In the quest for financial freedom and independence, taking active income and putting it towards means to make passive income is essential. While there are three main types of income in active, passive and portfolio, it’s the first two that are particularly important to understand.
Let’s take a look at the key differences between active and passive income and how addy may be able to help you with one of them.
Types of income
What is active income?
Active income is the money and benefits you earn from working a job or performing a service. This may be a full-time job, a contract position or freelance or gig work. Income may come in the form of an annual salary, hourly wage, tips or commissions. For most people, it’s the primary – and for some the only – source of income.
As the name suggests, active income requires a fair amount of effort in order to achieve. That is, you’re actively involved in earning the income, which typically involves a fair amount of time. Active income may also be referred to as earned income.
What is passive income?
Conversely, passive income is that money earned from little to no effort. Passive income is often derived from renting out property, selling property or involvement in a limited partnership.
The term “passive income” has evolved over recent years, as more people find ways to sell or rent out physical things and services, turning rooms into short-term rentals, posting clothes online for sale or lending out a car for temporary usage. While all of these things require a bit of work, it falls under the umbrella of passive income because they involve using available resources to make money. If you have a cottage home that isn’t occupied all year round, it can be rented out to earn passive income.
In most cases, earning passive income requires a bit of active income first: in order to rent out a property, you need to own the property first. What’s more, passive income may build to something substantial over time, but it often isn’t much when you first start out.
For example, if you invest in a property that you aim to rent out, it may take time to renovate, find tenants or simply earn back your initial investment. However, eventually that investment may prove highly lucrative – you just need to be patient.
Real estate passive income
Investing in real estate can be an easy and potentially successful way to earn passive income. Online crowdfunding real estate platforms like addy allow average Canadians a chance to invest what they feel comfortable with.
Crowdfunding spreads across the price of admission and the risk in the real estate market; you don’t need a ton of money upfront to take part in fractional ownership. Passive income in real estate takes time, but it one possible way to #GetRichSlow.
Passive income with addy
addy members have the chance to earn passive income in one of two ways: through rent collection or the sale of a property.
With every investment, addy members are given a plan of action set forth by the GP. This involves how the investment intends to make money and for how long. In some cases, a term may be two years, with the property expected to be sold. In other situations, the GP may not plan to sell at all, with annual distributions expected in perpetuity.
Investors at our Starbucks in Chilliwack and business park in Calgary have already seen several Owners’ Days where passive income is deposited in their wallet. If you want to join in the celebrations and make your money work for you, become a member to invest in available properties across Canada.
