#194 The Passive Income Investing Strategy

In this episode, we talk about the exact steps and strategies you can take to transition from active to passive investing so you can speed up your timeline to achieve financial freedom.

We also discuss how top investors leverage other people's skills to make money work for them, when to start incorporating passive income strategies into your portfolio, and why dealing with "tenants and toilets" shouldn't be part of your wealth creation plan long-term.

Enjoy the episode!

TIME STAMPS:

00:00 - Intro

02:05 - What Investors Should be Aware of as Their Net Worth Grows

03:18 - Difference Between Active and Passive Investing

04:27 - What is a Passive Income Investing Strategy?

07:08 - True Wealth Building is About Creating a Passive Investment

08:32 - Conclusion

09:06 - Outro

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https://www.linkedin.com/in/salenakulkarni/ 

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YouTube: https://www.youtube.com/@FreedomWarrior 

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Transcript

I recently spoke with an investor who, on paper, appeared quite successful - he had a high net worth, great income streams, and a portfolio full of promising real estate projects. 
 
However, as I examined his investments further, I realised he was working himself to the bone, managing all the details of these projects. 
 
While hustling hard can pay off, when you're just starting out, at some point, the question becomes - what's the purpose behind all this wealth-building? 
 
This investor's experience shows that it's possible to get so caught up in the day-to-day grind of active investing that you lose sight of the end goal: FINANCIAL FREEDOM. 
 
At its core, the purpose of building wealth should be to create assets that work for you so that you can focus on other priorities. 
 
My argument is that as investors gain experience and capital, they should strategically transition from active to more passive investing approaches. 
 
This not only moves them closer to the ultimate goal of financial freedom but also allows them to scale their investing efforts rather than just rely on what they can accomplish themselves. 
 
Aligning with experts in various alternative assets provides access to specialised deal flow without requiring hands-on management.
 
In this article, I'll expand on the definitions and benefits of active versus passive investing to guide you on when and how investors at different stages can incorporate more passive income strategies into their wealth-building journey.
 
The world of alternative investments provides many turnkey passive options if you know where to look.


Defining Active vs Passive Investing 

When it comes to investing, there are two main approaches - active and passive. In my previous podcast episodes, I laid out key differences between these two methods based on my conversation with a successful yet overworked property investor. 
 
A. Active Investing
 
Active investing is what most people think of when they imagine an investor searching for the next great opportunity. As I learned from my burnt-out friend, active investors take a hands-on role across the entire investment lifecycle:
 
This requires finding your own deals - Unlike passive investors, active investors must source their own opportunities. This means going out and beating the streets to find hidden gems before others snap them up.
Requires hands-on management - Once they close a deal, active investors continue to expend effort by personally handling key tasks like running numbers, contributing sweat equity, and dealing with tenants. They act as the central hub, coordinating all the moving parts.
 
While active investing can produce wins, it's an all-consuming endeavour. You alone are responsible for deals and management.
 
B. Passive Investing 
 
The core tenet of passive investing is gaining exposure to deals without requiring your direct involvement in sourcing or operations. Instead, you align with experts to handle that work on your behalf.
 
Participate in deals found by others - Rather than finding properties yourself, you leverage relationships with seasoned professionals to access specialised deal flow. This provides access to vetted opportunities you likely couldn't find on your own.
Requires less day-to-day management - Partners take care of sweat equity and management, allowing you to take a more hands-off role focused on high-level oversight through alignment and reporting.
Focus is on alignment and deal flow - You concentrate less on doing the work directly and more on engaging the right partners who can deliver regular pipelines of deals.
 
The key benefit of passive investing is gaining the upside of deals without the gruelling demands of active ownership. This frees up mental bandwidth for other priorities in life and business.

 
Why Transition to Passive Investing
 
During my podcast episodes, I emphasised that all investors should thoughtfully plan their transition from active to more passive investing approaches. There are several compelling reasons to shift gears:
 
1. Achieve financial freedom - don't want money to rule you
 
A fundamental reason is to actually fulfil the purpose behind building wealth in the first place - attaining financial freedom. 
 
If money rules your schedule rather than serving your lifestyle, it's time to reevaluate. Passive income streams aligned with your goals allow you to step back while still participating in the upside.
 
2. Leverage the skills of others rather than just gaining more knowledge  
 
Rather than constantly seeking to expand your own expertise, there is wisdom in leveraging the specialised skills of others. No one individual can master the intricacies of all alternative assets. The partnership allows you to benefit from professionals who are dedicated full-time to selecting verticals.
 
3. Frees up time for other priorities
 
Reducing the demands on your calendar gives you space for other priorities, whether business growth, family time, or passions outside of investing. The benefit of sweat equity fading from view is realising gains without the grind.
 
4. Allows you to scale investments rather than just relying on what you can do yourself
 
Passive investing opens doors to scaling beyond what you could achieve alone. There are deals with minimums too high for one investor. By pooling capital and streamlining operations, seasoned partners invest at an elusive portfolio scale for most individuals. This multiplies the options.  
 
The reasons for evolving strategies are compelling and diverse. Passive income aligns with your "why" for wealth by lifting burdens off your shoulders over time. The key is a mindset shift - allowing money to work harder for you.

 
Who Should Transition and When
 
A passive income strategy won't be a fit for all investors. Timing this transition correctly based on your situation is critical. 
  
The investors best positioned for this shift have built up expertise over the years and a solid capital base to deploy. 
 
They understand active investing intricacies but are ready to leverage the skills of specialised partners. Their wealth of knowledge allows them to analyse deals and managers rigorously while letting others handle day-to-day sweat equity.
  
Another profile well suited for this transition is that of business owners running mature cash cow operations. Those generating solid profits can use dividends to seed passive income streams now rather than later. This avoids the full active investor journey and accelerates their timeline tremendously.
  
Regardless of background, deciding to shift gears rests on an honest assessment of where you are in your journey today. 
 
Here are the important questions to ask: 
Have you built up enough capital where passive investing minimums are within reach? 
Are you ready to leverage your hard-won knowledge into alignment rather than personal sweat equity? 
 
Establishing timing and capital base targets to hit before making this move is essential.
 
Not everyone will be ready to explore passive income investing strategies in the short term. 
 
But identifying when that point arrives based on your journey is important to charting the road to financial freedom.

 
How to Transition to Passive Investing  
 
For those ready to embark on the journey to more passive wealth creation, I offered the following essential steps to make this evolution:
 
1. Start allocating a percentage of investments to passive opportunities
 
Rather than flipping your entire portfolio overnight, begin steadily directing a portion of capital to passive vehicles. This maintains diversity while testing new waters. Build towards critical mass based on your timeline and targets.
 
2. Develop relationships with experts in various alternative assets to access deal flow
 
Passive investing works through alignment with seasoned players. Network to find specialists in areas intriguing to you – from real estate syndications to litigation finance. Get to know their offerings and track records. The goal is a tailored shortlist of partners matching your investing personality. 
 
3. Take advantage of turnkey passive investing solutions as they arise 
 
The passive investing landscape continues to expand with innovative new platforms. This creates turnkey opportunities to deploy capital without getting your hands dirty. I'm focusing on options in the rental property space that handle all sourcing and management at scale while delivering steady dividends.
 
You need to remember to proactively seek avenues that resonate with your goals. 

Our recent discussion with that burnt-out real estate developer showed that staying stuck solely in active mode can undermine your quality of life. 

When you open your eyes to passive routes, you enable assets to shoulder the load so you can focus on living.