may come from closing a deal for a real estate property, the amount of which that c an be earned is influenced by the market and the agent's level of experience. Property managers, like Unbundled Property Management are able to earn revenue by charging a percentage of the rent collected for their services, and finally while real estate investors can earn income through fees and / or shares of profit through the buying and selling of real estate properties.

One advantage of Active Income in the real estate industry is the ability to have a control over your income potential. As an example, a real estate agent or property manager’s income is directly tied to their productivity and success in closing deals, and number of properties being managed. This can of course be a motivating factor for some real estate investors or property managers as it allows for the potential to earn more as they grow and develop their skills, while expanding their properties closed.

Another advantage of having Active Income is the flexibility that comes with being your own boss. For example, as a Real Estate Agent, you will have the have the freedom and flexibility to set your own schedule and work as much or as little as you like. This is especially appealing for those aspiring Real Estate Professionals who value work-life balance or who have other commitments such as raising a family.

It sure is difficult to get started as a new agent or property manager, and it will take months, even years to build up a client base and establish yourself in the real estate industry. Most industry professionals we speak with agree that it takes two to three years to really find your stride. There is often a steep learning curve when it comes to navigating the complexities of real estate transactions and regulations.

Make up your mind

So, which option is right for you: passive income or creating a job for yourself in the real estate industry? Ultimately, the decision will depend on your individual goals, resources, and risk tolerance. If you have a significant amount of capital available to invest and are comfortable with the risks associated with passive income streams, then rental properties or other types of real estate investments may be a good fit. On the other hand, if you are looking for more control over your income potential and are willing to put in the time and effort to build a successful career in the industry, then creating a job for yourself may be the way to go.

Regardless of which option you choose, it is important to carefully research and evaluate your options and to seek the guidance of a financial advisor, attorney or real estate professional if needed. With the right approach and hard work, you can build a successful career in the real estate industry. Happy Investing!