Learn how to build passive income for financial independence. I have been creating passive income since 1999, when I realized I didn’t want to work in investing banking forever. Getting in at 5:30 a.m. and leaving after 7 p.m. every evening was too brutal!
Creating genuine passive income is the holy grail of personal finance. Once you generate enough passive income or semi-passive income, you are more free to do what you want. The key is to start building your passive income as early as possible. Start by identifying what you are building passive income for.
Not all passive income is created equal. Some streams take much more initial effort to start, such as saving enough to buy your first rental property. But once you start it’s very difficult not to gain momentum.
Everything passive first takes active energy. The time to put in the effort is when we are young and not ravaged by disease or burdened by family obligations. When you’re young, you can work much longer hours and still be good to go the next day.
I remember being able to snowboard from 9am until 4pm every day for a year. Now, I’m lucky to last from 11am until 2pm without wanting to go to the hot tub and drink a bucket full of beer!
If we can appreciate how lucky we are when we are young, we’ll be able to maximize our vitality and live financially freer when we are older.
What You Can Do With Sustainable Passive Income
- Retire early and travel the world.
- Start a business in a field you are passionate about.
- Find a job that pays less, but is more interesting.
- Stay at home to take care of your family without having to worry about money.
- Volunteer for causes you truly care about.
- Be a big brother or big sister.
- Spend more time with your parents.
- Sit in a coffee shop on a 80 degree day in Paris for hours on a Wednesday afternoon.
- Write the next great novel on the balcony of a cruise in the Mediterranean.
- Eat tapas and drink sangria until 1am on a Monday evening.
- Potentially live longer due to much less stress.
- Experience perfect endless summers over and over again.
- Write the next great personal finance book
There is so much you can do once you generate enough passive income to pay for all your living expenses. I highly encourage everyone to at least try. This post will provide you a framework for passive income success.
How To Build Passive Income: The Framework
Let me share with you eight key ways to generate passive income to eventually live a life of freedom. I followed this passive income framework to retire in 2012 with roughly $80,000 in passive income. Today, I have roughly $350,000 in passive income used to take care of my stay at home spouse and two young children.
1) Save Like Nobody Owes You Anything
If the amount of money you’re saving each month doesn’t hurt, you’re not saving enough!
Generating passive income starts with savings. Without a healthy amount of savings, nothing works. Your overall “Money Strength” will be an F- if you do not build a financial nut. In our current low interest rate environment, you must save even more than before. It’s important to also realize that the savings I am referring to is after-tax savings.
You need to save money after contributing to your 401k and IRAs since you can’t touch pre-tax retirement accounts without a penalty until 59.5. Ideally everyone should max out their pre-tax retirement funds first, but if you don’t have enough funds and want to retire earlier then a decision to have more accessible post tax money will still work.
What I did: Saved 50-75% of my after-tax, after 401K contribution every year for 13 years because I knew I could not last in finance for more than 20 years.
Today, I still save about 50% of my after-tax income mainly because I’ve been able to generate sustainable supplemental income from this site. If you stick with things for a long enough time, you may surprise yourself on the upside.
2) Find Out What You Are Good At
Everybody is good at something, be it investing, playing an instrument, playing a sport, communications, writing, art, dance and so forth. You should also list several things that interest you most.
If you can combine your interest plus expertise, you should be able to monetize your skills. A tennis player can teach tennis for $65 an hour. A writer can pen her first novel. A finance buff can invest in stocks. A singer can record his first song.
The more interests and skills you have, the higher chance you can create something that can provide passive income down the road.
What I’m doing: I love to write and invest. Combine these two interests with my ability to get things done equates to multiple investment types and this personal finance site that generates revenue.
Once you retire, it’s a good idea to try and make supplemental retirement income from something you are good at. You want to have purpose and relevancy in retirement.
3) Create A Financial Plan
Mark Spitz once said, “If you fail to prepare, you’re prepared to fail.” You must create a system where you are saving X amount of money every month, investing Y amount every month, and working on Z project until completion.
Things will be slow going at first, but once you save a little bit of money you will start to build momentum. Eventually you will find synergies between your work, your hobbies, and your skills which will translate into viable income streams.
What I’m doing: I use this site to write out goals like 1) Generating $300,000 a year working 4 hours a day or less, 2) Trying to make winning investments, and 3) Keeping track of my passive income streams with free financial tools. My site and the community helps keep me accountable for progress.
It’s important I do what I say, otherwise, what the hell is the point? You should consider starting a site or at least a private journal. Write out your specific goals, tell several close friends and stick to the plan.
4) Treat Passive Income Like A Game
The only real way to begin your multiple passive income journey is when you are making active income. The initial funding has to come from somewhere. Hence, treat passive income as a game that has various levels. If you fail to achieve one level, it’s not the end of the world since you still have active income and can restart.
Further, a game is meant to be played with integrity. Using shortcuts (non passive income streams), someone else’s income as a supplement (spouse), or one-offs (capital gains) does not count. The primary purpose of any game is to bring enjoyment to the player and beat the boss.
What I’m doing: I view passive income as funny money to keep myself sane during this long journey. The dollars created are just points one can accumulate.
I’ve made passive income goals for each passive income type and check in at least once a year like I am now to make sure I’m on track. Passive income is also carefully managed to minimize tax liability. When you can build a buffer for a buffer, you are then free to take more risks.
5) Determine What Income Level Will Make You Happy
Building passive income is great, but you need to have a reasonable target. Otherwise, you’ll just be building passive income for its own sake. You need a purpose.
Think back to when you made little to no income as a student. Now think back to the days when you just got started in your career. Were you happy then? Now go over every single year you got a raise or made more money doing something else. How did your happiness change at all, if any?
Everybody has a different level of income that will bring maximum happiness due to different desires, needs, and living arrangements. It’s up to you to find out your optimum income level.
What I did: I first identified my favorite places in the world to live: San Francisco, Honolulu, Paris, Amsterdam, New York City, and Lake Tahoe. I then looked up the median rent and housing prices for each city. Then I factored in private education costs for two kids to be conservative given I may not have two kids and public schools are often good enough.
After calculating all vital costs, I then did a self-assessment of how happy I was making $50,000, $100,000, $150,000, $200,000, $250,000, $350,000, $500,000, and $750,000.
I decided working 25 hours a week making $300,000 a year was the best income balance for maximum happiness to provide for a family of up to four. Below is a sample family budget making $300,000 a year.
6) Always Remember That Everything Is Relative In Finance
The best way to determine worthwhile passive income streams is by comparing the likely return (IRR) with the current risk-free rate of return. The risk-free rate is currently around 1% (10-year bond yield). Any new venture should thoroughly beat 1% otherwise you are wasting your efforts since you can earn 1% doing nothing.
What I’m doing: My realistic net worth growth goal is to have a blended annual return of 3x the risk free rate. With a current 3.5% hurdle, I am not paying down mortgages that cost less than 3%. It really is nuts to have mortgage rates under 2.5% nowadays.
My realistic blue sky scenario is a 5X rate of return over the risk free rate which can be achieved with property, stocks so far for the past five years, and certain private equity investments. In other words, a 5% annual net worth return in the new decade is just fine by me.
7) Never Withdraw From Your Financial Nut
The biggest downfall I see from people looking to build passive income is that they withdraw from their financial nut too soon. There’s somehow always an emergency which eats away at the positive effects of compounding returns. Make sure your money is invested and not just sitting in your savings account. The harder to access your money, the better.
Make it your mission to always contribute X amount every month and consistently increase the savings amount by a percentage or several until it hurts. Pause for a month or two and then keep going. You’ll be amazed how much you can save. You just won’t know because you’ve likely never tested savings limits to the max.
In my opinion, the ideal retirement withdrawal rate doesn’t touch principal.
What I Do: I’ve set up multiple investment accounts outside my main operations bank that deals with working capital e.g checking, paying bills. By transferring my money to a couple brokerage accounts and two other banks as soon as it hits my main bank I no longer have temptation to spend on frivolous things. As a result, I can wake up 10 years later and reap the rewards of compounding.
My 401(k) is the best example where consistent contributions over 20 years has grown to over $600,000 without any savings pain given it just became a part of life. Real estate is also a fantastic asset class for the long term. It’s fantastic to enjoy your home, pay down your mortgage each month, and end up with a paid off asset that has likely appreciated during your time of ownership.
8) You Must Force Yourself To Start
“A Journey Of A Thousand Miles Begins With A Single Step.” Laozi was a great philosopher who penned this popular English translation. Everything great started somewhere and you must set aside one day to tackle your financial independence goal. Circle the date on your calendar and cancel all other distractions.
What I did:The first two years of work in NYC was brutal. I told myself there was no way I could work on Wall St for my entire career because I’d probably die from heart failure by age 40. Having an early death in my mind willed me to save 50%+ from the first year onward and devise a CD, real estate, and stock investment distribution system for my savings every year.
I thought about starting this site for at least a year before I hired someone from Craigslist to give set me up and push me forward. Hiring someone to get started is totally worth it if you are a master procrastinator. You can now learn how to start your own site with my step-by-step guide to save yourself time and money.
Latest Passive Income Streams
Now that you know how to build passive income for financial independence, let me share my latest passive income streams. The goal on Financial Samurai is to always put ideas into practice.
We have used our passive income streams since 2012 to slowly build the life that we want. Our passive income was around $80,000 in 2012, which allowed me to retire early. By 2015, our passive income had grown to about $150,000, which enabled my wife to also retire early.
Today, our estimated passive income is around $300,000 so that both my wife and I can by stay-at-home parents. Our kids are only two and five, which means they need lots of love and attention.
I do not include my online income from my business other than my severance negotiation book because writing takes a lot of work.
Below is my latest passive investment income streams, with a focus on real estate.
* I use Personal Capital to track all my finances in one place. It’s much easier to use their free software to follow 28 accounts on one platform than to log into various accounts to check my balances. They’ve also got great tools for x-raying your portfolio for excessive fees, recommending a more optimized asset allocation, and planning for retirement with their Retirement Planner.
Stock Dividend As Passive Income
Dividend income is wonderful because it is completely passive and is taxed at only 15% if you are in the 25%, 28%, 33%, and 35% income tax bracket. If you are in the higher income tax bracket you will pay a 20% tax on your dividends.
My dividend income portfolio mainly consist of dividend equity and bond ETFs such as DVY, VYM, MUB, TLT, and IEF. Total stock and bond income is almost $100,000 a year due to a heavy accumulation of stocks and municipal bonds after selling my house.
Please read The Proper Asset Allocation Of Stocks And Bonds By Age to learn how to best structure your investment portfolio by age. The article goes through the very important “why” so you can invest more confidently for your retirement.
Real Estate Rental Income As Passive Income
I currently own three rental properties in San Francisco, one vacation rental in Squaw Valley, Lake Tahoe (2/2 condo), and my primary residence.
Real estate is my favorite asset class to build wealth because it is easy to understand, tangible, provides utility, and rides the way of inflation. I recommend individuals try and get neutral inflation by buying their primary residence as young as possible. The power of inflation is just too hard to counteract.
If you own physical real estate, consider refinancing your mortgage if you haven’t done so in a while. Mortgage rates in 2020 have fallen to six-year lows, even after a 10+-year bull market.
Other Passive Income Sources
How To Engineer Your Layoff – In 2012, it took me four months of absolute focus and two years of data to publish my first e-book about helping people negotiate a severance.
The book went through over 30 revisions by four people. Then I updated the book for 2021 with 80+ more pages (200 pages total) using more successful case studies and highlighting more strategies for those who want to break free with money in their pocket.
If you want to make some extra money at home, self-publishing your own ebook could really help.
The book now generates about $42,000 a year in passive income and has helped numerous people walk away with nice severance packages and healthcare benefits so they can pursue their dreams. Below is a snapshot of my Paypal account highlighting books sales.
I’ve also written a traditionally published book with Portfolio / Penguin Random House called Buy This, Not That. If the book sells more than 22,000 copies or so, it will begin to generate royalties. BTNT will be the best personal finance book on the market. I hope you all buy a copy!
Venture Debt As Passive Income
I invested $120,000 in my business school friend’s venture debt fund. He started his own after spending 8 years at one of the largest venture debt funds as a Managing Partner. I’m very focused on income generating assets in this low interest rate environment. The true returns are yet to be seen, as the fund has a 5-7 year life before it returns all its capital.
Real Estate Crowdsourcing Is My Favorite Source Of Passive Income
After selling my SF rental house in mid-2017 for 30X annual gross rent, I reinvested $550,000 of the proceeds ($810,000 total) in real estate crowdfunding, $600,000 in dividend stocks, and $600,000 in municipal bonds.
My goal is to take advantage of cheaper heartland real estate with much higher net rental yields (8% – 12% vs. 2% – 3.5% in SF) and diversify away from expensive coastal city real estate.
As of 2022, I’ve invested $810,000 in a portfolio of 18 different commercial real estate projects across the country through real estate crowdfunding. My investments have returned over $624,000 in passive income so far.
My favorite platforms are Fundrise and CrowdStreet. They are the two best real estate investing platforms today.
Fundrise enables investors to invest in private eREITs for diversification and exposure. They have over $2.5 billion under management where their experts invest in real estate opportunities for you. Fundrise is my favorite platform because it has funds that invest in single-family and multi-family properties in the Sunbelt. The Sunbelt has lower valuations, higher cap rates, and solid demographic trends.
CrowdStreet offers individual real estate opportunities mainly in 18-hour cities where valuations are lower and growth rates are usually higher. CrowdStreet occasionally offer specialty funds, like a Build-To-Rent or Industrial fund, which are always very intriguing.
There is a multi-decade demographic shift away from expensive coastal cities and into the heartland of America due to lower costs, the rise of remote work, and technology that enables telecommuting. I believe secondary cities like Memphis, Austin, and Phoenix will outperform cities like New York City and San Francisco.
What About Other Income Streams?
As part of the Passive Income Framework section, we are playing the game with integrity. It’s no fun beating the Big Boss with a cheat code or super weapon that annihilates all enemies with one click of a button. The goal is to develop income streams that keep rolling in if we do nothing at all!
Income streams that don’t count:
Capital gains: Unless you can repeatedly sell stock for profit, capital gains is a one off item. It’s just as easy to lose money in the markets as it is to make money. Therefore, stop pretending like you are Warren Buffet. Although, there’s a chance you might have recurring capital distributions if you invest in private funds. These distributions could be considered passive income.
Freelance writing: Quality freelance writing takes tremendous effort. Ironically, the better the quality of your writing, the more you don’t want to freelance. Instead, you just want to keep the articles for your own site. Freelancing is a great way to earn side income, however, it’s not really for me. I know that if I’m ever in the dumps, I can make some extra money freelance writing.
Financial Consulting: I used to do four financial consulting sessions a month on average for $1,500 each session. In 2018, I stopped in order to focus on taking more care of my son and now daughter.
Selling anything: If I decide to one day sell my Roberto Clemente rookie card for $800, I’m not going to include this in my passive income streams because I’ve only got a couple of them. Same thing goes for selling a watch or electronic device.
Blogging: This 3,500 word post has taken around 22 hours to write with a dozen revisions. Content does not magically appear out of thin air as some might believe. It takes a tremendous amount of effort, consistency, and creativity to come up with helpful and interesting content. That said, I enjoy blogging so much and I commend everyone to start their own site.
Build Passive Income Already
“He who fails to plan is planning to fail.” Winston Churchill
Now that you know how to build passive income, you’ve got to get going. Building passive income takes a long time. The key is to create a plan, save as much as possible, and just get going.
Start investing in assets where you are most comfortable. Always start small and work your way up. Also consider creating your own income producing products.
Do something long enough and good things will happen. All the best in your passive income journey!
Favorite Passive Income Investment
Once you’ve purchased your primary residence you are considered neutral real estate. Since you have to live somewhere, you will simply ride the real estate cycle. To be long real estate you must own investment property in addition to your primary resident.
Currently, my favorite passive income investment is real estate crowdfunding. Once I had my son in 2017, I decided to sell my PITA rental house and reinvest $550,000 of the proceeds into real estate crowdfunding. The goal was to diversify my real estate holdings across lower-cost areas of the country and earn income 100% passively.
Track Your Finances Carefully
One of the best ways to build wealth is by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place. This way, you can optimize you finances.
Before Personal Capital, I had to log into eight different systems to track 28 different accounts to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing. I can also see how my net worth is progressing and where my spending is going.
One of their best tools is the 401K Fee Analyze. It has helped me save over $1,700 in annual portfolio fees I had no idea I was paying.
They also launched an incredible Retirement Planning Calculator. It pulls in real data from your linked accounts to run a Monte Carlo simulation to output the most likely results of your financial future. I strongly suggest you run your own numbers. Play around with the income and expense variables and see how you stack up. It’s all free and easy to use.
How To Build Passive Income For Financial Independence is a Financial Samurai original post. I’ve been writing about achieve FIRE since 2009. To learn more about building passive income, here are the best passive income streams ranked using multiple variables.
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Oh my goodness passive income is the dream! I started small with stock photography from my phone earning a few dollars every month but hoping to get to the point I can do real estate.
You mentioned both your own rental property you sold and Fundrise. Did the returns from Fundrise come anywhere close to the returns from your rental property?
-Andrew
Love your blog. However, I can’t seem to get started with ACTIVE income. Just turned 38. Very little savings under 5K and no job because of the pandemic. Even in pre-pandemic times I was working way too much and making so little. I live in LA. Wages are low out here. I know this but I went to school at USC. The process of finding a decent job has been impossible. I’ve worked plenty of temp jobs. I find TEMP work to be a revolving door of job to job without actually getting hired. I did two years at a University as a temp before I quit. Actually I’m finding higher education was the WORST decision I have ever made. Clown college probably has more of an ROI than what I studied. Lesson learned. I also just went through bankruptcy. Can it get any worse? I may leave LA but I have no idea where. Seems like the “grass is greener” is a relative term. I did try an East Coast city and that turned out to be a disaster. Let’s just say California is a dirty word out there.
Hi Travis- why aren’t you moving if your location isn’t good?
after college, at the age of 32, single mom, and 105 rejection letters, I couldn’t find a decent job. I moved 2800 miles- it was the best thing ever.
Curious, why don’t you move.
I have virtually no relationship with money , and never have. I’m retired, 69 and living now with my daughter. She and her husband are slowly introducing me to the concept of having a healthy relationship with money. They earn a lot of income and are working on building a passive income.
All this is a foreign language to me, but I’m slowly grasping that money isn’t evil, nor are people that want and have it. I’m late to the game yet I’m determined to understand money and allow it into my life. Perhaps more later. Your article was somewhat understood and very much appreciated. Thanks
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Thank you for the insightful article. Presently working on the active income and starting capital. Do you have any advice on increasing active income?
Take all your profit from active income and start investing in yourself. Also, create a blog or a youtube channel talking about your field `cause others novices have tons of questions about your market/service.
Hi Sam,
Thanks for the good articles, website, and work that you do. I’ve been coming to your website more and more often to learn and get good ideas. Quick question, aside from Personal Capital, how did you build your passive income report? I don’t see in personal capital where it kicks out that kind of financial summary. Are you using that software or another to generate the quarterly and annual reports? Thanks!
Dear Sam, I hope your readers really understand the totality of your story. After, reading some of the comments I am not sure many do. Here it is in in a nutshell.
Diversify safely but DIVERSITY. You do not need to get the best and highest return all the time. If so, you are not earning passive income you are earning active income which is taxed differently (see IRS.GOV passive -vs- active income definitions). As an investor you do not need to be chasing ‘the almighty dollar’. This is a losing proposition. Make the dollar come to you.
The CD is one of the most effective ways to create passive wealth over time and has been used by investors for generations. Ask your grandparents; it is highly likely they own CDs (TDs) with their local bank or Credit Union. This is done by creating CD ladders to maximize effectiveness. Most Bank and Credit Union CDs have zero fees attached unless you cash out before maturity.
My tip: If you have not yet, look into doing business with Credit Unions. You maybe pleasantly surprised by the great financial products they have and low to zero fees. Have fun!
Great read! How is your blended CD rate 3.75% if the highest CD right now is 2.5%?
Great question! It’s not now. The best CD I have, which is actually great for its term, is the CIT Bank 12-month CD at 2.5%. I used to get 3.75%, but my old CDs rolled off.
You describe a life w/o $100,000.00 in student debt. No one in their 20s have 20% as a down payment. The life you describe no longer exists. Assume you are 25, have $100,000.00 I student debt, live in S.F. and need 20% to buy your first piece of property, how would you do this? You are lucky because you were born before everything went to shit.
Charles I agree and I’m alder than Sam ! Sam the one thing is that you are lucky to have had the fortitude to see the future and using your reitrement to raise your child .. I have 3 sons I love so much .. cherish ever moment and one grandson now – but had to work along w then husband when they were younger … as do most people — you have set up a great model / however people have children in their 20s and 30s …so there has to be a model similar to yours that address’s raising children when working
And yes what you do sounds like more fun !
I definitely agree with you. I’m a 21 year old and I can tell you without doubt, MOST people my age and up to late 20s can’t even dream about buying a house anytime soon. Especially in larger more expensive areas and how fast the market keeps spiking every month. However, I know it can be possible.
My husband is 23 years old. About one year ago, he relocated to a different state that is more family friendly and DEFINITELY more cost friendly than our hometown Portland, OR. We did have to get some help from his parents for a down payment, but we were able to purchase our first home. So, at the young age of 21 and 23, my husband and I are homeowners.
We really don’t make a ton of money and have to budget a lot and rethink our priorities often, but we think it was a great investment and is giving us a good leg up for our future. We’re working our way towards more passive income and financial freedom.
Our budget sure is a little tight at the moment, as we’re still in entry level jobs and working our way up with sources of income, but owning a house is possible and very rewarding!
Actually I’m living proof of having $110k in student debt after college. Paid it off in 2 years by working my tail off, and then I saved up a down payment on a home by 28. I just passed the $510k mark in net worth. The only thing I can advise is the attack that debt and get interest working on your side. You can’t start passive income until the student debt is gone. The interest rates on the debt is often higher than the rate you will get from passive income.
Pardon for being a bit of a newbie to true investing outside of a 401k. What about those of us who have 1) Just been laid off, and unable to find work due to lack of a degree (apparently 17 years in the industry with 5 certifications is just simply not enough – which is okay. It gave me the kick in the arse to get back to school finally) 2)Have three children to support (age 11 and under), and 3) Oh yeah – cannot find work. What do you recommend when the only source of positive revenue has ceased to come in and you now have less time than ever – due to responsibilities (i.e. doing well in university = academic scholarships means investment in time, plus spending 20 min breaks with kiddos) – to create positive sources of income ? I truly am wondering from an investor’s point of view how you would handle the pivot point of life if ever you had been faced with it. I realize this may be only imaginary, but at this point, I welcome your “what ifs” scenario on this one. You’ve truly done amazing work and I thank you for being so transparent.
Passive income building has become a major goal of mine recently. As a 30 year-old, I already allocate roughly 50% of our household income into investments. While I have several sources of passive income already, they don’t provide anything close to my eventual goal. I admire the work you’ve done to reach this level of independence.
One thing I’ve realized is this: It’s FAR easier to work for an employer than it is to develop durable passive income streams for the average person. Why? Because working for an employer in a place that “needs” you means that it’s possible to show up and give a 50% effort. You can show up, put in your time, go home, have a beer, watch TV, and rinse and repeat all without REALLY having to put in the effort.
Developing passive income is different. With the exception of one of my passive income streams (cryptocurrency mining), all of the others require real, hard work. Truly, I understand the barriers for people getting into building alternative income streams. I would say that most people WANT passive income, but truly aren’t willing to put in the blood, sweat, and tears to make it happen.
However, I think for those who are willing to do what it takes, the sky is the absolute limit. As an example, I’m trying to take a page out of FinancialSamauri’s book and create an online personal finance and investing blog. It is an enormous undertaking, and as a new blogger, there is a seemingly endless amount of work to be done. That said, I hope that one day I can not only generate some passive income from the hours of work I have put and will put into the project, but I hope to be able to help OTHERS reach their financial goals.
Great content — Thank you for sharing!
Question: You mention receiving $200k of passive income a year, but your chart shows half of that coming from real estate holdings, and reading between the lines it appears that you hold mortgages against those holdings. Then you conclude that $200k/yr of passive income should be enough to live comfortably anywhere in the world. So are you subtracting your real estate expenses (taxes, insurance, mortgage payments, maintenance, remote property management company fees, etc.) when you report your passive income from those properties? Really I think it’s the net (after taxes and everything) that tells us what is left over to “spend” on living, right? When I set up my spreadsheet to retire early at age 47, I calculated the after-tax income I would need to live. Then I compared that to my income streams (estimating tax on the taxable income streams) to measure the surplus/shortfall. Also some good advice from GoCurryCracker: If you can minimize your taxes so you’re in the 15% tax bracket, you can possibly receive tax-free long term capital gains. I agree with your philosophy that time is more important than money as we age. I am not sure I agree with a philosophy that is fixated on needing such a large income, and would rather minimize taxes if it’s all the same on the happiness meter. Furthermore, having 20 plus income sources in the name of diversification adds stress and requires more management (TIME!). I think this is fine for those of us while young, as we have the energy to work hard. But as time becomes more important, the extra headache of managing, planning, and buying/selling our assets becomes a resented hindrance on par with the resentment we felt when working for an employer and fighting traffic each day to go to a job we hated. Every thing we own in actuality owns us, by virtue of its demands on our time and affections, and that includes investments. It also includes our home, and is a good reason for downsizing. As long as we have food on our table, a roof over our heads, and clothes on our bodies, what more do we need? I think we need to consider freeing ourselves from the weight of the chains of managing too many ventures. Personally, I plan on investing in no more than 5 simultaneous ventures ever, with the exception of some IRAs that I just plan to let sit for the next 20 years (and therefore no thought or anxiety required).
Yes, the real estate income is after all expenses. For example, one of my rental properties was grossing $9000 a month. Then I sold it this summer to simplify life.
I’ve been thinking about selling rental property for years now and I’m glad I waited until this year. You can read the post here: https://www.financialsamurai.com/why-i-sold-my-rental-home/
When I was 34 years old and left corporate America, I had a lot of time to manage my semi passive investments. But now that I have a son, I don’t want to spend any minute doing something that’s not with him.