This is a bit of a silly question but its been teasing my brain for a while.
What is your definition of passive income, and in particular how do you measure it?
For example, if you have a property (wrap, rental or otherwise) that is producing $10K p.a in income, but has $9K in expenses, is your passive income $10K or $1K?
I guess what i’m asking is: Does the term ‘passive income’ refer to NETT income after expenses?
Thanks for your thoughts.
I would think about it in this way. If you were to retire/resign from your wrok today, what would be your disposable income be.
If you have investments in general that you are living off the passive income, its like you are running a small business. Therefore, it has to be revenue minus expenses.
In your example, this would be $1000
James
Jody,
I would think passive income would be net income. Think of it as you do your wages. We get a gross income and a net income, but we don;t have access to the taxed part (except after we see our accountants!! [biggrin]
Passive income is what will be put into your bank account per month after all expenses. play money, basically :o)
kay henry
Dont forget to do something with that passive income. If you have many years before you retire then you need to look at reinvesting the passive income from each property.Steve recommends splitting it 3 ways 1/3 back into the IP 1/3 into alternative investment such as shares and then 1/3 for you.
Think Ive got it right
RussSo many +CF properties in Western Australia.Let me help you. And we can achieve a win win situation.Russ.0438 659 411
I agree, I only look at the Nett income as being my passive income too as that’s all I’d have available to live off.
PK
I agree it is the net income that is passive ($1K). There are many ways to describe it, some refer to it as residual or recurring income because its not actually passive (you have to do something in order to get the $1K, especially in a wrap say) but at least its a better form of income than wages, as it will recur each year whilst you have the property. That’s the sweet part.
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All in favour of NET raise you hand!!
I would say its the $1000
J
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