The Passive Income Myth

Introduction – Passive Income Realities (0:00)

Brian: Passive income sounds pretty nice. I mean, who doesn’t love the idea of mailbox money? But the truth is, most passive income strategies aren’t all that passive, and you might even lose money. Today, we’re going to look at three common passive income strategies, what the data says about each one of them, and what we think as well. With that, let’s jump right in.

Strategy 1: Real Estate Rental Properties (0:20)

Brian: First up, real estate, specifically rental properties. It’s easy to see why so many people are drawn to this. The BRRRR method, for example, you know what that is? That’s buy, rehab, rent, refinance, rinse, and repeat the process, has become a very popular strategy. The idea is pretty straightforward. Buy a property below market value, often in distress or in foreclosure, rehab it, renovate it to increase its value, rent it out to generate cash flow and cover expenses, and then refinance based upon this new, higher value to pull out your initial investment. And then you repeat the process with another property using the capital you’ve already just freed up. That’s pretty scalable and it’s attractive. In fact, a lot of talking heads consider real estate to be the premier investment. Turning a liability into an asset. And the fact that you can actually see the asset makes it an easy concept to understand.

The Reality of Real Estate (1:20)

Brian: But here’s the thing. A lot of people think it’s hands-off, just buy the house and the money starts flowing in. In reality, it’s a lot more complicated than that. Home ownership and a real estate portfolio are anything but passive. A self-managing landlord spends on average 12 hours a month managing their properties. That might sound nice, but most landlords don’t replace their full-time income until they’ve had at least five to six properties. So, in addition to working your full-time job, now you’re taking on this real estate venture and all the labor that comes with it, like repairs, maintenance, and even finding tenants. I actually love real estate. Bo and I are eight-figure real estate investors. We own homes. We own multiple commercial real estate ventures, but it takes a lot of time and capital, especially early on. If you’re going to take the plunge, make sure your finances are in the right place to do so, having deep enough pockets to cover all of the unknowns and make sure you can pay the mortgage without OPM. What is OPM? That’s other people’s money. If you don’t have that covered, you are too early to the game. And you will find out that the game of big bank taking assets from little pockets is no fun at all. If you have rental real estate, let us know in the comments below what your experience has been, and make sure you subscribe so you don’t miss out on our future real estate videos.

Strategy 2: Starting a Business (2:47)

Brian: Another avenue people explore in search of passive income is starting a business. I might know something about this too. Businesses on average take 2 to 5 years to become profitable. And that’s 2 to 5 years of long hours and definitely hard work. When I started my business, it took a lot out of me. There was nothing passive about it. And it’s not the surefire thing a lot of course selling gurus make it out to be. According to the Bureau of Labor Statistics, only about 35% of businesses actually make it to the 10-year mark. And more than 1 in five new businesses failed in just 2024 alone. Bottom line, starting a business is not for the faint of heart. There will be cash flow disruptions and unforeseen headaches all requiring your time and definitely your attention especially in that building phase.

What Business Ownership Requires (3:40)

Brian: Again, our goal here is not to dissuade anyone from the very rewarding path of entrepreneurship. But a business takes some serious time. It takes seed capital. That’s the cash to get you through those first rough years. And maybe most importantly, you need passion. Without a strong why, you run much more risk of burnout and ultimately failure. And there is nothing wrong with a regular nine-to-five. It can most certainly provide you with a path to wealth. We do an annual wealth survey of our clients here at Abound Wealth every year. And over 76% of those millionaire clients classified themselves as just regular old savers and investors, not entrepreneurs, not prodigies.

Strategy 3: Investing (4:23)

Brian: Which brings us to the third passive income strategy. That’s investing. This is a much more different approach than the first two passive income strategies. It’s accessible to almost anyone. You don’t need to be wealthy or have special skills to get started. You can start small and automate contributions through retirement accounts or brokerage apps, making it automatic for the people, if you know what I mean. You don’t need to manage tenants. You don’t need to run a business or deal with day-to-day operations. It feels truly hands-off. You put the money in and watch it grow. And the good news is it probably is the closest thing to actually passive investment.

The Power of the S&P 500 (5:00)

Brian: If you take away one stat from this video, I want it to be this. There’s never in the history of the S&P 500 been a 20-year period where the annualized return over those two decades was negative. If you’re wondering what does that mean in plain English, if you invested in the S&P 500 and were consistent and disciplined enough and held it for 20 years, you historically would have made money every single time, no matter when you started, whether it was bad times or what. Now, this obviously doesn’t have that sexy sizzle or shiny label that other strategies have, but that’s why it works. It’s boring and it takes patience, but if you do this early and often enough, you will be successful.

Closing – Discipline, Money, and Time (5:40)

Brian: The truth is that any form of what’s labeled passive income is going to take a lot of discipline, likely a lot of money, and definitely a lot of time. So, be prepared for that. And don’t get sold into false narratives that you can just buy someone’s course, click a few buttons, and have a six-figure business running in the background. Do your research, have a plan, measure twice, cut once, and you will find success. If you want to know more about investing, I want you to click right here. And as always, keep building towards your great big beautiful tomorrow.