Financial Freedom Through Passive Income: A Personal Journey

Understanding Passive Income

Passive income is money earned with little to no effort. Unlike active income, which requires ongoing work (like a salary), passive income continues to generate revenue even when you’re not actively involved. Examples include rental income, dividends from stocks, interest from savings accounts, p2p crowdfunding loan investments, and profits from businesses that don’t require day-to-day management.

My Journey to Financial Freedom

My journey began with traditional investments. I owned a house valued at €500.000, which I considered a significant asset. However, over time, I realized that this property, while valuable, wasn’t producing any income. Instead, it was tying up a substantial amount of capital that could be used more effectively elsewhere.

Selling Non-Productive Assets

The first major step towards financial freedom was selling my house. While this decision wasn’t easy, it was crucial. Owning a home provided a sense of security, but it also came with numerous expenses like property taxes, maintenance, and community fees. By selling the house, I freed up €500.000, which I could then invest in passive income opportunities.

Investing in Peer-to-Peer Crowdfunding Loans

I chose to invest the proceeds in peer-to-peer (P2P) crowdfunding loans, which have become my favorite form of passive income. Here’s why:

1. High Returns: P2P loans typically offer higher returns compared to traditional investments. With more than 10% annual interest rate, my 500.000 eur investment generates more of 50.000 eur per year. This income covers my basic living expenses. Some other rental properties and touristic appartments I sold, made me to create the financial freedom portfolio that allows me to leave wherever I want (last 6 years London, Rome, Nice, Perpignan, Málaga, Madrid), and enjoy the kind of relaxing live I chose without no more financial problems.
2. Diversification: Unlike real estate, where significant capital is tied up in one asset, P2P loans allow for diversification. I can spread my investment across various loans, reducing risk and enhancing stability.The idea is very clear: I don’t want investments where I have to put a lot of money into a single investment. Let’s take an example: if I lend 1.000 eur to a friend with a 10% annual interest rate, I could lose both at same time, the money and the friend. If I lend 1 eur to 1.000 friends, it won’t be as serious if I lose a few friends who don’t pay me back, surely I will lose about 10-15% of them, but the gains from the other 850 will perfectly cover the 150 who didn’t pay me back. That’s why I prefer to invest 100 eur in 1.000 properties through real estate crowdfunding platforms rather than €100.000 in a single transaction.For this reason, my money is spread across more than 20 countries (diversifying country risk), more than 10 sectors (diversifying sector risk), more than 40 crowdfunding companies (diversifying platform risk), which in turn invest in more than 200 different loan originator companies (diversifying originator risk), across more than 10 types of loans, such as for vehicle purchases, new businesses, business expansions, agriculture, real estate, etc. (diversifying sector risk), and finally, across more than 30,000 different loans (diversifying borrower default risk).I don’t think it’s possible to diversify in any other business as much, creating an enormous number of loans from just €10 investments. This makes it possible for everyone, from students to executives, to have access to investing. You can start with a small portfolio of €500 or build a portfolio with millions invested.
3. Low Maintenance: Real estate investments come with constant management issues like tenant problems, repairs, and vacancies. P2P loans, on the other hand, require minimal oversight once the initial investment is made.

Crowdfunding loan investment platforms allow you to automate investments by following defined criteria. This means that automatically, when a loan is repaid and you receive the interest and principal payments, these funds are reinvested without needing to monitor them constantly. Personally, I dedicate about three hours a day to managing investments, most of which are for managing my clients’ investment portfolios. On a personal level, I review my investments every 15 days to see if any adjustments need to be made

4. Liquidity: P2P platforms often have secondary markets where I can sell my loans if I need to access my capital. This flexibility is much greater than selling a property, which can take months.

Each investor decides their investment period. Some clients prefer to invest in loans for 3-5 years, others for 1 year, and some for just a few months. Personally, I must admit that I love very short-term loans. The reason is that I love maximizing compound interest. For example, a loan with a 10% annual interest rate but a duration of 30 days offers little profit initially. However, in the second month, I reinvest the principal plus that small amount of interest. By the second month, it’s the principal plus another bit of interest, and so on. By the end of 12 months, those loans at 10% annually turn into a 12% return, thanks to the monthly reinvestment of the accrued interest.

The Flexibility of Renting

With the income from my P2P investments, I can rent a nice apartment. This arrangement offers several advantages:

• No Maintenance Hassles: I don’t have to worry about repairs, property taxes, or other homeowner responsibilities.
• Flexibility: Renting allows me to move easily if I encounter issues like noisy neighbors or if I find a better location. This flexibility is a key aspect of financial freedom.
• Cost Efficiency: The remaining profits per month from my P2P income can be used for other investments or expenses, ensuring a comfortable and worry-free lifestyle.

The concept is very simple: avoid having non-productive assets. If you can rent your house, it’s better than buying it. If you can rent your car, it’s better than buying it (a house usually appreciates in value, but a car loses value as soon as it leaves the dealership, typically by about €3,000). If a rental car or renting/leasing company cost you a 7% of a car cost and you can get 10% investing it on p2p crowdfunding loand, you got a new car from time to time, avoiding mechanic and maintance problems, and winning some extra for others living costs.

Exploring Other Passive Income Streams

While P2P crowdfunding loans are my preferred investment, I also explored other passive income streams. Each has its pros and cons, and understanding these can help you make informed decisions.

Real Estate Rentals

Real estate is a popular passive income stream. Renting out property can generate steady income, but it comes with its challenges:

• Management Issues: Dealing with tenants, repairs, and vacancies can be time-consuming and stressful.
• High Initial Investment: Real estate requires substantial capital upfront, which might limit your ability to diversify.
• Market Volatility: Property values and rental incomes can fluctuate based on market conditions, affecting your returns.

Digital Services

Digital services, such as creating websites for affiliate marketing, ad revenue, or promoting products, offer another avenue for passive income:

• Initial Effort: Setting up a successful website requires significant initial effort and investment.
• Ongoing Maintenance: To stay competitive and profitable, continuous updates, marketing and money expenses are necessary.
• High Competition: The internet is saturated with similar sites, making it challenging to stand out and attract traffic.

Traditional Financial Investments

Stocks, bonds, and mutual funds are conventional investment options:

• Lower Returns: Traditional financial investments often offer lower returns compared to P2P loans.
• Market Risks: Stock market volatility can affect your investment’s value.
• Fees and Commissions: Brokerage fees and management commissions can eat into your profits.

Why I Prefer P2P Crowdfunding Loans

My experience with various investment options has led me to favor P2P crowdfunding loans for several reasons:

• Higher Returns: Consistently higher returns compared to other passive income streams.
• Ease of Diversification: Ability to spread investments across multiple loans, reducing risk.
• Minimal Management: Once invested, P2P loans require little to no ongoing management.
• Greater Liquidity: Easier access to invested capital through secondary markets.

Practical Steps to Start Investing in P2P Crowdfunding Loans

If you’re considering P2P crowdfunding loans as a passive income source, here are some practical steps to get started:

1. Research Platforms: Choose reputable P2P platforms with a track record of successful loan repayments.
2. Diversify Investments: Spread your investment across multiple loans to mitigate risk.
3. Monitor Returns: Keep an eye on your returns and reinvest the interest earned to compound your income.
4. Stay Informed: Stay updated on market trends and platform performance to make informed decisions.

In summary, there are clients who want us to design a portfolio based on their preferences regarding risk aversion, terms, sectors, liquidity, timing, etc., so they can start learning about this sector. More elaborate services involve not only defining the portfolio but also accompanying the client during the first few months of management to address any questions, make changes to investment strategies, or start trying out other platforms, modifying the original portfolio based on initial results. There are also clients who want to completely disengage or only want to review the results at the end of the year, so they delegate the comprehensive management of their investment portfolios to us.

Achieving Financial Freedom: Key Takeaways

Financial freedom is about more than just having enough money; it’s about having the flexibility and peace of mind to live life on your terms. Here are the key takeaways from my journey:

1. Sell Non-Productive Assets: Free up capital from non-income-generating assets like personal residences.
2. Invest Wisely: Focus on high-return, low-maintenance passive income streams like P2P crowdfunding loans.
3. Embrace Flexibility: Renting can offer more financial and lifestyle flexibility compared to owning property.
4. Diversify Your Investments: Spread your investments to reduce risk and increase stability.
5. Stay Proactive: Continuously monitor and adjust your investments to align with your financial goals.

Conclusion about Financial Freedom Through Passive Income: A Personal Journey

Achieving financial freedom is a journey that requires strategic decisions and a willingness to embrace change. By prioritizing passive income and avoiding non-productive assets, you can create a sustainable financial future. P2P crowdfunding loans have proven to be a reliable and lucrative option for me, offering high returns with minimal effort.

Financial freedom means more than just having money; it means having the freedom to live without financial worries, to move and adapt as life changes, and to enjoy a comfortable and secure future. By investing wisely and embracing flexibility, you can achieve this freedom and live the life you desire.

Remember, the key to financial independence is making your savings work for you. Sell non-productive possessions, invest in passive income streams, and let your money pave the way to a relaxing and financially secure future.