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  • Writer's pictureRick Martin


Life is much more relaxed when you have streams of passive income.

The odds are pretty high that most people focus only on and only know about active income. We often have a myopic view of the world, and it can be a challenge to get beyond our own lens. There are vast swaths of society that remain cash only - not having access to credit. Having access only to active income may be just as limiting. When you think about it, it is a very hand-to-mouth existence. Although people will preach the security of a job, proper security comes from passive income. Having investment vehicles that allow us to make money in our sleep - that is security. How much time do people spend contemplating their financial goals? Most likely less time than they do developing their Christmas shopping list.

Active income is the most heavily taxed type of income. Active income buys fancy cars, expensive homes, and designer clothing while simultaneously being taxed at the highest rate out of any income. Why keep hustling at earning active income, only to have such a large portion taxed? For whatever reason, we are not taught financial literacy in school. Suppose you sit down and map out an investment strategy with your financial advisor. They will most likely suggest a mutual fund or two - essentially pointing you to the stock market - also heavily taxed. The focus should also be to generate and build passive income until it equals or surpasses your active income, which is what we're talking about in this article.

School Doesn't Prepare Us.

Unfortunately, the US school system grooms us to become cogs in the active income-generating and tax siphoning cycle. We're taught to work and trade time for income. Initially, just collecting that paycheck seems like the easy route, but just doing a bit of long term planning can get you on the path to financial independence. For me, being financially independent means having both time freedom and geographical freedom. Doing what I want, when I want, where I want, and with who I want. At the risk of sounding righteous, it is living life on your terms.

Even degreed doctors and attorneys who land high-paying salaries are doomed to trade their time for money for the next 35+ years. That’s the only thing they’ve been taught - to work, earn their $16,000 paycheck each month, pay about 40% of it in taxes, and be left with $9,600 a month in earned income. While that’s still a high income, pay attention to the tax value. How much do you pay in taxes?

In comparison, a person who earns $16,000 a month in passive income (cash flow from rental properties or other real estate), only $2,300 would be paid in taxes. Which means they can take home $12,800 each month. Option 2 seems like the more sensible route.

There are tremendous tax advantages for real estate investors. One advantage is offsetting your cash flow (from rental income) with depreciation which is reflected in the K-1 statement that you hand to your accountant, effectively making your cash distributions tax-free. Admittedly, the only write-off that I was aware of when the only real estate I owned was my residence, was the interest from my home loan. This is probably the case for most American home owners.

Passive investment is not within some of the most educated's vocabulary. Financial planners will probably not share that you can be a limited partner in group real estate partnerships called syndications to the best of my knowledge. These are group investments that will invest in apartment buildings, self-storage, or mobile home parks. In their defense, they probably don't know much about it. Their focus has been the stock market and not commercial real estate.

You Still Need Active Income

To be clear, you need to earn and save active income to invest in creating passive income. Maybe your goal is to work only 4 hours a week, or perhaps that sounds boring. Either way, the goal is to accumulate enough savings to invest and continue investing until the passive income earned matches or exceeds your active income.

Financial Peace of Mind

Traditionally you went to college, got a good job with a pension, and rode that wave until the day you retired. For most, that age is 65. Father time has a way of catching up to all of us, and our bucket list may be a bit less exciting (and active) at age 65 than age 35.

Maybe this resonates with you and why you are reading this right now. Perhaps you are on the hunt for a tried-and-true method of achieving financial peace of mind. In other words, you're interested in building multiple streams of income to cover your living expenses, whether or not you work daily. You want to know that on a monthly basis you can make money in your sleep.

One of the best ways of achieving the "mailbox money" of your dreams is to have multiple properties generating passive income streams. Now you can design your time and life instead of fearing layoffs or being concerned about having enough money when you retire.

Why Real Estate Passive Income?

Think about how you dream of spending your extra time. If you've wished for more time freedom to spend time with your kids or to see the world, passive income is your ticket. Heck, being able to go to the store in the middle of the day when everyone else is at work seems like a good idea.

You may already know that it is possible to generate passive income from the stock market. Unless you are going dividend investing, you have to sell stocks to use the income, and you will be taxed heavily on it. You may also see that it's a roller coaster ride, and you would rather avoid that sinking feeling that can occur if you didn't sell at the right time.

I prefer the predictability of real estate. Real estate investing creates reliable income streams because you're investing in stable assets.

If you make $200,000 per year in income, the goal should also generate $200,000 in passive income from your investments.

Passive Income Ingredients

Now that you’re aware of passive income and its vital role in becoming financially free, how do you get started generating passive income?

Focus on building your passive income until it matches your active income.

Invest in things that increase in value and are physically tangible.

Only invest in assets that can’t be disrupted.

Number three above is one of the key reasons you should invest in real estate. Multifamily properties have withstood the test of time - people always need a place to live, no matter the climate, the economy, or social status.

How to Create Passive Income In Real Estate Investing

Everyone is an investor. You’re either investing your time and energy to earn an active income, or you’re investing your money to build passive income.

As an example, a doctor treats patients and receives $150 from the insurance company. The doctor invested his time in exchange for that payment.

The trick is learning to invest your money so that it begins to earn more money without you investing your time. Because of how we're generally taught - to work for an income - people tend to sit on large savings accounts. This "rainy day" cash is reserved for a period of injury or unemployment, a sudden life emergency.

The downfall is that this massive pile of savings is not earning any additional money. An investment in multifamily real estate syndications could begin making cash flow and appreciation, growing that money without investment.

7 Steps to Building Passive Income Through Real Estate Investing

#1 - Start With Your Why

The first step toward building passive income is you and your ability to develop a clear why. Your why can't be money. I do believe it has to run much deeper than that to drive you to reach your goal. For some, it is actually to watch their kids grow up. For instance, I love waiting outside my little boy's daycare as he comes tearing out of the door with a big smile on his face. Others may want to give back to their parents, which can create a nice retirement for them. Still, others have a deep desire to be more philanthropical and to give back to the community and important causes. If your why is just to escape the rat race and get total control over your life and destiny, I think that is an excellent place to begin. Now you'll have more time to travel, to be with loved ones, and maybe think about more important things to do with your life. It's your life!

The BiggerPockets group says there are three things you must change to become wealthy. They say that all three steps are required - if one leg is broken, the tripod topples over.

The Wealth Tripod:

You must believe that you can become wealthy.

You must learn how wealth is built.

You must live out the steps needed to make it happen.

Not every investment pans out as you wished or planned, but having a strong why will help you learn from each experience. Push past your comfort zone, and keep you on track toward your investing goals.

#2 - Take Action

As with most other things in life, the action piece is the real key to making progress toward a goal. Often, we get excited about something, dive into books and YouTube videos to learn about it, but then never actually get off our duff to do the thing.

Commit yourself to set aside time each day to take action.

#3 - Decide What Type of Real Estate Investor You Want to Be

Once you’ve developed your “why” and committed time blocks on your calendar, it’s time to decide which route you’ll take.

To be an active real estate investor, you need time and expertise at your disposal. To have a successful real estate business, you’ll need the skills and people in your circle to support the day-to-day operations of a successful business.

Some questions you may want to ask yourself are:

Do you have spare time, outside of family and your job, to dedicate to active investing?

Do you have time to manage rental properties yourself?

Are you physically able to keep up with rental properties and the repairs needed?

Do you have supportive (soon-to-be) team members who can help manage the property, or will you hire a property management company?

Do you have the capacity to make strategic decisions (renovations, evictions, purchases, and sales) about your property?

If not, that’s okay. It might be best for your lifestyle and current capacity to pursue passive investing in real estate syndications over individual rental properties.

#4 - Decide What Type of Real Estate Assets to Invest In

Whether you choose the active or passive route to real estate investing, there are two main categories to decipher between Residential and Commercial.

Residential properties consist of four units or less and include single-family homes, duplexes, triplexes, and quads.

Commercial properties include office buildings, retail (strip centers), storage units, and multifamily (five or more units) properties.

Many investors start in the residential real estate market but quickly realize that, to scale, commercial rental property investments would be more beneficial.

In the passive investing world for instance, while turnkey real estate investing can offer steady cash flow, appreciation, and tax advantages, remember one thing. You pay retail for the product, because the property has already been renovated. You are also investing in the single-family residence world, in which you have less control over the value. That for the most part is controlled by the comparable properties in the same area. You are also reliant upon a single property manager.

As an alternative, one of the best investment strategies is to invest in apartment syndications. Here you get to invest before the renovations, so you get to share in the upside. Since you are investing alongside other partners, your pooled resources can be used on a grander scale to purchase larger assets. This creates diversification, economies of scale that can help control costs, and the ability to hire professional 3rd party property management.

All investments come with risk and require you to do your research before jumping on board.

I view real estate syndications as posing less risk than others and have chosen this option for my family.

#5 - Learn and Utilize The Wealth Generators

When investing in physical properties, there are four main Wealth Generators to watch:


One of the most important reasons for investing in physical property is the potential for cash flow. Cash flow is leftover money after the property expenses and mortgage is paid each month. We love putting our feet up and knowing that money is "flowing" into our lives.


When a property increases in value over time, that is appreciation. As with any investment, there are ups and downs, but historically, real estate value has continued to increase in the US.

One way to "force" appreciation is by investing in value-add property, where improvements increase the asset's value through physical updates and renovations.


When you take out a mortgage to buy real estate each month, your tenants pay rent. Their rent money pays down your loan balance. This helps you automatically build wealth over time.

Pretend you bought a rental property valued at $300,000 with a mortgage of $200,000. During your ownership, the property broke even and was never appreciated - which is very unlikely.

Once the mortgage is paid off, you own a property worth $300,000 free and clear you never had to pay or save for. How is that? Your tenants bought it for you by paying rent (which you used to pay off the mortgage). Sweet!

Tax Advantages

One of the most overlooked advantages of building wealth through real estate is the tax benefit. Owners of real estate get to deduct interest, insurance, maintenance, and depreciation.

Also, when an investor sells a property and uses a 1031 exchange to reinvest the proceeds, they can defer all capital gain taxes. Passive investors reap these rewards and more.

#6 - Find the Right Investment Opportunity

Once you decided to take the passive real estate route over active investments in rental properties, you must find an opportunity that supports your passive income desires.

Once you apply for and join the Fortress Federation Investor Club, we'll share upcoming investment opportunities with you to support you toward your investing goals.

Rest assured that we pre-vet deals ourselves and require that they meet our high standards for deals we want to invest in ourselves. Some things we look for are:

A robust operating team with a solid track record and a history of integrity and excellence.

B or C class multifamily assets in markets with strong job growth, population projections, and job diversity.

Value-add business plan with conservative underwriting and multiple exit strategies.

We encourage you to review deals and craft your own set of criteria as well.

#7 - Reserve and Fund

Investment opportunities fill up first-come, first-serve, which is why it’s crucial to educate yourself first before there’s a live deal in front of you.

Once you’re well educated and adequately researched, you can take advantage of a soft reserve while taking the time to review the investment materials.

If you decide to move forward, you review and sign the Private Placement Memorandum, which is a legal document that details the investment opportunity risks involved in your role as an investor in the project.

The final step is to wire your funds or send a check, which completes your active role in the process. You'll receive an update when the deal closes and then monthly after that. On most deals, you can also expect monthly passive income distributions.


If you're ready to find financial peace of mind, you've got to go all-in on the passive income game. Invest in yourself, grow your active income, and begin saving toward buying assets that increase in value.

The only thing that can hold you back now is fear. Create an intentional mindset shift in yourself through learning about passive investments in real estate syndications.

You can do it, and we're here to help. If you're ready to begin building passive income for retirement so you can find financial freedom, apply to the Fortress Federation Investor Club.

If you’re interested in investing in apartment communities on your path to early retirement a great place to start is by joining the Fortress Federation Investor Club.

Sign up for our Quickstart Guide to Investing in Syndications below, to get up and running quickly.


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