According to Investopedia, here are a few terms that a real estate investor should know:
What is Passive Income
Passive income is earnings derived from a rental property, limited partnership or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable. However, it is often treated differently by the Internal Revenue Service (IRS). Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.
Understanding Passive Income
There are two main categories of income: active income and passive income. Active income is something where you will be investing lot of time. For example, consider you are working on a daily 9 to 5 job and get paid at the end of the month. if you stop working you don’t get paid. So you need to keep investing time to get paid. So you need to keep working (or investing time) to get paid.
Passive income has been a relatively loosely used term in recent years. It’s been used to define money being earned regularly with little or no effort on the part of the person receiving it. Popular types of passive income include real estate and dividend stocks. Proponents of earning passive income tend to be boosters of a work-from-home and be-your-own-boss professional lifestyle. The type of earnings people usually associate with this are gains on stocks, interest, retirement pay, lottery winnings, online work and capital gains.
The trouble with a job or “active income” strategy is that you always have to work or the income dries up. One of Warren Buffet’s famous quotes is “If you don’t find a way to make money while you sleep, you will work until you die.” So it makes sense to build enough position financially to start chasing passive income. If you manage your money better than most of the American public during their career, you will have “passive income” that can allow you to gradually scale back your “active income” efforts to be able to retire early. The goal is to earn more passive income than your monthly expenses. The sooner you do it, the sooner you can retire. (i.e. we afford retirement because of years of putting money in investment accounts or real estate and earning interest on these investments).
How is Passive Income Taxed?
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As a life long resident of Central Florida, I can help you find the right property for you whether it is in Orlando or as far south as Sarasota. My email address is email@example.com, or call me at 813.205.9280. If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.