Every middle-class American should aim to achieve three types of passive income: dividends, rents, and royalties.
We ALL have access to these types of passive income; we need only make an effort to build these revenue streams as early as possible.
If you are a young person just starting in the world, which is the best way to start? Should you save to buy a home and earn rental income or build an income-investing portfolio? We will answer this question today.
Saving vs. Investing
Start with income investing. Every American should own an income-investing portfolio. Building a $1,000/month income portfolio guarantees you’ll never wind up on the street.
You can always find a room to rent and buy food for $1,000 per month. But how much money do you need to invest to achieve this level of passive income? And is it realistic to reach this milestone at a young age?
At a 10% yield, which you can achieve by understanding income investing, you will need $120,000 in your income portfolio.
Is it realistic to save this amount of money before you turn 30? Yes, just live at home with your parents. It’s becoming more acceptable to live with your parents during your 20s—just be a good adult (and human) to your family.
The Magic of Investing
Down payment vs. income investing. I can already hear you saying, “But Josh, I could use this $120,000 for a down payment.” You sure could, but your income portfolio will pay off more in the long run.
Unfortunately, there are many more expenses than your down payment when you buy a home. I own three houses, and they can be very costly.
Buying a home and saving another $120,000 for your income portfolio will be challenging. However, there is a way to achieve rental income and an income portfolio—renting rooms.
Renting rooms is the key to life. My wife and I are considering retiring this year. I will be 42, and she will be 39. We achieved this level of financial success by renting rooms.
The Magic of Savings
There is no purer form of income (passive or active) than renting rooms. If you can get past the human element, you stand to change your life entirely.
So, let’s say you buy a home in Alabama with your $120,000. Your remaining mortgage, interest, taxes, and insurance (PITA) are $1,200/month. You bought a three bedroom, two bathroom home.
You simply rent the master suite for $1,000, and viola, you’re rich. It’s genuinely that simple. I wish I were lying to say it is more complicated than that, but the proof is in the pudding.
She Only Wants You for Your Money
Our “room rental” story. In January 2019, my wife and I were $77,000 in debt. We decided to change our lifestyle and start renting rooms.
Four years later, in January 2023, we have zero debt, own three homes, have $300,000 in savings and investments, and have an income portfolio that pays $1,800/month. Wow!
The most lethal financial combination available to the average person is renting rooms to fund an income portfolio. I call this “creating infinite dividends.”
Other ways to earn rental income. There are many ways to earn rental income, but they will require more out-of-pocket expenses than renting rooms.
The Best Way to F.I.R.E.
If you have space in your yard, you can buy and rent a self-storage barn house or shed. Even bringing in $200 to $300 per month of rental income is life-changing.
You can also set up a rental RV hook-up, rent your parking space, host a billboard in your yard, or drop a tiny home or accessory dwelling unit.
Should you buy a rental house? You could buy a rental property if you are a more advanced real estate tycoon. However, you will need a 20-year plan for this to make sense.
I am “cash-flowing” on my two rental properties. However, there will always be some sort of emergency that will bring them back to breaking even.
Retirement Planning vs. Estate Planning
I’d much rather rent rooms at $1,100/month than have a massive home that clears $450. However, houses make great financial sense for a couple of reasons.
Your home grows in value, and you can harvest the home equity. More importantly, it ensures my kids already have a house each.
My kids will never have to go through the same trials and tribulations as us. They will have their own challenges, but at least they will have affordable housing.
Income investing over the long run. I prefer income investing before rental income because of the power of compounding.
The Passive Income Hero 2
Having a $1,000/month income portfolio going into your 30s will be game-changing. If you reinvest 25-50% of your dividends, your income will grow continually.
This money allows you to change jobs, start a family, and live your best life. This portfolio will be the genesis of great things in your life; it means freedom.
If you own real estate, it will tie you to a particular town or region. With remote work, you need to be flexible to move to the best small towns where you can make out-sized returns.
The order of operations. Knowing what I know now, I would start with an income portfolio at age 18. Heck, my 16-year son already owns income stocks.
Your Retirement Planning Guide 2
Once I achieve $1,000/month in dividends, I can focus on building a housing strategy. The best idea is to get a remote job and move to Alabama (or another smaller town/city/state).
Save for your down payment, buy a nice-sized affordable house, and rent one or two rooms until you are rich.
You should walk away from this situation with $5,000/month in dividends. Now, you can parlay your cash flow into a bigger and better home.
You’ll probably have a family, so renting rooms will be much more challenging. However, you can rent your first home for passive rental income.
Use Automated Business as Your Wealth Generator
Conclusion. Now you are 35 years old with a family. You have $5,000/month in dividends and a sweet remote work job.
Your spouse does not have to work, and they can homeschool your children. You have it all because you put in the hard work early in life.
It may sound unachievable, but this is possible. I am retiring from the Marine Corps this year, and my wife and I will never need to work again.
We made a simple choice that most people will never decide to follow—we rented rooms. We are reaping the benefits of a military pension, dividends, rents, royalties, and automated business.
Do the work, perform the research, and live life below your means, and I promise you will reap the benefits. You MUST be willing to do the things others can’t fathom. That’s how you become rich. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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