This is the final part of my series on 6 Ways To Generate Passive Income.

Today we will discuss the final (and I think best) way to generate passive income. As I stated in the first article:

The way I evaluate any claim behind a method of building wealth or generating passive income is this: how many people can I find who have used this method to accomplish what I’m trying to do?

One of the best things I ever learned about success is to simply find successful people and model what they are doing, while ignoring the advice that unsuccessful people give you.

Is real estate a reliable way to generate passive income? Lets see…

CNN says that “Forty-six percent of those surveyed [millionaires] own investment real estate”.

Economics Edge says that the “real estate industry has produced the largest number of self-made multi-millionaires”.

Best selling author Brian Tracy did the research and says that 74% of millionaires are those who started their own business (included in this is real estate, but its unclear what percent).

(Interesting sidebar: less than 1% of millionaires consist of those who made their money in show business, sports, music, writing, inventions, or the lottery combined.)

So clearly real estate is a popular means of acquiring wealth. Many others have used it successfully. And investment real estate by its very nature is passive income.

I’m sure you can validate this for yourself by thinking of the wealthiest people you know or have personally met at some point in your life. Chances are they either (1) own a business, (2) own quite a bit of real estate, or (3) both.

Let’s look at the pros and cons…

Pros

• Plenty of others have used it to build wealth for hundreds of years, a proven track record
• Can get started part time while at your current job and with relatively little money
• You can start seeing income quickly (a month or two) as opposed to years in starting some businesses
• It uses financial leverage, a key to building wealth, through self colateralized loans. (A bank wouldn’t loan you money to say, trade stock options, or start most other types of passive income businesses)
• Tax benefits like depreciation, 1031 exchanges, etc which allow you to pay less or no tax on real estate income
• A large customer base who will always need your product
• Plenty of room for competition and new entrants into the market
• Real estate is an asset that appreciates and automatically adjusts for inflation

Certainly real estate isn’t without some risks. Here are some cons:

• Requires at least a little bit of money to get started, (perhaps $10,000)
• Requires credit and the ability to borrow money
• Has inherent risk to those without education or prior experience

Conclusion:
What I’d like to leave you with is this: there are plenty of ways to make passive income, but we should evaluate each with a bit of skepticism. If you find yourself asking “how do I know if this will work?” the first thing you should do is question the source of the information you are getting. Has the person giving me this information actually done it themselves? Are they rich or where I want to be financially? If the answer is no, then take a step back and reconsider taking their advice.

In a larger sense we can look at how others have been having the most success, and then model it. All I an tell you is that I’ve never personally met a millionaire who made their money from trading options, blogging, day trading, buying domain names, MLM, network marketing, or info products. History and the research seem to validate this observation. I’m sure those people do exist, but I have never met one. I have, on the other hand, met a number of millionaires who own real estate. Perhaps you have met some as well who may be willing to help you get started. There is nothing magical about real estate, and it certainly caries its own risks, but overall it seems to be a solid business that reliably generates passive income.

Best of luck in your passive income endeavors!

Discussion question: Who have you personally met that is in the financial position you want to be in, and how did they make their money? Post your response below.