I'm increasingly fascinated with Passive Income. I define this as NOT as a side hustle - ie your income can scale independent of effort (time, not money) put in. (OR it scales as a function of time, but largely. Ie, minimal effort a month is required, but yields impressive results.) Has anyone found any good passive income streams that work well for them? ((Looks like this is a Passive Income: Real Estate thread now! Starting a new thread below for other Passive Income talk.))

Real estate (residential)?

Passive real estate investments does not make impressive results at all. Only active real estate investment does.

@mysterious-tomato-10057 What are your thoughts about real estate, and hiring a manager? Less income but also less effort.

So I did take the plunge and start real estate investing. I learned a ton! In short, I would highly recommend not hiring a manager if you only have a small handful of properties. The loss of profit is just too much in my opinion

How does this compare to investing in publicly-listed REITS or real estate ETFs/index funds (something like Vanguard’s VNQ)?

Yeah so that is part of what I'm bundling into passive real estate. In a way they are even worse than passive real estate investing because when you do it through ETFs and REITs You lose all of the tax benefits of real estate investing. The only purpose in my mind for those types of investments like stock-based real estate investing since we know that they don't outperform the market would be for someone who is trying to use it to diversify and has such a massive wealth that the entire stock market is not diversified enough for him.

Hmm. To me the biggest issue with real estate is time. It is the only commodity we never have enough of.

I hear you, but if you're going to go the real estate route I would rather do turnkey with a manager then a REIT so that I can capture all the tax benefits

Re tax benefits, I've gotten very conflicting advice. I heard from someone (an accountant) that you can only capture depreciation if you're a real estate professional, ie more than 500 hours a year spent on RE. My guess is someone our wires got crossed conversationally, do you know what it is he means, and what tax benefits you actually get?

That accountant friend sounds confused... https://www.forbes.com/sites/forbesbusinesscouncil/2021/05/24/exploring-the-tax-benefits-of-real-estate-investing/?sh=7ff6789953ff

I for sure saw something somewhere that backed up his perspective but can't find it now. Yay I guess :)

@steep-dog-55906 re tax benefits only working for RE professionals. According to my understanding the tax benefits only go for the actual income generated by the real estate. In order to use the tax benefits from the property to count as negative income against your w2 you would need to be a RE professional.

But that only be for your W-2 from your real estate business? What about W2 from a different type of work?

From my understanding your income from your real estate business would not be on a w2

Why not? I could imagine someone with a big enough real estate business putting himself on payroll combined with disbursements. Not familiar enough with this area.

@alert-rose-3940 that sounds about right! So I couldn't use depreciation to offset tax liabilities from my regular w2 income, just my rental income, right? Ie don't go into RE side hustle only because you want to pay less taxes elsewhere?

Yup!

This doesn't seem like a nuance that has too much implication right? Since really your real estate income should have enough to offset by itself?

If you buy a property and do cost segregation then you get a lot of depreciation upfront

Gotcha so basically don't overcomplicate things and all the numbers stay simple and you get all the tax benefits

Can it also have implications based on what time of year you do all the things? Ie if in year 1 you only rent it out in December (maybe you only bought in November), that may not be enough to offset that first depreciation? Unless is depreciation prorated?

Depreciation goes by tax yr. If you have “extra” depreciation in one year, it will roll over to the next year

Yeah like I did renovation at the end of 2020 and into 2021 which I used all in 2021 tax filing.