Active Income VS. Passive Income
Active income and passive income are two types of earnings that individuals can generate. They differ in the level of effort required to earn and maintain them.
Active Income
Definition: Active income is the money earned from performing a service or participating in a business in which an individual is actively involved. It requires ongoing effort and time to generate income.
Examples:
– Salary from a job
– Wages from hourly work
– Income from a business in which the individual is actively involved
Commercial Real Estate Example: If someone is actively managing commercial real estate, such as overseeing property operations, leasing, and maintenance, any income generated from these activities would be considered active income. For example, if someone owns and manages a commercial property, the rental income they receive is active income because it involves ongoing effort in managing the property.
Passive Income
Definition: Passive income is earnings derived from activities in which an individual is not actively involved on a regular basis. It involves upfront effort but can generate income with minimal ongoing effort or maintenance.
Examples:
– Rental income from real estate
– Dividend income from investments
– Royalties from intellectual property
– Interest income from savings or investments
Commercial Real Estate Example: Commercial real estate can be a source of passive income if the individual is not actively involved in its day-to-day management. For instance, if someone hires a property management company to handle all aspects of a commercial property, and they receive rental income without actively participating in the property’s operations, that income is considered passive.
Investing in commercial real estate can offer a combination of active and passive income, depending on the level of involvement in property management. Individuals may start with active involvement, such as managing properties themselves, and then transition to a more passive role by outsourcing management tasks.
Active income requires ongoing effort and time, while passive income involves upfront effort but can generate returns with minimal ongoing involvement. Commercial real estate can serve as a platform for both types of income, depending on the individual’s role in property management.
Disclaimer: The information provided is for general informational purposes only and should not be considered as professional, financial, legal, or any other type of advice. The examples and explanations given are illustrative and may not apply to specific individuals or situations. Investing, especially in real estate, involves inherent risks, and decisions should be made based on careful consideration of individual circumstances and consultation with appropriate professionals. The economic and legal landscape can change, affecting the accuracy of information over time. The user is encouraged to seek independent advice from qualified professionals before making any financial or investment decisions. The author and the platform shall not be held responsible for any loss or damage resulting from reliance on the information provided.
