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Thread: how do you create a passive or a residual income?

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    Default how do you create a passive or a residual income?

    i'm not in school and i'm willing to go to school for something. however, i'm not really sure what courses to take. i'm an entrepreneurial and i'd like it very much to create a passive income.

    besides anything to do with real estate, what other ideas out there that can provide me financial security?

    any help will be appreciated. thank you.
    "Life isn't about waiting for the storm to pass. It's about learning how to dance in the rain."

    "Everyone wants happiness. Nobody wants pain. But you can't have a rainbow without a little rain.

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    Default Re: how do you create a passive or a residual income?

    There are hundreds of ways. If you're looking to avoid real estate, a few options are to do something online, or in real life- starting a small business that doesn't have a lot of overhead and hiring a person or people to run or work it.

    Passive income has always been my favorite and most profitable method of income. If you'd like some more specific answers feel free to pm me.

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    Default Re: how do you create a passive or a residual income?

    Oil & Gas participation agreements. Sometimes you win, sometimes you don't but when a well comes in, it tends to produce money for a long time.

    HTH
    Z

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    Default Re: how do you create a passive or a residual income?

    on a bit more conservative note, there are the 'dividend' stocks. Year in and year out, oil companies, gas companies, tobacco companies, and other 'politically incorrect' businesses continue to pay comparatively high dividends with little risk of long term principal loss. And power companies, phone companies and other 'regulated utilities' also pay comparatively high dividends with a de-facto government guarantee against long term principal loss.

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    Default Re: how do you create a passive or a residual income?

    Just a side note that I wish when I was in highschool that my parents would have pushed me to take science courses. I would have went through university to be a doctor and been almost done by now!!! Or a surgeon or something in the medical field. I'm taking sociology and I have no clue what im gonna do with it, maybe become a teacher?

    What kind of things are u interested in? Can you go to University or will it be college?

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    Default Re: how do you create a passive or a residual income?

    Quote Originally Posted by Melonie View Post
    on a bit more conservative note, there are the 'dividend' stocks. Year in and year out, oil companies, gas companies, tobacco companies, and other 'politically incorrect' businesses continue to pay comparatively high dividends with little risk of long term principal loss. And power companies, phone companies and other 'regulated utilities' also pay comparatively high dividends with a de-facto government guarantee against long term principal loss.
    One advantage of dividend paying stocks is the federal income tax rate for dividends is 15%.

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    Default Re: how do you create a passive or a residual income?

    Since, I work in this field (finance), I am just going to say, don't invest in share capital unless you know what you are doing.

    Case in point, had you invested even in the most stable of companies like BP, you would have had mass capital depreciation in the value of your shares recently due to oil clear up and as for dividend payments, they would be lower now in BP probably due to having such high clear up expenses as dividenads are paid out of profit after tax.

    Also, if you don't know what you are doing, what are you going to do when there are rights issues? are you going to accept and maintain ownership, or sell the rights option or do nothing and lose out 2 fold. if you do not act at all when there is a rights issue, you always lose out. I could even explain why if i wanted to.

    Point is, I see peopel who don't understand tha market try to do this stuff, when andd if they lose out, they wonder why. Its cuz you need to be on the ball if you are going to invest. It isnt a passive market.

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    Default Re: how do you create a passive or a residual income?

    One advantage of dividend paying stocks is the federal income tax rate for dividends is 15%.
    True at this particular moment in time. However, calls for major increases in income tax rates re dividend income have already been proposed.


    had you invested even in the most stable of companies like BP, you would have had mass capital depreciation in the value of your shares recently due to oil clear up
    True, but clearly an 'exception to the rule'. And obviously there are sector ETF's and mutual funds available which pay dividends based on the aggregated performance of dozens of different oil companies, which mitigates future risk of another 'exception to the rule' situation affecting one company.

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    Default Re: how do you create a passive or a residual income?

    It is true that it is an exception to the rule but the point I was trying to make is that if you want a stable income, equity is the most risky financial instrument there is.

    Any investor looking for stability would not go for equity, they would go for debt. When, it comes to OSC (ordinary share capital), its not something you want to play about with if you don't know what you are doing unless you are willing to get burned.

    AS for the rates on dividend income in the US, I have no idea but here in the UK last i checked it was 32.5% which only makes it a good tax saving investment if you arent in the 40% tax band. Tbf why invest if you arent close to the 40% tax band in the uk anyway.

    Our country rapes our money in taxes over here cuz they are very socialist and think we shouldnt be able to choose how we spen our money.

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    Default Re: how do you create a passive or a residual income?

    As for the fund thing, my mom invested in a banks portfolio which is supposed to filter out unsystematic risk and she lost about 20 k over a period of years. This is because she trusted them to manage a share portfolio for her. It can pay off but i t can go horribly wrong too.

    Maybe I am just skeptical though since I work in finance but if its me I prefer to control my own assets. You might have the choice if you don't understand the market though unlike me.

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    Default Re: how do you create a passive or a residual income?

    Any investor looking for stability would not go for equity, they would go for debt
    Agreed that this was the historical case, but so was rising real estate prices and college degrees guaranteeing good jobs after graduation.

    I'm not so sure today with the PIIG situation, 50% haircuts being handed out to bondholders on sovereign Greek debt etc.

    Personally speaking, shooting for real stability today requires the acquisition of something having intrinsic value, not 'paper promises' that somebody's unborn children will actually agree to repay me, plus the risk that the currency I'll be repaid with may only be worth 1/10th as much in terms of 'purchasing power' as the currency I originally 'loaned' to them. That's why my financial 'hobby' is collecting 1oz gold bars !

    But seeking stability is not the same as seeking 'passive income'.

    ~
    Last edited by Melonie; 11-01-2011 at 02:16 PM.

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    Default Re: how do you create a passive or a residual income?

    Why not real estate? You could invest in property and give it to a manager, or go with one of those investment fund realty trusts....

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    Default Re: how do you create a passive or a residual income?

    Quote Originally Posted by pinups4 View Post
    Why not real estate? You could invest in property and give it to a manager, or go with one of those investment fund realty trusts....
    I'm in a country with much less volatile real estate prices than America, and even then real estate scares the crap out of me. At least with stocks and bonds you can get rid of them relatively quickly and easily, and can scale up and down the amount of risk you take.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: how do you create a passive or a residual income?

    ^^^ person is correct, but the point he's making needs expansion. Buying real estate always involves a localized market. It also involves a select sub-group of 'qualified' buyers. And the costs of ownership go well beyond the initial purchase price.

    If the localized market stops attracting new people, for reasons running the gamut from lack of jobs to high taxes to rising crime rates, then oversupply will depress localized real estate prices. If the qualifications for 'qualified' buyers changes, for reasons running the gamut from rising down payment requirements to higher credit score hurdles to reduction in gov't 'subsidies', then decreasing demand will depress real estate prices. And changes in the ongoing costs of home ownership, running the gamut from rising local property tax rates by broke local gov'ts to rising insurance costs due to increased crime rates to a potential income tax increase resulting from a proposed killing of the home mortgage interest tax deduction, indirectly affect real estate prices.

    On top of these, real estate markets still face the issue of 'shadow inventory' ... where millions of properties that are already in the hands of creditors, or which will come into the hands of creditors once foreclosure proceedings progress beyond legal delays, will be put up for sale / auction further contributing to oversupply thus reduced price levels. Thus in terms of investment risk / reward, real estate currently has lots of risks.

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    Default Re: how do you create a passive or a residual income?

    The real estate we own we use purely as rental income. We have 3 properties (and our family home) and all 3 are rented for slightly less than market value (which is over inflated atm) as our tenants are all great, and have been renting long term.
    the income covers our living costs, and we were lucky enough to buy in a downturn, so will make a small profit if we decide to sell in the future (but as they are owned outright, we also have no mortgage costs).
    Theres no sense crying over every mistake,
    you just keep on trying till you run out of cake

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    Default Re: how do you create a passive or a residual income?

    our tenants are all great, and have been renting long term
    that's fantastic ... but a growing exception to the rule. For better or worse, in many areas the loss of a job or other financial setback is creating scenarios where some tenants can no longer pay rent, but local laws prevent rapid eviction, adding up to a double whammy loss for the landlord for both unpaid rent plus litigation.


    as they are owned outright, we also have no mortgage costs
    Indeed this is the exception ... and even at 4-5% mortgage interest rates represents a major reduction in monthly 'break even' cash flow versus a financed purchase of rental property.


    will make a small profit if we decide to sell in the future
    This of course raises the question of 'lost opportunity cost' ... i.e. being able to earn 5-7% interest on an alternative high dollar investment ( such as insured tax free municipal bonds ) with essentially zero risk of principal loss. And there is also the question of liquidity, i.e. should the need arise a muni bond market exists that allows for near instant sale, while finding a 'qualified' willing buyer for a rental property may be far more difficult ( at a sale price that would still result in a 'small profit' ).

    And of course muni bonds won't spring any financial 'surprises' on you the way that a rental property can ... i.e. suddenly needing to pony up major bucks to replace a roof / furnace / sewer pipe.

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    Default Re: how do you create a passive or a residual income?

    Oh I am vey much a hold for rental as passive income person.,..even though I double my money buying at tax sales and reselling....but it is VERY market specific.

    However, if you do the math right, even with a mortgage, clear profit of $100/mo. Is easy, paying a. Mortgage, manager, repairs, etc.

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    Default Re: how do you create a passive or a residual income?

    Quote Originally Posted by pinups4 View Post
    Oh I am vey much a hold for rental as passive income person.,..even though I double my money buying at tax sales and reselling....but it is VERY market specific.

    However, if you do the math right, even with a mortgage, clear profit of $100/mo. Is easy, paying a. Mortgage, manager, repairs, etc.
    It's all well and good making $100 "profit" a month as long as the "price" of your property keeps going up without fail, and you don't need to pay outrageous taxes (in some countries) to sell the thing ultimately
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: how do you create a passive or a residual income?

    It's all well and good making $100 "profit" a month
    ^^^ you didn't mention that if the broke local gov't decides to raise property taxes by $2000 a year that $ 100 a month profit instantly turns into a loss. Increased property taxes will also lower the 'resale' value of the property thus resulting in a double loss.

    Ultimately, the equation for investment property comes down to initial investment versus annual gross rental income minus property taxes, insurance costs, and other maintenance expenses. Granted that if the property can be purchased well below market value as the result of a 'distressed' sale, and if the property is located such that the local rental market remains firm, then the odds of that equation coming out positive are fairly high. But that equation is still fraught with a number of uncontrollable variables on the property tax, insurance cost, and maintenance side that can quickly turn the equation negative. This is somewhat a problem if the rental property is fully paid for ( i.e. where principal losses will be proportional ), but becomes a major problem if the rental property is mortgage financed ( where principal losses can be near total ).

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    Default Re: how do you create a passive or a residual income?

    hey melonie,

    you seem to be very well informed when it comes to stocks and investments. i dont know a single thing about it but i'm willing to learn. it's been a year since i started stripping and i just threw my money away.

    i'd like to take some courses about investing. do you know any courses to take regarding investing in stocks that is low risk but high passive income?
    "Life isn't about waiting for the storm to pass. It's about learning how to dance in the rain."

    "Everyone wants happiness. Nobody wants pain. But you can't have a rainbow without a little rain.

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    Default Re: how do you create a passive or a residual income?

    investing in stocks that is low risk but high passive income?
    Unfortunately, at this moment, the two are mutually exclusive ! Zero Interest Rate Policy on the part of the US FED has resulted in very low risk investments also having very low income potential.

    As to learning the basics, I always recommend starting at

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    Default Re: how do you create a passive or a residual income?

    Quote Originally Posted by Money_Worshipper View Post
    hey melonie,

    you seem to be very well informed when it comes to stocks and investments. i dont know a single thing about it but i'm willing to learn. it's been a year since i started stripping and i just threw my money away.

    i'd like to take some courses about investing. do you know any courses to take regarding investing in stocks that is low risk but high passive income?
    Aaaa, low risk and high passive income, the unicorn of investments. I wish!

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    Default Re: how do you create a passive or a residual income?

    Increase your financial Intelligence and you will increase your income.
    Don't trust me.
    Trust the rich people by becoming one.
    You have posted about the law in another forum.
    As you know with the law, it is the way you think that affects your reality.
    Rich people think differently than poor people.
    If they lose everything tomorrow, they can climb back up the ladder faster than before.
    There are loop holes in the system.
    You just have to know how to see them. How to think.
    Real estate is actually awesome right now to get into because Banks aren't lending and Realtors aren't selling.
    So how does the trade go on?
    There are quite a few things to think about before investing though.
    I went through an MBA program and can tell you that the closest thing to that education that is cheaper and easier to understand is the first four books of Robert kiyosaki.
    For real estate look at Rich dad's guide to real estate investing.
    The game cash flow sells for 100 dollars but is worth 100 times that.
    There are other people as well but that's where I learned what I know.
    Again, don't believe me.
    You don't even have to buy the books they are at the library.

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