The article was written by Peter J. Burns III and originally published on Entrepreneur.
Similar to passive investment, which goes in and out of favor on Wall Street, embracing the passive income concept makes a lot of sense.
The concept of passive income has been around forever. Since passive income does not have to be actively managed, it is much more scalable. This affords entrepreneurs even more time to pursue both active and passive income opportunities.
I’ve started many of these businesses myself over the last decade, as well as helped others. With this experience in mind, I want to share important steps in preparing to participate in a passive income stream, and what to look out for ahead of time.
Grow your credit score
Foremost to building a passive income stream is having a good credit score. This opens many doors for extensive capital, which can be surprisingly cheap. Even if you have the funds sitting in liquid investments, borrowed capital is a better option. A good credit score allows you this capital, which is the lifeblood of any venture.
You should want to maximize leverage, too, never using your own capital when you can make a profit off of someone else’s debt capital. By leveraging debt capital with suitable terms and interest, you maximize your return on select investments while your capital remains intact.
Cultivate a network
It’s important to have intellectual resources around you. Picking the right passive income opportunity is not easy. If you have cultivated a network of entrepreneurs that you trust, you can discuss your options and get their intelligent feedback.
The bigger the network, the more valuable it is, so don’t be afraid to share your great ideas with those around you. You can even share your ideas with your broker, yet understand that they may be territorial and worried that you will divert capital away from them.
Find something proven, and be patient
Proven passive income streams are aplenty in e-commerce. There is no disputing the benefits, and efficiencies, of ordering online, especially with an increasingly remote workforce. This is one example, but the truth is that the Internet and its capacity for efficiency will spawn new passive income ideas for decades to come.
Before choosing an investment, do your homework and identify others who have been successful with that particular investment before you. Then, don’t expect to be immediately successful, just because they were. It may take a few months longer than you expected, to experience that same level of success. Impatient people rarely succeed as entrepreneurs, as they’re likely to bail out at the first roadblock. To succeed, you must sometimes put in meaningful work, and that often takes more time than you’d bargained for.
Be careful
Many people are selling passive income ideas, but with limited expertise behind them. These people are tantamount to used car salesmen. Do your due diligence to determine if experts are creating the engine behind the sales forces approaching you, and whether or not they will be accessible in some form or fashion as you pursue this new venture.
You should also attempt to identify whether or not the purveyor of a particular opportunity has deep pockets. If you burn through the initial capital and have nowhere else to turn to but a traditional bank, that will not be good. Banks have a limited understanding of passive income projects, so you are better off conferring with the purveyor beforehand to make sure that you’ll have access to reasonably priced capital in the unlikely event that you’ll need it.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
For more detailed information on how to make a capital investment in construction with Foundation Capital, as well as the terms, conditions, and risks, refer to the following FAQs and guides:
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