top of page
  • Writer's pictureChristian

Real Estate Entrepreneur’s Guide To Building A Passive Income Portfolio

The right passive income portfolio is capable of producing quality cash flow well into retirement.

The right passive income portfolio is capable of producing quality cash flow well into retirement. In fact, most real estate investors will turn to passive income exit strategies when they want to secure their future. If for nothing else, passive income is the perfect complement to a secure nest egg. Combined with responsible spending habits, the right passive income portfolio can be your key to financial freedom. However, the best passive income portfolios are not simply made overnight; they are the result of years of work. If you want to start building your passive income portfolio sooner rather than later, I recommend using the following to get started.


A passive income portfolio is the equivalent of a buy-and-hold investor’s working resume. More specifically, however, a passive income portfolio is the figurative representation of a collection of real estate assets held by an investor. Traditionally, passive income portfolios are assembled to serve their holders as a hands-off or passive investment of securities. As they relate to real estate investors, passive income portfolios represent a collection of performing real estate assets that require little to no work to maintain.

[ Want to own rental real estate? Attend a FREE real estate class to learn how to invest in rental properties, as well as strategies to maximize your cash flow and achieve financial freedom. ]

Passive Income vs Portfolio Income

Aside from representing the pinnacle of a real estate investor’s career aspirations, passive income has become synonymous with earnings that do not require a lot of effort (if any at all). To be clear, however, passive income has more in common with residual income than active income; the means to the end is incredibly “hands-off.” As its name suggests, passive income is the earnings a real estate investor can expect to make from a rental property in which they don’t need to be actively involved in to operate.

Portfolio income, on the other hand, is income investors receive from several different types of investments, not the least of which include stocks, bonds, mutual funds, and annuities. More specifically, portfolio income typically comes in the form of interest, dividends, and capital gains. It is also important to note that portfolio income is not passive.


The best passive income portfolios won’t build themselves. In fact, for a portfolio to become truly passive, you must put in a lot of leg work up front. To get things rolling, start with the following:

  1. The first step of building a passive income portfolio will require investors to draft a realistic financial model of what they hope to accomplish.

  2. The second step of building a passive income portfolio will have investors find the assets that complement their financial model. This is where investors will need to find rental properties that can get them one step closer to their ultimate goals.

  3. Identify the amount of cash flow required to maintain the desired lifestyle.

Draft A Financial Model

No lucrative passive income portfolio will come to fruition without the assistance of a plan, or a strategy to set things in motion. If for nothing else, establishing a blueprint for what you hope to achieve with your upcoming real estate endeavor should clarify your approach. Having said that, the first thing you need to do if you hope to build a lucrative passive income portfolio is to draft a realistic financial model. What is it you want to accomplish by obtaining rental properties?

In creating a financial model, you lay the groundwork for your entire buy and hold career. For what it’s worth, a well-drafted financial model is entirely capable of projecting cash flow over the life of a project. Without an idea of what to expect, there is literally no way you can ever hope to realize success with any degree of predictability. If real estate has taught me anything, you must have a system in place to realize success, and nothing compliments a system more so than a plan.

This is the part of the plan where you will run the numbers to make sure a property makes sense. Be sure to include a line item for each stream of income, and even more importantly, each expense. Only once the numbers make sense can I recommend moving forward with the initial phases of starting a passive income rental portfolio.

Identify Each Unit’s Target Cash Flow

While drafting a realistic financial model will require acute attention to detail and even more precise market analysis, it is by no means the only step in forecasting a profitable business model. As you have probably guessed, the model is just the first step; the second step will have you populate said model with real data. This is where you will have to put in a significant amount of groundwork.

At this time, you will be required to conduct the appropriate research. I can’t stress how important it is to mind your own due diligence, given the gross amount of misinformation made available to the masses. I encourage you to confirm all of the data you are presented with, as it is always safer to measure twice and cut once. That said, the more data you collect on a subject property, or even on a subject market, the more accurate your forecast will be.

In choosing a property, prospective passive income investors are advised to contact landlords and brokers in the region for a first-person analysis. Nobody will be able to give you more accurate information than those that already have boots on the ground. Delve in and uncover trends revolving around costs, rents, demand, and income.

Once you have compiled the data and are confident that it is as accurate as it is going to be, proceed to draft a financial model for as many similar properties as you can find — otherwise known as comparables. Next, create a single financial model using the average of every model you recently created. The process will essentially uncover an average of what you can expect from a single subject property. It is important to note, however, that this step should result in an expected cash flow estimate for a single unit. Before moving forward, it is important to identify what you can expect to receive from renting out a property.

Identify Your Desired Cash Flow

Running the numbers on a subject property has just as much to do with objective cash flow as it does with the amount you deem necessary. If for nothing else, managing a passive income portfolio is intended to provide a stream of income capable of maintaining the lifestyle you deem important. In other words, the right passive income portfolio will generate the amount of income you need to maintain the lifestyle you desire. With numbers in hand, you will have an official goal to shoot for.


In following these steps, you will have an idea of the amount of money you need to live comfortably and the number of properties it will take to maintain said lifestyle. However, it is important to note that the research you have conducted up to this point is just the beginning. Now it is important to implement all that you have learned to maximize your retirement investments.

There are several ways to start a passive income portfolio, but I am confident one holds an advantage over all others: multiunit properties. I am convinced that the easiest way to start your own passive income portfolio is to invest in a multifamily unit you intend to live in yourself. No other way, at least that I am aware of, will allow you to get into a property with less risk and upfront costs.

Consider this; acquiring a two-unit property will simultaneously give you a place to live and an additional unit to rent out. This method significantly reduces the expenses that may be asked of you. Instead of accounting for the costs of two separate properties, you only have to worry about one roof, one yard, and probably one plumbing/electrical system. While the consumption will probably be double that of a single household, the maintenance will not. In fact, the maintenance will probably be no different than if you were living in your own detached home.

What’s more, it is entirely possible for the additional unit you are renting out to pay down your entire mortgage, if not more so. In the right market, investors can very easily have their monthly mortgage premiums paid off by the subsequent unit they rent out. That said, committing to a multiunit rental property is typically the best way for investors to start a passive income portfolio.


A passive income portfolio of performing real estate assets has become synonymous with today’s greatest retirement strategies. If for nothing else, the passive returns on a well-managed rental property have proven they can support investors through their golden years. However, real estate isn’t the only passive investment capable of building retirement savings. There are several more options awarded to investors, not the least of which include:

  • Peer-To-Peer Lending: As its name suggests, peer-to-peer lending awards real estate investors the opportunity to act as the bank. In the event an investor has enough capital, they have every reason to lend it to promising borrowers who bring them a potential deal. That way, lenders may make interest on their financial investment—all without doing anything but acting as a source of financing. Meanwhile, peer-to-peer lending may result in upwards of a 15% return on investment. What’s more, peer-to-peer lending is an asset-based investment, as the investment itself is secured by the subject property.

  • Dividend Stocks: There’s a large contingent of investors who would argue the stock market is primarily an active investment, and they wouldn’t be wrong. Investing in the stock market takes a lot of work, particularly on the research end of things. However, dividend stock investing is another story. As it turns out, dividend stocks are one of the easiest ways to earn passive income. Simply owning a dividend stock is usually enough to receive a payout. As the company earns more money, they are required to allocate said profits to their shareholders in the form of dividends.

  • Index Funds: Index funds, as their names would lead you to believe, are mutual funds whose performances are tied directly to a specific market index. More specifically, index funds tend to mirror the performance of the index they are associated with. Not unlike the other options on this list, these assets are passively managed, and their individual securities are not subject to change unless the index itself undergoes a unique change.

  • Real Estate Investment Trusts (REITs): Not unlike dividend stocks, REITs pay their shareholders dividends. However, unlike dividend stocks, REITs are required to pay at least 90.0% of their taxable income to shareholders in the form of dividends. While dividend stocks aren’t required to pay out dividends, REITs are, which is enough to give them their own spot on this list. With strict SEC requirements placed on REITs, they often pay larger dividends than their traditional counterpart and are a great addition to any passive income portfolio.

  • Bonds: Bonds are the result of governments, municipalities and corporations trying to raise capital. Whether for building a park in the middle of a city or scaling a company, businesses and governments will issue bonds in an attempt to raise money. However, instead of asking for money from the bank, governments, municipalities, and corporations simply post bonds on the open market for investors to purchase. When an investor purchases a bond, they are essentially acting as the lender; their money goes towards whatever project the issuer had in mind, and the investor collects interest over the maturity date. In that time, the investor can expect to receive their initial investment, plus interest (also known as the coupon rate). Bonds are relatively safe and can hedge against a volatile stock market.

  • Certificates Of Deposit (CDs): Certificates of deposit are essentially glorified savings accounts. Investors will deposit money into a CD (not unlike a bank account), but they will also agree not to withdraw the money for a predetermined period of time. Subsequently, the person depositing the money will agree to let the bank use the money in exchange for earning interest on the deposited amount. Once again, the investor is simply acting as their own bank, and generating interest on the money they already have.


Few things epitomize the pinnacle of a real estate investor’s career more so than a properly performing passive income portfolio. Not only does building a passive income portfolio set one up for a more comfortable retirement, but it also awards savvy investors the ability to enjoy financial freedom. That said, the sooner investors can start building a rental portfolio, the better. Passive investments have a way of compounding themselves for decades, and those who start now will be happy they did. The sooner investors can set up a balanced passive income portfolio, the better their retirement will start to look.

Key Takeaways

  • Few things epitomize the pinnacle of a real estate investor’s career more so than a properly performing passive income portfolio

  • Building a passive income portfolio won’t happen overnight, but the initial work could prove to be a very good investment when it comes time to retire.

  • Building a rental portfolio will help investors achieve the financial freedom they always dreamed of.

9 views0 comments


bottom of page