6 Steps to 6 Figures of Passive Income

Summary

Sales professionals are uniquely positioned to become work-optional through passive income much quicker than their salaried peers. There are six crucial steps to building significant passive cash flow for top producers.

When these six steps are done correctly and in the correct order, it can lead to a significantly shorter timeline to being work-optional or completely retired. In many cases even as soon as 10 years.

Step 1: Find your magic number

If we want to accumulate $100,000 in passive income per year, we need to solve a math problem. 

Here’s how that problem starts:

What is the highest % of consistent cash flow return on investment I can make that is shielded from market conditions, adjusts for inflation, and pays out consistent monthly payments. 

Right now, private money investments are likely your most risk-adjusted investments that pay out monthly and should see stable yields. 

Private money investing is using your money as a loan, think about lending your money out to a home flipper for a certain percentage of return paid every month, essentially you’re taking the place of a bank and getting monthly interest payments. 

With these strategies today we’re seeing a conservative 8 - 10% cash flow return paid out monthly. 

If we’re getting a 8% cash flow return, that means we can take $100,000 which is the amount of cash flow per year we want, and divide it by the percentage of return we’re getting. 

100,000 divided by .08 (8%) gives us $1,250,000.

So, if you invest $1.25M into an investment like this you’d get roughly $100,000 per year in completely passive income paid out monthly. 

Now, most of us don’t have $1.25M of investable cash right now but that’s ok, that’s where step 2 comes in.

Step 2: Multiply your equity 

Where most people get investing wrong is they don’t look to multiply their money to get them to a reasonable amount of investable cash as fast as possible. 

While there are cash flow investments that should pay between 8 - 10% per year, when you look at growth or equity investments you should project closer to 15 - 20% returns annually. 

The highest risk-adjusted equity returns are in what’s called value-add commercial real estate right now. 

This means buying something a bit run down, improving the operations and cosmetics of it, renting it out for higher amounts, then selling it. Think of flipping a home, but instead flipping an entire apartment building.

The reason this strategy is the fastest wealth builder right now is because it has the highest multiples on your money. 

I’ll give you an example…

Commercial real estate is priced based on income using something called a cap rate. 

That cap rate tells you how much of a multiple you can use on that property to price it. 

A very conservative cap rate for an apartment building right now would be 7%, which in a growth market would be extremely conservative, right now you’d see closer to 5% but to be safe let's say it’s 7%. 

So if a property does $1M in net income and sells at a 7% cap rate, you’d take $1M divide that by .07 and get a $14.2M valuation.

That means for every $1 of net income you add to the property, you’re getting $14 of additional equity gain on that property. 

A 6% cap rate gives you $16

A 5% cap rate gives you $20

Between a 14 - 20x multiple in equity for every dollar of net income you add to the property is massive in the alternative investing space.

To give you a benchmark, if you were to buy and sell businesses, a healthy business would give you about a 4x multiple on income. 

When you’re looking to invest in an asset with the highest multiples, there is nothing like value-add commercial real estate right now.

It is very feasible to start off with $50,000 or $100,000, invest it in value-added commercial real estate and within just a few years have a sizable amount to invest. 

Then, once you get that sizable amount to invest, move onto step 3 where you can start to see more stabilized cash flow.

Step 3: Cash flowing investments

Once you have that sizable amount of equity you can start to pull from your growth investments and put those into your cash flowing investments. 

A few strong private money funds should be able to pay you out 8% with consistency, so if you have $1.25M invested into these, you can see 6 figures of passive cash flow coming in each year. 

Step 4: Keep your money from taxes

***Not tax advice, please consult your personal tax counsel before making any investment decisions***

Another reason why I lean on real estate as my primary method of investing is because of how strong the tax benefits are.

By using strategies like depreciation and 1031 exchanges you can defer and eliminate your taxes with these and other advanced tax strategies. 

The ultra wealthy invest in real estate primarily for appreciation and depreciation, meaning your asset can go up in value, you can make money, but can actually take a taxable loss, meaning many real estate investors pay little to no taxes on their gains with the right tax strategy in place.

These are the strategies Donald Trump uses and why he’s a billionaire and has paid $0 in income taxes before and it’s completely legal. 

Step 5: Prevent losses 

You can’t take big wins without taking on risk, but 4 singles is more likely than 1 home run. So creating balance in what you invest in is key here. 

One huge consideration is this:

By not doing anything with your money, you’re actually taking losses. 

This is because of inflation, typically around 2% but has been a bit more volatile since America got off the gold standard in the early 70s. 

This is a chart of stagnant money over the past few years, it was created a bit earlier in the year in 2023 so it’s showing 9% inflation which I think is a bit extreme, 2023 likely ended closer to 5% but the concept remains the same:

You can see the buying power of $100,000 sitting on the sidelines not going to work over a 3 year period reducing to about $77,000 in purchasing power. 

Meaning you’d have to invest in a product with 17.42% returns a year for 3 years just to make up for the inflation loss of your money. 

There is no such thing as stagnant money, your money is either gaining or it’s losing. 

And it takes longer to make up for losses than it does to accept smaller gains. 

Step 6: Lifestyle

For most people, freedom is the goal. Money is the means to get there. 

When you’re investing in things make sure that investment can thrive without you present and without you committing your time to it. It becomes difficult to grow your portfolio if it requires your time to grow. 

I’ve passed on multiple investments that would have seen significant returns, but their requirement of my time was not something I was willing to commit to. 

I also enjoy traveling and moving every few years, so being location agnostic is important to me. 

Freedom is the goal. Don’t corner yourself with strategies that reduce that freedom later down the line. 

Conclusion

If you want to take action on this, download my RETIRE WITHIN 10 Bundle, where you can access a customized calculator to find out when you can replace your income with passive income, download our ebook: The Top Secret Investing Strategy For Sales Professionals, and get a bonus gift. 

Check that out here: https://www.retirewithin10bundle.com/