Top 4 Investments That Create Passive Income #passiveincomeideas #passiveincome

Hey guys, Toby Mathis here. And are you tired of living paycheck to paycheck? And would you rather have income sources that come in regardless of how much you're working, how much time you spend into it? If you are, then this is the right place. We're gonna go over four categories and I'm gonna just call them four investments, but they're really big categories that cover distinct types of investments that will allow you to have income sources coming in, multiple sources of income, so that you don't have to work and that your money and your investments are actually doing all the work. So let's start with number one. You ready? It's real estate. And we're not just talking about going out and buying single family property. So that is obviously the biggest category is going out and actually investing in rental properties that pays you, tenants do all the work for you basically, right? You buy the property, the property is available, somebody rents it and they pay you for that property. Great tax benefits with the depreciation. If you've been watching my channel, you know that there's a lot of ways to avoid having taxation on rental income. We're talking about residential, commercial, single family, duplexes, apartments, all these things under one big, storage, syndications, anything where you are renting a property is number one. Number two is let's say that you don't want to be an investor. And I'm saying underneath the heading of real estate. Number one is actually owning the property yourself. Number two might be owning a REIT, which is a real estate investment trust, which is actually they trade just like the stock market. You go out there and get Federal Realty Trust or O or any of these, where your PS for public storage, you could go out there and buy real estate without actually having to manage it yourself and without actually putting yourself at risk. And so then you're investing in there and they're paying you out the profit and you're getting cashflow every year. These are usually great little stocks. They're not like your Amazon where they're gonna go up to the moon, but they're literally buying real estate, investing in real estate and paying you out. They're good little cashflow machines. Other type of category that I would go over would be things like Airbnb, short-term rentals, things where you're doing vacation rentals. You might be able to get more depreciation. You might be able to get ordinary loss treatment on some of that simply because of the type of investing that it is. If you're seven days or less, technically it's no longer passive investment real estate. It can actually qualify as a traditional trader business, in which case, if you materially participate, those losses could actually offset your W-2. Very interesting category. We use it with high income folks. We call it the short-term rental loophole. The last one would be, hey, I wanna invest in things. I like REITs, but I'd like to be a little more aggressive. Maybe I would like to get, instead of having a lot of expenses and administrative expense associated with some of the REITs, where they're running like a company, I just want to invest in a bunch of different projects, and I don't wanna just do syndications. In that case, you might do something that's kind of like crowdfunding. Some of the big ones are like Fundrise and Realty Mogul, where you, along with a bunch of other investors, are participating in buying the investments itself inside of these vehicles. Again, a lot of these have some similarities, right? We're investing in something that's gonna create an income stream, but you have multiple choices, from owning the real estate yourself, different types of real estate, going through a REIT, going through a crowdfunding, and then even investing in a specific type of real estate that might create some tax benefits as well. There's also things like co-housing and shared housing, residential assisted living, things that can actually go into a category of even being called charitable activities, where you could actually run them through a 501c3. So there's all sorts of things under the gamut, but the big heading is our friend, real estate. That's a big way that a lot of folks make income while they're sleeping, without having to engage in a lot of activities. Number two, not a big surprise for you guys, stock market. And there's lots of different categories for investing in the stock market. Some of you guys know my feelings on it, you've read my book, Infinity Investing. In fact, if you'd like a copy, an electronic copy, just type in free book down in the comments below, just type in free book, and I'll give you a link so you can download a free copy of Infinity Investing. But if you paid attention to Infinity Investing, you know my mantra is simply like this, figure out what your expenses are, and then create enough income streams that create enough money to cover those expenses so you never have to work again. The day that you hit that, where you have enough money coming in from your passive investments, that you don't have to work, you're at infinity, meaning that your estate will never get smaller. These things are built in for inflation and things like that, like rents go up, profits go up, all these things when inflation goes up. So it's built in to allow you to continue to exist for an infinite number of days where you no longer have to sell things off when you retire. Unfortunately, a lot of financial advisors still like that 4% rule, where they're depleting your account and assuming that you're gonna live 30 years when you retire, we don't play that. We don't want you to touch it. So the stock market becomes our friend, but not just any stock. Like a lot of times you hear about people going, oh, I wanna do growth stocks, I wanna be the next Nvidia. No, we want boring dividend producing stocks that we can write covered calls on and make multiple types of income. We don't wanna just hope that it goes up and that we make money off of that. So dividend stocks really become our big one. And we love dividend kings and dividend aristocrats. People say, what the heck is that? We've never heard of these terms. A dividend king is a large company that is over a billion dollars in market cap that has been paying increasing dividends. Every year they pay out the profit to the shareholder. The amount they actually pay up goes up. So the amount that they're paying out goes up year over year over year, every year for 50 years. And there's a little over 20 companies that meet that criteria. That's your Johnson and Johnson's, your Coca-Cola's and Altria and things like that, where they are just constantly paying out their profits to the shareholders. Now you say, but I like the Nvidia's, I like some of these. You can still invest in those, but you're not gonna live off of those. Because what they do, that's called a growth stock, is they reinvest all their money. They hold their cash. They're not paying it to the shareholder. What happens when a company pays its cash out to its shareholders is its value drops because it paid you. If the value is going up because they're not paying it out, you didn't get the money. You don't have access to it. They have all that cash. I'd rather you have that cash, which is why I like dividend stocks. And if you like those types of stocks and you say like, hey, but I don't wanna go out and research them individually, then do a fund, like there's really good ones. I'll give you a couple. Kevin Simpson, good guy, great book, Walk Towards Wealth, had a ETF. It's called Devo, D-I-V-O. He and I think a lot alike when it comes to dividend stocks and writing covered calls. It's a great little fund. Double digit returns, that's its inception. And it pays you dividends as well as its writing covered calls and increasing the value of the portfolio. Another one would be Schwab's US Dividend Fund, which is S-C-H-D. I should actually, there we go, S-C-H-D. You also have the ProShares Dividend, S&P Dividend Aristocrats, N-O-B-L. And you have high yield funds like JP, which is JP Morgans. But these are all companies or funds that own multiple companies. In other words, it's a bucket of stocks that somebody else is managing that focuses in on companies that are actually paying out dividends. Other things you could do, you just say, hey, you know what, Toby, that's great. I love the idea of dividends, but I want some of the growth stocks too. Then great, then go do ETFs. You do your index funds where you're buying big groups. There's First Eagle. Friend of mine actually has been there for over 30 years and they have $150 billion in their mutual fund. I'm typically not a big mutual fund guy. But they finally, in December of 2024, came out with an ETF and it's F-E-G-E. If it's anything, that's a value investors fund. They do gold, they do internationals. Great company, great fund. I never really liked the mutual funds just because they're so fee heavy and because so many financial planners or advisors slap commissions on top of it that you're paying them just to hold that. Now you could skip that and go right to the ETF. That's another good one. And an ETF is just a bucket of stocks, but you could actually see what's in there. Mutual funds, we could never, they don't have to publish what's actually in there. So you never know. And then the last one that I would say is doing something that's like a covered call ETF where their focus is on volatility where if you don't know what a call is, it's when you sell an option for someone to buy your stock. Generally speaking, it's out of the money. It means that you're selling them the right to buy your stock at an amount greater than what you paid for it. So even if you sell somebody that, let's say I bought a stock at $10 and I sell you the option to buy it at $11, stock goes up to 12, I get the money that they paid me for the option to go to 11 and I get the difference between $10 and 11. That's a very simplistic way to put it, but it's called covered calls and it's income stream. So when you have a ETF or a fund, like there's a couple, let's say there's the global NASDAQ covered call, QYLD, Devo's another one that I just gave you on the dividends, but they also do covered calls. Global X S&P covered call and growth ETF, XYLG. All of these are based on making income by selling that call. And what you're doing is instead of just buying a stock and hoping that it goes up, you're using that stock to produce income. So a lot of times somebody buys Nvidia and they hope it goes up. Yeah, and you sell it and you make money one way. You got the game. What we like is when people do something like a cash secured put to get into a position, they get paid the option premium, they get the stock, then they harvest the dividends. So they're getting paid a second way and then they're selling a covered call. And then if they get called out, they also have that gain. So they made money four ways on the same stock. That's what we like. We like the cash flow. So there's another one, that's number two. So real estate was number one. Stock market is number two. It's just an interesting way to create cash flow so that you can cover your expenses. I'm not a big fan of just sitting on a portfolio and hoping that it goes up because I can't live off of that. The only way I could ever access that money is to either sell it or lever against it, borrow against it. And it's very difficult. So my big hope is that you buy things with the hope and understanding that you're creating an income stream from it. And then you use that income to live off of. And again, once you have enough income coming in, like off of these two, if it covers your expenses, you're good to go. You never have to sell anything ever again. And I'll never tell you not to buy a nice car. I will say, don't buy a car with your labor. Let these things pay for you, really. If you want a Ferrari, go get some rental properties and have a nice dividend portfolio where you're getting some covered calls. All right, number three, we're gonna call it, I'm just gonna call it business assets. Having a business. And we're gonna talk about very specific types of businesses, right? A lot of people immediately go and say, well, having a business is still work. Having a business that creates income streams because of something you do once, it's like what you're watching right now, YouTube, right? I could create a video and then it could be sitting there for 10 years making money, right? I did it once and it just keeps going. So things like a blog, creating YouTube, social media, anything where you're getting a commission because of the content you created, I like. Another type of business that I like are things where you buy something that then you're being paid to have it. So like vending machines, ice machines, maybe laundromats, even things like, this is gonna sound weird because it kind of crosses from real estate into business, but car washes, things, storage units, and there's no flushing toilets and things like that. It's a business. People are paying me to access it. So I like that. Some people do the ATMs. I'm not super familiar with those. I do have a lot of clients that do these others and they make nice little income streams constantly getting paid for very little, without much effort, and that's what we like. I'll give you one, and this is probably one of my favorites underneath that business, is to create subscription services. So you know that Anderson, one of the things we built was our platinum service, and that is just a beautiful way to work with clients. It's great for clients, keeps their bill low, keeps them paying over time constantly, and it keeps you in touch. It's kind of like a gym membership. That's another good one, right, where somebody's just paying for access. I like businesses like that, and there's a guy named Shane Sams. He's actually a friend. I've done videos with him. You probably find him out there, and he uses Kajabi for anything that you're passionate about or that you have an expertise on to create subscription services. So for example, his wife created a site where they created library plans for elementary school teachers. So instead of having to create their own library plan, you know, their teaching plan, she would actually publish it, and they would pay like 30 bucks a month to get it, and you ended up with, you know, hundreds if not thousands of people subscribing to that site, and all she had to do was one little bit of work and a whole bunch of people subscribed to it. He did the same thing with history. So history teachers could get their lesson plans, and they didn't have to create it themselves, but somebody else was creating it, and it's a very low cost, but because you have a whole bunch of people paying that low cost, it ends up being very effective. He also did it for football coaches with their playbook and everything else, publishing new playbooks every week during the season, coming up with new plays, so people are like, hey, I don't have to spend a whole bunch of time on that, and I'm getting great ideas. Here's an easy subscription service, and it's low cost. People kind of look at Netflix. That's another great model, right? Anything where you could put somebody on a subscription that is such a great value to them, and then you could lever that, and I use this example as an attorney. I could sit down with 100 people for one hour each. Costs me 100 hours, right? Or I could sit down with 100 people for one hour as a group, and it costs me one hour, and I'm levering my time. You could do that with subscription services, and it ends up working. It's how you use your time more effectively. I love businesses like that, and then the last one I'm gonna go over is alternative. Alternative investments, and this is where I get into things like micro-lending, peer-to-peer lending. You're using your Prosper or your Ground Floor, and you're making interest, and you're going onto a site that's saying, hey, you put $25 into this $5,000 micro-loan that's going to somebody, and it's a higher interest rate, and we facilitate it, and your total risk is 25 or 50 bucks or 100 bucks, whatever it is, but you're gonna get a higher interest rate. That's what these groups do, and it ends up working. Let's see, there's Lending Club, Prosper, Ground Floor, peer-to-peer. The other one that I like is Blackstone and Blue Owl. They create these private equity lending funds. You have to be an accredited investor on that one, but there are these funds where you're loaning money to the Fortune 500, or you're doing private equity or whatnot, but you're doing different type of lending, not using a bank, but you're doing peer-to-peer or peer-to-business in some cases. You could always go and just start doing your own note buying too. There are many people that are good at that where they're buying first trust deeds, or somebody has a note that they're receiving an income stream over time. You could actually calculate what that thing is worth. You could go out and buy it and get that income stream, and you might be able to get it at a discount. I remember running into this where I had a client that had about $100,000 note, an installment sale, and they were like, oh, I really want the cash instead, and you're able to sell it like $85,000 on it. And somebody else, they get this great note, it was a small interest rate, which is why it was discounted so heavily. Sometimes you could probably buy those a lot better, but it ended up like, hey, they needed the cash, they were in a crunch, they were able to sell that note. The buyer of that note now has that great income stream that they're gonna get over a period of time, and they're gonna get a great return on their money. You could do that too. You could be the buyer of those and go out and do it. The other ones that people have been using a lot lately when interest rates go up is high yield savings or CDs. I call these kind of alternatives. They're in a different bucket. They're very low risk and a simple interest rate where you're just getting interest income instead of capital gain and some of these other things. There's another one out there, for those of you guys who like crypto, you know that there's things like staking where you're using the credibility of your computer, of you buying this, and you get paid, basically, for staking and allowing your computer to be using these transactions. You get paid a little bit of money, you make a nice little staking income. It's not huge, but it's pretty darn safe. You're not exposing yourself. You don't have to buy an investment. You're just using that credibility in the blockchain. I'd be lying to you if I said I know how all this stuff works. I just know that I have clients that do it. I do it myself, and it makes you a nice little income stream. So I think Ethereum and DeFi products allow you to do that where you could make an income stream on the side. And then the last one, and this is a, sometimes to me it's a bad word. It's annuities, but there are situations when they make sense. I don't like the lack of liquidity on annuities, but if you are getting older or if you wanna make sure that you have an income stream that you never have to worry about, you can go out and say, I just want a steady income stream for the rest of my life. I think a lot of them, you can do two lives. So you could do a couple. You could do it yourself and a child, perhaps. But there's different products through different insurance companies and financial firms that allow you to do annuities where you know this is an income stream that I cannot outlive. With the annuities, it's always kind of the, I say if you die too soon, they win. If you live a really, really long life, you win. But at the end of the day, what they're able to do is factor it in and say, here's what the interest rate we can safely afford to pay you on your money, guaranteed. The only thing that you really give up on there, and it depends on the annuity, obviously, you gotta shop them around and make sure you're talking to a fiduciary. Do not just go to annuity salesperson. Go to somebody who is a CFP or a fiduciary whose duty is to you and look at these things and say, what's the cost? And if we get into a cash crunch and we need liquidity, what's the cost for doing that? That's usually the downside of annuities is if you are in a situation where your circumstances change and you need to get access to them, it could be painful. But those are the types of things that you could be investing in and say, hey, you know what? I do a combination of all four and I have these multiple streams of income coming in so that I no longer have to worry about depleting my assets during retirement. If that's attractive to you, I'm just gonna say this one more time, you could get a free copy of Infinity Investing, the ebook. All you have to do is go down in the comments below and type free book. Another thing is what is your personal favorite type of income source that would be one of these passive or did I miss one? And would you say, hey, Toby, this is one you should consider? Put it in the comments below. If you like this information, please subscribe. If you know anybody who would benefit from it, please share it. I'll see you later.