Passive income is appealing because there’s no work involved in earning it.
Or at least, that’s what most people think.
We’re talking about the passive income earned from a rental property, limited partnership, or enterprise or business in which a person does not play an active role.
Portfolio income — dividends and interest — can also be considered passive income.
Compared to the income you earn from your job, passive income is relatively, well, passive. The money you earn is not solely and directly related to work that you are doing.
However, in his book, “The Millionaire Master Plan,” author Roger James Hamilton points out that for passive income to be lucrative, it has to be well-managed.
Hamilton says that too often, people pour most of their money into property or other assets, hoping that simply owning these will yield large amounts of easy money.
Here’s the step they’re missing: management.
According to Hamilton, if no one is managing those assets, values will drop, and instead of passive income, owners will have debt.
Hamilton uses the example of an apple farmer to explain the work that goes into having successful passive income:
It might look like the apple farmer has ‘passive income’ because his apple trees keep giving him apples, but it still takes time and expertise to nurture those trees. It’s the same with your assets: Choose assets with great care and factor in the true cost of choosing, managing, and selling your assets in your return.
Hamilton says that the wealthiest people are wealthy because they not only know their assets, but also know that those assets need to be watched and managed, whether that means keeping a close eye themselves or hiring someone else to do it for them.