What Is Real Passive Income?

I was laughing out loud while searching for the phrase ‘real passive income‘ and Google gave me some smart ass results such as “Make Money from Daily Activities“. Really? Is that what you would count as passive income, making money from your daily activities? That is, working all day and then call your income passive?

I strongly disagree. So I went ahead and wrote this article to help you understand what real passive income is, and why most gurus claiming to sell you the secret of passive income are actually lying, or at least not telling the whole truth.

How Much Passive Income I Have?

Please let me start with a disclaimer. In case you really care to take advise only from people who are actually successful in a field.

I’m not a billionaire, nor am I making millions in passive form. But I’ve managed to build some websites that generate a couple of thousand dollars of real passive income every month. That is, even if I don’t turn on my computer for a whole month, those couple thousand bucks still land in my account.

The Definition Of The Word ‘Passive’

In order to better understand what real passive income is, let’s first understand the meaning of the word passive.

According to Merriam-Webster Dictionary, the most adequate definition of the word passive in this situation is “of, relating to, or being business activity in which the investor does not actively participate in the generation of income“.

And that’s the key. Whenever you are actively participating in a business in order to produce income, that would never count as passive. It might still be a desirable form of generating income for sure, such as running an online business or making money from your daily activities or even your hobby, but it is not passive.

What counts as active participation might differ from people to people, but I would say no more than 4 hours a week. Ideally a couple of hours per month to supervise your investment, but that’s it.

So What Is Real Passive Income?

Real passive income is the type of income where you get paid repeatedly, regardless of whether you’ve worked or not in a given time period.

Best Questions To Ask Before Any Decision

So the next time you will be presented with a great idea, an income or investment possibility or even an online course teaching you how to generate passive income, consider these two simple questions:

  • Once everything is set up with this business, how much will I need to work with this project every week? If it is more than 4 hours, forget it as a passive income opportunity.
  • What if I completely stop working on it after the business have been established? If there is anything requiring your active participation, once again, it is not a real passive income opportunity.

And sorry to tell you, but this is why multi-level marketing companies and most online businesses are not real passive income.

They either require you to work constantly whenever you want to take out money, or fade out payouts if you stop actively participating in the business. Or both.

4 Most Common Passive Income Sources

Real Estate

Real estate is a classic way of generating passive income. It is also a very safe solution. You’re dealing with tangible items that are difficult to recreate and that will always be needed.

It requires knowledge and a lot of up front money though to participate in the real estate game. I would recommend you start with Grant Cardone’s real estate advise if you’re into this. (The guy is a world famous real estate investor.)

Business shares

Making income as a business owner is another preferred way of generating passive income by savvy investors. The key point is that you must not work actively in that business, but instead having the business work for you.

There are basically two ways of achieving this:

  1. You buy shares with money, in which case this method is somewhat similar to the real estate game.
  2. You build a business from scratch and than manage it to be run by other people without the need of your active work.

Believe me, this second solution, as tempting as it sounds, proves to be extremely difficult for most entrepreneurs out there from time to time.

Intellectual property

There are many types of intellectual property. From a personal prospective, mostly patents and copyright are what you might consider here.

Automated websites

Although this sounds Greek for most people, generating passive income from automated websites is a viable possibility for literally anyone.

To put it simple, you need to build online content that satisfies these two rules:

  • It can generate a large number of website visitors repeatedly without your active work. Search Engine Optimization is a great way to achieve this. Some people also play this game with traffic generated from ads.
  • Need to have at least one method of generating substantial income without active work. Automated ad solutions or affiliate programs do exactly this.

Let me explain this with an example.

I have a food blog which is pretty successful in my home country. It has 540 articles (mostly recipes), and 98% of the content was written years ago. What this means is that it does not need any active work from me anymore. The website is ranking high in Google for a lot of terms, generating a continuous and automated flow of visitors. I have Google AdSense installed on the website, an automated ad network doing everything in the background without human intervention. This website generated around 4,500 USD from AdSense last year plus approximately $600 from another automated ad service. That’s roughly $425 every month.

Substantial? Definitely not. But before you judge, please consider these two things:

  • This is pure, 100% passive income. I personally have barely done anything last year regarding this website, and this income kept on flowing in regardless.
  • Would you be happy to have $425 more every single month without doing anything? What would you spend this extra income on?

How Do You Build Passive Income?

There is a ‘trick’ you need to understand if you want to build real passive income. And I’m using the verb build intentionally.

It requires a lot of effort up front, usually without seeing a single dime for months or years. If you consider real estate or business investing, you need to come up with the initial money first, which can be a long process. In case of intellectual property, you need to put in a lot of work and sometimes also money at the beginning to pull off something worth a patent, or to write a book for example.

An automated website works the same way. You need to create the website and all the content first. This requires either a lot of work if you’re the one writing the content, or money if you’re working with writers. Than for months or even a year you won’t see much of an income.

In my example above, I worked roughly 810 hours with this website (an average of 1.5 hours with every article). That’s a lot of work, 5 normal 8-hour months in fact. And believe me, I did not see a dime at the beginning. But now I’m generating $425 every single month, even if I don’t do anything.

A Quick side note

The best thing in building an automated website is that you can do that while working full time. And you can build a website targeting a niche that’s your hobby. So your passive income building project can definitely become fun.

The Key Point

But the key point is that you need to put in the effort, be it time, money, or both, up front. Build something with a lot of energy, possibly sacrificing your free time, that will only yield any dividends months or years later.

But if you do it right, if what you build is valuable, than you can enjoy the fruits of real passive income for years to come.

Is It Worth It?

That one you need to decide yourself. I would rather sacrifice 810 hours of my life to build something that’s helping hundreds of thousands of people and generating me more money every month than most people would enjoy passively in their entire life.

But I think what’s more important is that you should not fall into the trap of people selling you on fake passive income solutions. There ain’t no such thing as free lunch. If it promises passive income fast, without work or investment, it is a lie. If it promises passive income but it is a job in disguise, it is also a lie.

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