Passive income is highly sought after and often misunderstood. Passive income streams require an upfront investment and a lot of nurturing in the beginning.
After some time and hard work these income streams start to build and are able to maintain themselves, bringing you consistent revenue without much effort on your part.
Also, you can use passive income streams to help you get out of debt or achieve financial independence sooner. We are now going to examine what passive income is and how you can increase your income with it.
Adding passive income streams to your portfolio can help you increase your earnings and accelerate your financial goals in tremendous ways. For example, getting started with real estate with Fundrise for just $500 can accelerate your income and your other goals.
- What is Passive Income
- Types of Passive Income
- How to Get Started With Passive Income
- How to Increase Your Passive Income
- Top 17 Passive Income Ideas to Increase Your Income
- How Can I Make $1000 a Month in Passive Income?
- How Can a 17 Years Old Make Passive Income?
- How do You Increase Passive Income?
- What Are Some Examples of Passive Income?
- Passive Income Ideas With Little Money
- Passive Income Investments
- Passive Income UK 2021
What is Passive Income
Passive income is earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable.
Read Also: How to Make Money Outside of an Office Job
However, it is often treated differently by the Internal Revenue Service (IRS). Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.
However, the IRS does not always agree that portfolio income is passive, so it’s wise to check with a tax professional on that subject.
There are three main categories of income: active income, passive income, and portfolio income. Passive income has been a relatively loosely used term in recent years.
Colloquially, it’s been used to define money being earned regularly with little or no effort on the part of the person receiving it. Popular types of passive income include real estate, peer-to-peer lendng (P2P), and dividend stocks.
Proponents of earning passive income tend to be boosters of a work-from-home and be-your-own-boss professional lifestyle. The type of earnings people usually associate with this are gains on stocks, interest, retirement pay, lottery winnings, online work, and capital gains.
While these activities fit the popular definition of passive income, they don’t fit the technical definition as outlined by the IRS’s Passive Activity Losses—Real Estate Tax Tips.
Passive income, when used as a technical term, is defined as either “net rental income” or “income from a business in which the taxpayer does not materially participate,” and in some cases can include self-charged interest. It goes on to say that passive income “does not include salaries, portfolio, or investment income.”
Types of Passive Income
Self-Charged Interest
When money is loaned to a partnership or an S-corporation acting as a pass-through entity (essentially, a business that is designed to reduce the effects of double taxation) by that entity’s owner, the interest income on that loan to the portfolio income can qualify as passive income.
According to the IRS, “Certain self-charged interest income or deductions may be treated as passive activity gross income or passive activity deductions if the loan proceeds are used in a passive activity.”
Property
Rental properties are defined as passive income with a couple of exceptions. If you’re a real estate professional, any rental income you’re making counts as active income. Understanding the benefits of passive real estate investing can help in providing considerable advantages, such as tax deductions and long-term wealth accumulation. This allows investors to generate income without active involvement in day-to-day management.
If you’re “self-renting,” meaning that you own a space and are renting it out to a corporation or partnership where you conduct business, that does not constitute passive income unless that lease had been signed before 1988, in which case you’ve been grandfathered into having that income being defined as passive.
According to the IRS’s Passive Activity and At-Risk Rules, “It doesn’t matter whether or not the use is under a lease, a service contract, or some other arrangement.”
However, income from leasing land does not qualify as passive income. Despite this, a land owner can benefit from passive income loss rules if the property nets a loss during the tax year. As far as holding land for investment, any earnings would be considered active.
‘No Material Participation’ in a Business
If you put $500,000 into a candy store with the agreement that the owners would pay you a percentage of earnings, that would be considered passive income as long as you do not participate in the operation of the business in any meaningful way other than placing the investment.
The IRS states, however, that if you did help manage the company with the owners, your income could be seen as active, because you provided “material participation.”
The IRS has standards for material participation that include the following:
- If you’ve dedicated more than 500 hours to a business or activity from which you’re profiting, that is material participation.
- If your participation in an activity has been “substantially all” of the participation for that tax year, that is material participation.
- If you’ve participated up to 100 hours and that is at least as much as any other person involved in the activity, that also is defined as material participation.
Special Considerations
When you record a loss on a passive activity, only passive activity profits can have their deductions offset instead of the income as a whole. It would be prudent to ensure that all your passive activities were classified that way, in order to make the most of the tax deduction.
These deductions are allocated for the next tax year and are applied in a reasonable manner that takes into account the next year’s earnings or losses.
To save time and effort, you can group two or more passive activities into one larger activity, provided you form an “appropriate economic unit,” according to the Passive Activity and At-Risk Rules.
When you do this, instead of having to provide material participation in multiple activities, you only have to provide it for the activity as a whole.
In addition, if you include multiple activities into one group and have to dispose of one of those activities, you’ve only done away with part of a larger activity as opposed to all of a smaller one.
The organizing principle behind this grouping is relatively simple: if the activities are located in the same geographic area; if the activities have similarities in the types of business; or if the activities are somehow interdependent, for instance, if they have the same customers, employees, or use a single set of books for accounting.
How to Get Started With Passive Income
While it can be tempting to want to pick five passive income ideas to get started with, we really encourage you to pick one in the beginning. You need time and the ability to focus to really a grow a passive income stream. Master one thing before moving on to the other.
It’s going to take a substantial amount of time or money in the beginning but earning passive income is everything it’s cracked up to be! Pick an idea, make a plan, and dedicate yourself until that income stream comes to fruition.
How to Increase Your Passive Income
Although the word “passive” makes it sound like you have to do nothing to bring in the income this just isn’t true. All passive income streams will require at least one of the following two elements:
1) An upfront monetary investment, or
2) An upfront time investment
You can’t earn residual income without being willing to provide at least one of these two.
Passive Income Ideas Requiring an Upfront Monetary Investment
These types of passive income require you to invest money up front to generate the passive income later. Don’t be alarmed though – you can start with as little as $5 with some of these ideas, so it’s achievable for everyone.
1. Dividend Stocks
Dividend stocks are tried and true way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time.
For any of these investment opportunities, make sure you open an account at the best online brokerage, and get rewards while doing it.
Our favorite place to invest is M1 Finance. You might not have heard of M1 Finance, but it’s a FREE investing platform that allows you to build a portfolio, and invest in it for free.
This is amazing for investing in dividend stocks because you can build your portfolio of, say, 30 stocks. Then, your investments will be auto-allocated to your entire portfolio every deposit – for FREE! You can even auto-rebalance. Then, your dividends can also be reinvested. It’s a fantastic platform, and it was made for this.
2. Rental Properties
A cash flowing rental property is a fantastic way to bring in a monthly income. To make this truly passive you can outsource the running of the properties to a management company.
However, the internet has made investing in rental properties easier than ever before. There are a lot of ways you can invest in rental properties depending on what your goals and interests are. You can be a limited partner in large residential or commercial properties, or you can buy homes and be a landlord – all online!
Invest In Single Family Homes
If you’re looking for a more traditional path to real estate investment, check out Roofstock. This company allows you to buy cash-flow positive single family rentals – online! You can sign up and start searching properties today.
The great thing about using a platform versus doing it yourself is that the income is even more passive.
Invest In Larger Developments
Do you not want to be a landlord, but still want real estate exposure and income? Then consider being a limited partner in a large development.
With these options, you can invest in multi-family or commercial properties. You get the income and tax treatment just like regular real estate ownership, but you don’t do any of the work!
One platform that comes highly recommended is RealtyMogul because you get the flexibility to invest as little as $1,000, but can also participate in REITs and private placements – typically not offered to the public.
Investors can fund real estate loans to gain passive income or buy an equity share in a property for potential appreciation. Their platform is open to both accredited and non-accredited investors.
Invest In Farmland
Farmland isn’t sexy, but it has a lot going for it when it comes to real estate investing. It’s slow, steady, pays consistent rent, and everyone needs to eat. That’s were AcreTrader comes in.
Plus, compared to other types of real estate its much less volatile. The easiest way to invest in farmland is via AcreTrader.
For Accredited Investors
One of the best ways to get started with rental properties is through EquityMultiple. Similar to LendingClub, you can start investing in real estate for as little as $5,000 at platforms like EquityMultiple.
This platform has a nice mix of smaller residential to mixed use residential and commercial properties.
3. Peer to Peer Lending
P2P lending is the practice of loaning money to borrowers who typically don’t qualify for traditional loans. As the lender you have the ability to choose the borrowers and are able to spread your investment amount out to mitigate your risk. The most popular peer to peer lending platform is Lending Club.
What’s great about Lending Club is that investors are earning 4-6% returns on average – and that’s all passive income. You simply lend your money, and you get paid back principal and interest on that loan.
The median return on cash flow is 4.1% – which is better than any money market fund you’re going to find today. This also makes Lending Club a favorite CD alternative.
4. Invest In A REIT (Real Estate Investment Trust)
If you’re concerned about investing directly in real estate, or maybe you’re not yet an accredited investor, that’s okay. You can still take advantage of real estate in your investments through REITs – Real Estate Investment Trusts.
These are investment vehicles that hold property within them – and you as the owner get to benefit from the gains, refinances, sale, income (or loss) on the property.
One general favorite platform to invest in a REIT is Fundrise. They only have a $500 minimum to get started and offer a variety of options we love as well!
5. Pay Off Or Reduce Debt
Along the same lines as refinancing your mortgage, if you can pay off or reduce your debt, you’re making huge progress in building income. But just like other things in this topic – it takes a monetary investment to make that happen.
The great thing about paying off debt is that it’s a straight return. If you have a credit card at 10% interest, paying it off is a 10% return on your money! That’s huge.
There’s two approaches you can take with debt: refinance or consolidate, or balance transfer and pay down.
If you have student loan debt, it could make a lot of sense to refinance the debt. You can see if it makes sense in 2 minutes at Credible without a hard credit check.
Passive Income Ideas Requiring an Upfront Time Investment
The next section of passive income ideas require a time investment. Instead of using money, you need to put in sweat equity to make these happen.
Almost all of these ideas require starting a personal blog or website. But the great thing about that is that it’s incredibly cheap to do.
1. Sell an eBook Online
Self Publishing is mainstream today. When you purchase an eBook off of Amazon there’s a pretty good chance you’re buying a self-published book. Self-publishing is also ridiculously easy.
To self-publish a book you’ll first need to write and edit it, create a cover, and then upload to a program such as Amazon’s Kindle Direct Publishing. Don’t expect instant success though. There will need to be a lot of upfront marketing before you can turn this into a passive income stream.
2. Selling Stock Photos
Do you ever wonder where your favorite websites, blogs, and sometimes even magazines get their photos? These are normally bought from stock photo websites. If you enjoy photography you can submit your photos to stock photo sites and receive a commission every time someone purchases one of them.
One of the biggest marketplaces to sell stock photos is DepositPhotos. You can upload your photos are earn money whenever someone uses them.
3. Affiliate Marketing
Affiliate marketing is the practice of partnering with a company (becoming their affiliate) to receive a commission on a product. This method of generating income works the best for those with blogs and websites. Even then, it takes a long time to build up before it becomes passive.
4. Create a Course on Udemy
Udemy is an online platform that lets its user take video courses on a wide array of subjects. Instead of being a consumer on Udemy you can instead be a producer, create your own video course, and allow users to purchase it.
This is a fantastic option if you are highly knowledgeable in a specific subject matter. This can also be a great way to turn traditional tutoring into a passive income stream!
5. Network Marketing
Network marketing, or multi-level marketing, seems to be on the rise. Companies such as Young Living Oils, Avon, Pampered Chef, and AdvoCare are all multi-level marketing companies.
You can earn passive income through network marketing by building a team underneath you (often referred to as a down line.) Once you have a large team you can earn commissions off of their sales without having to do much.
Semi-Passive Small Business Ideas
These are called semi-passive income because they are more like a business, less like the ideas above. They all also require a small combination of time and money investment. But once you invest, you can earn more income and typically do so passively.
However, these all do require some ongoing time investment, so they aren’t 100% passive like having a savings account.
1. List Your Place On Airbnb
If you have a house, apartment, spare room, or even backyard, consider listing your property on AirBNB and start earning money when you get your sign booked.
AirBNB is great because you can earn money on a space you already own. It does require a little work up front to prep your place, list it, and clean up after guests, but it’s pretty passive otherwise.
2. Rent Out Your Car
Similar to listing your place for rent, you can also list your car for rent. This can be truly passive because once you list your car, it can earn you income when you’re not using it!
A favorite partner to rent your car is Turo. Turo allows you to put your car out for rent, and when people rent it, Turo handles the rest!
The cool thing with Turo is that, depending on your location and what kind of car you have, you can make a decent passive income!
3. Car Wash
This seems like such a great way to earn a semi-passive income. While regular maintenance will be needed at a car wash it’s something you can either hire out or perform once a week.
As a side note, we talking about the really basic car wash that is cinderblocks, a pressure washer, and coin operated. If you’re going to run a drive through car wash, it’s definitely a business vs. a passive income stream.
4. Storage Rentals
If you own a set of storage rentals you can receive monthly checks for letting customers rent these out. The only time you seems to do any work for these is when you have an opening for one of the storage units.
If you’re not sure about getting into this space, you can also invest in storage rentals via a REIT.
Easy Passive Income Ideas
Last on the list we want to point out a couple of easy passive income ideas. These require no money and no upfront work. While the earnings are menial you still can’t beat easy passive income!
1. Cashback Rewards Cards
If you pay your bills with a credit card make sure it offers cash back rewards. You can let your rewards accrue for a while and possibly put the easy money you earned toward another passive income venture! (Be sure that the card you select doesn’t have an annual fee or you might be cancelling out your rewards).
2. Get Paid To Have An App On Your Phone
What if you could install an app on your phone, and get paid for it? Yes, this app tracks what you’re doing and it sells your data – but what’s more passive than that?
If you don’t want to do anything out of the norm, check out Neilson Digital. You simply download the app and do what you normally do. The app runs in the background and you are entered to win rewards. Simple, easy way to get money for nothing.
Mobile Expression is a similar app for iPad. You can earn rewards for installing it and leaving it on your device for at least 90 days. And boom! You get paid!
3. Cashback Sites
Just like cashback rewards cards you should opt to use a cashback site when shopping online. If you don’t you’re giving up free money that requires little to no work! You can just compared the two most popular sites – Rakuten versus TopCashBack.
4. Save Up To 30% On Your Electric Bill
Let’s mark this one as passive saving versus passive income, but every little bit helps when you’re looking at your bottom line.
Truebill is an app that helps you save money by identifying recurring subscriptions and other bills and helping you cut costs by negotiating better rates and fees.
One of their partnerships is with Acradia Power, which has the potential to save you up to 30% on your electric bill. It searches for better power rates in areas where competition is allowed, and it locks in the better prices for you.
Top 17 Passive Income Ideas to Increase Your Income
1. Invest in Land
Did you know you can earn passive income by investing in land? Of course, you can buy land and rent it out, such as farmland. However, you can also participate in crowdfunded land ownership and rental.
Companies like Acretrader allow you to purchase shares of farmland. They handle all of the work of administration and property management. You earn the profits from the farmland being rented out. Rent for the farmland is paid up from to reduce risk of loss from crop failure.
2. Create Software
Have you thought about using your skills to create software to sell? Spencer Haws created a software program called LongTailPro.
LongTailPro is a keyword research software that helps businesses find the right keywords to get high converting traffic to their website or blog. In fact, Spencer makes over 10k a month by selling his LongTailPro software.
By partnering with other bloggers and advertising LongTailPro on his own blog, Spencer marketed his software in niches he knew would benefit from the software.
One interesting thing about Spencer’s story is that he hired out via Upwork for all of the development of the software. So, he didn’t actually create the software he sells.
He had the idea for what he wanted the software to do, but he hired someone else to do the work of creating the software. So, even if you don’t necessarily have the skills to make a software program you can still make this passive income source work for you.
3. Purchase Dividend Earning Stocks
Many investors, including Warren Buffett, earn money by owning shares in dividend stocks.
Dividend income is money paid to shareholders of stocks in the form of cash. Every quarter–or sometimes monthly–companies that have dividend paying stocks issue dividend checks to stockholders.
You can reinvest those dividends to buy more shares of stock, or you can take the money as a paycheck and live off of it.
Any time you invest money in the stock market, it’s important to do your research. You want to know what you’re doing so you choose stocks that have a solid history of good performance.
Investing in index funds that hold dividend paying stocks is one option. Index funds are funds that hold stocks from several companies so that not all your eggs are in one basket.
Also, many successful investors choose to hold what are called “blue chip” dividend stocks. These are stocks in companies that have a long history of success. Think Coca Cola or 3M.
4. Buy Music Rights
Did you know you can get royalties from music or movies you didn’t take any part in creating? Royalties are money actors, singers and other artists get when they create a song, TV show or movie.
Sometimes those artists want to sell future royalties because they need a lot of money right now. Maybe they want to buy a house or invest in a business.
So they sell a portion of their future royalties to investors. The investors make their money back with profits. Companies such as Royalty Exchange work to connect artists with investors.
5. Be an Angel Investor
This could be a good source of passive income if you have a lot of extra cash laying around. Angel investors provide funding for small startup businesses or entrepreneurs.
When you invest with companies like AngelList, you can invest in specific startups, or you can invest in a basket of startups that is designed similar to an index fund.
Minimums for Angel investing products on AngelList range from $1,000 to $500,000.
6. Loan Money to Others
Have you ever heard of peer-to-peer lending? This is kind of like crowdfunded real estate investing.
A group of investors get together and invest money that is loaned to borrowers. As the loan is paid back with interest, you as the investor make money.
Of course, there is the potential that you’d lose money if the loan isn’t paid back. However, a lot of peer-to-peer loan companies rate loans you can invest in based on their risk level.
For instance, a borrower with excellent credit is less of a risk for you to lend money to than one with poor credit. You could choose to invest in lower risk loans if you want to minimize your chances of losing money.
Just know that investing in the lower risk loans will result in a smaller profit.
If you are looking for a lower risk option with a decent return, check out Worthy. They offer $10 bonds and pay a 5% return. One unique thing about them is that your money is liquid, so you can take it out at any time.
This can be a great benefit if you’re worried about possibly needing the money before the end of the investment term.
7. Pay Off Your Debt
A lot of people don’t think of paying off your debt as a form of passive income. But think about it this way.
The less money you’re paying in payments to creditors, the more money you have in your pocket each month. On top of that, getting out of debt quickly can increase your income even more because you’re not wasting money on interest charges from creditors.
If you want to get out of debt faster, there are companies that can help you do that. For example, you could check out Credible, which offers loan rates as low as 4.99% APR with autopay for refinancing your credit card debt.
8. Use the Spare Space in Your House
Does your house or apartment have a spare bedroom? If so, you could make some passive income by renting it out on Airbnb. Airbnb is a popular alternative to regular hotels.
This is because it’s often cheaper than regular hotels and provides a more “homey” feel for guests.
Of course, there is some maintenance involved with this passive income source. You’ll need to be sure the rooms are cleaned after a guest leaves. However, you could hire a maid to do that.
9. Earn Income From Affiliate Marketing
Do you have a blog or website? Or, are you thinking about starting one? Many blog owners make money by selling affiliate links on their blog.
Here’s how it works. You link to a product or service on your blog. When someone purchases that product or service through your link, you get paid.
Some people are making over $50,000 per month like Michelle Schroeder-Gardner who teaches others how to make money online with her course Making Sense of Affiliate Marketing.
You’ll need to get hosting service for your blog so it can be seen on the internet, but that’s inexpensive when you get a deal. Click here to get special pricing of $2.95/month with Bluehost.
Blogging can be great way to make money from home. You just need a computer, internet service and engaging content on your blog.
10. Sell Products on Amazon
A lot of people are earning passive income by setting up a shop on Amazon. You have the option to sell your own products on Amazon. You can ship them yourself, but that’s not true passive income.
Instead, you could have Amazon send out the products for you? You could earns well above the six figure mark selling his own products online.
11. Start a Drop Shipping Business
It seems that everyone is shopping online these days. Because of that, drop shipping has become very popular. What is drop shipping?
Basically, it’s where you create a site that advertises other companies’ products.
A buyer would order the product from your site. Your site is set up to automatically send the order to the manufacturer of the product. The company that makes the product is responsible for shipping the item to the client..
With drop shipping, you don’t have to worry about carrying inventory. You’re simply a go-between of client and company who makes a profit.
If you’re interested in starting a dropshipping business, consider using a platform like Shopify to build your online store.
12. Create YouTube Videos
Surely you’ve heard of–or probably even watch–some of these people making big bucks by posting YouTube videos. They post a video, and the video contains ads.
As the video creator, you earn money from the ads within the videos you create. The key to earning money on YouTube is growing a large audience.
You’ll want to spend some time reaching out to people who like similar content to what you publish on YouTube. Ask them to subscribe to your channel. Doing this will increase your YouTube following.
Once the initial work is done, you’ve got a passive income source on your hands. Note that you’ll need to make a lot of videos (100 or more) to really make some serious cash at this business.
13. Open Your Own Vending Machine Business
Here’s an example of a potential business you can own. Corporations and other businesses such as gyms or dance studios love having vending machines available for clients or workers.
You can visit local businesses to see if they’ll let you install vending machines their clients can use. If you have the right types of snacks in your machines, you could make some big money.
Once you get approval to install the machines, ask workers or clients what types of snacks they want in the machines. This could help you increase sales.
To make this a truly passive income source, you can hire people to restock the machines for you.
14. Put Ads on Your Car
Did you know there are companies that will pay you just for driving you normally do every day? If you live in a major metropolitan area and do a decent amount of driving, you could earn money by having advertisements on your car.
Companies such as Wrapify wrap your car with ads, and then pay you for your daily driving. Usually the companies want cars that are in good shape with no dents or rust. These types of cars are easier to make advertising wraps adhere to.
15. Buy a Laundromat
Owning a laundromat is another idea for passive income. Cities everywhere have laundromats for people who don’t have in-house laundry facilities.
Here is how you could make owning a laundromat true passive income:
- Buy an existing laundromat business from someone interested in selling
- Hire a reliable and trustworthy person to manage the store
- Take home a paycheck
Start-up costs for laundromats can be pretty high, as commercial washers and dryers aren’t cheap. For that reason, you’ll probably be better off financially if you buy an existing laundromat business.
16. Use Your Graphic Design Skills
Are you good at graphic design? Sites such as Redbubble allow you to upload your witty design ideas and then create t-shirts, coffee mugs, laptop covers, etc.
You might have some ideas for great sayings that can go on shirts or mugs. Or just great designs. The cool thing about sites like Redbubble is that all you have to do is create your store and upload your designs.
They handle all shipping, payment, and customer service. When your designs sell, they send you a monthly check for your portion of the profit.
17. Rent Your Stuff to Others
What about earning passive income by renting out stuff you own? Craigslist can be a great place to advertise your items for rent.
Products that you could rent out:
- Tools and ladders
- Party tents
- Tables and chairs
- Utility trailers
- Log splitters
- Cleaning equipment
- Snowmobiles
- ATV’s.
You can even rent out your car when you are not using it with a company like Turo.
If you’re going to choose this passive income source, be sure to have all renters sign a contract. That way you protect yourself and your equipment in case something goes wrong.
How Can I Make $1000 a Month in Passive Income?
If you happen to be new to passive income and want to learn more about how it works, make sure to check out the options listed below.
1. Start a YouTube Channel
Once you create a YouTube channel, you can allow YouTube to run ads on your videos. These are the ads that you see playing before a video, the ads in the column on the right-hand side, or below the video. If someone clicks on the ads, then the YouTube creator gets half of the money that the business paid to run the ad. Keep in mind that different channels earn different amounts, depending on their niches.
Breakdown: $5/1000 views, 200,000 views = $1000/month
2. Start a Membership Website
This is a private site that you regularly add new content to. For people to access that content they have to subscribe to the website. Often times there is content that people can access for free to give them a taste of what is available, but to get additional content or the premium content they need to pay a monthly membership fee.
Depending on what your membership site is about, what it offers to its members, and how premium the content is you can charge different amounts. The range can be anywhere from $5 – $300 per month.
One fantastic thing about a membership site is that it creates that recurring revenue month after month and you don’t have to necessarily do anything additional to maintain it. With that being said, some of the best memberships sites do add new content every month. It all really depends on how you structure your website, and whether you decide to create and schedule your content.
Breakdown:
100 x $10 members = $1000/month
Or 10 x $100 premium members =$1000/month
3. Write a Book
Writing a book isn’t my favorite way to make passive income, because it doesn’t have as much profit potential as many other methods. However, it does have some other benefits, including the ability to help you reach other goals and advance your career.
Breakdown:
$5/per book sale
200 sales/month = $1000/month
4. Create a Lead Gen Website for Service Businesses
With this option, you would work with another business that was offering a service or a premium product to their customers. You would create a website of your own, which would essentially be an advertisement for your partner’s business.
Your website provides prospective customers with some free resources or potentially the opportunity to book a free consultation call. You would then drive traffic to that website so you can get leads for the company that you’re working with. Afterward, the company would pay you for the leads.
In order to do this successfully, you will need to have a working knowledge of Digital Marketing so that you know how to drive the right traffic to the website.
Breakdown:
$5/lead x 200 leads = $1000/month
5. Join the Amazon Affiliate Program
You can get a cut of Amazon’s profits by joining their affiliate program. After the quick sign up process, you can share your affiliate links with people who you think would be interested in purchasing certain products. You’re then paid a commission of 4-8% of the sale price. The more products your prospects buy on Amazon, the higher the affiliate commission is.
One of my favorite things about Amazon’s affiliate program is that even if someone clicks on your link and doesn’t buy what you recommend, you can still earn an affiliate commission if they purchase anything from Amazon within the next 24 hours. Keep in mind that to earn enough affiliate income to make $1,000 you need to do an excellent job in recommending products to people who want to buy them.
Breakdown: $5/sale x 200 sales/month = $1000/month
6. Market a Niche Affiliate Opportunity
Instead of making a small commission on a lot of products with Amazon affiliates, you can instead choose one, premium product — usually a digital product — and to focus on marketing.
You can start a YouTube channel or blog based around that product/topic, start building an email list, or promote it on a social media platform. Your goal is to build an audience that will be interested in the product and who trusts you so that they will feel confident in purchasing the digital product you’re recommending.
Breakdown: $50/sale x 20 sales/month = $1000/month
7. Create an Online Course
Creating a course is another great option to generate passive income. You can sell it on your website or on a third party platform — each option has advantages and challenges. If you sell on your own site, then you keep 100% of the profits but have to drive traffic to generate sales.
Alternatively, if you sell your course on a 3rd party platform, such as Udemy, finding customers is much easier, but you won’t earn nearly as much per sale.
When you sell on your site, you can charge much higher prices. Courses typically sell for $100 to upwards of $5,000. Your price is dependent on what your course is about, what value it gives to the students, and how well you market it. On a 3rd party platform, courses typically run between $10-$100, and you earn around 50% of the sale price.
Breakdown:
Sell your course on your own site:10 x $100 sales or 1 $1000 sale
Sell courses on 3rd party site:$20/sale x 100 sales/month x 50% commision = $1000/month
8. Invest in Real Estate
It is typical to earn about $250 of profit per month per rental. But, of course, there are plenty of things that can throw off that average.
At first glance, it might look like the other ideas above are better than investing in rental real estate because the risk-to-reward ratio is a bit skewed. Fortunately, some benefits you can take into consideration are that you can build equity in a property that could also be appreciating in value at the same time.
Breakdown: 4 rental properties x $250 profit/month = $1000
9. Rent Out a Room in Your House
You can rent a room of your house through a website such as Airbnb. This is a great option if you have extra space in your house and you don’t mind the company. In addition, you can even consider renting your entire home if you travel a lot, whether it be for business or vacation. Renting a room can range anywhere between $25-$200 per night depending on the location and where you live.
Breakdown:$50/night x 20 nights = $1000
Passive income definitely takes a lot of upfront work to create, but it can be a great way to diversify your income. Depending on which route you decide to take the initial investment can pay off immensely!
How Can a 17 Years Old Make Passive Income?
We have passive income ideas for 18 to 20-year-olds but there are many ways to make passive income as a teen. Keep in mind that most of them require you to be over 18 years old or to have the authorization of a legal guardian.
1. Blogging
Blogging has become a popular way of earning passive income. Although most successful bloggers are adults, the blogging scene has seen its fair share of successful teenage bloggers, With the right niche and excellent content, you can grow your audience, monetize your blog, and start earning passive income.
o run a successful blog, you need to choose a niche or target market (your blog has to resonate with a specific audience), create high-quality content (things you are passionate or highly knowledgeable about), and have a growing audience. With these, you can monetize it and earn passive income from ads, affiliate marketing, selling digital and physical products, and more.
You can earn hundreds or thousands of dollars every month with a monetized blog, but this will not happen overnight. In the beginning, you have to be willing to put in a lot of work (like creating, editing, and posting content, building your site, etc.) and a small financial initial investment is required (to build, run, and promote your site). With hard work, dedication, skill, and time, your blog can start earning passive income.
2. Gaming
Although almost nonexistent two decades ago, gaming has become a popular and lucrative way of earning passive income today. Successful teenage gamers like Griffin Spikoski earned $200,000 in 2013 at the age of 14 (source). You earn passive income from game tournaments or more passive ideas like running a monetized blog, offering gaming courses, ads, donations, memberships, and more.
One of the most effective ways of making passive income from gaming is by live streaming your gaming skills of sites like YouTube and Twitch. This helps you build an audience fast and monetize your channel, which makes it a passive income stream.
Although it sounds easy and lucrative, gaming as a passive income source requires passion and dedication. You need to grow your audience, which requires you to create and post numerous videos playing games, long live streaming hours, and experience in the games you choose to play. With time, gaming can become a lucrative passive income stream.
3. Charging Scooters
Electric micro-mobility vehicles (like scooters and bikes) have become popular transport solutions in megacities across the world and charging them is an excellent way you can make passive income.
For example, companies like Lime and Bird pay between $3 and $20 for every scooter you charge. The best part? It is a fairly passive idea. All you need to do is pick a couple of scooters at night, charge them, deliver them back, and get paid.
To start earning income from charging scooters, you need to choose and sign-up on a scooter charging service, ace the scooter training program and start charging scooters in your area.
The amount of money you make depends on the number of scooters you charge, your location, and popularity amongst scooter owners, among other factors. Imagine you get $5 per scooter and charge 10 of them every night. You can make $50 per night or $1,500 per month without doing much.
4. YouTube
One of the easiest ways to earn passive income is through a monetized YouTube channel. Many successful YouTube channels owned by kids and teenagers earn thousands of dollars every month. For example, RyanToyReviews by Ryan Kaji (an 8-year old YouTuber) earn millions of dollars every year by reviewing kid’s toys on his channel.
Your content and audience are key to the success of your channel. With excellent content and a growing audience, you can monetize your channel (by placing ads, affiliate marketing, selling digital and physical products, royalties, endorsements, etc.) and earn a passive income within a short period.
Currently, you must have at least 1,000 subscribers and 4k hours of watch time in the last 365 for your channel be put under review for monetization.
To grow your audience, ensure you create a niche site that attracts a specific group of people, provide excellent content that keeps them subscribed and active, and post consistently. Your content can be something you are knowledgeable or passionate about and would like to share with others.
Hence, it is not an easy task and you have to be willing to put in the work at the beginning to build up your channel. With an active, subscribed audience and excellent content, YouTube can be a lucrative passive income source for teenagers.
5. Creating Niche Sites
Creating and running a niche site has proven to be a lucrative passive income source. A niche site is a blog or site that addresses a specific topic that resonates with a specific audience or niche. Content on a niche site targets an audience that shares specific interests.
For example, instead of a blog about outdoor photography, your niche site can address outdoor photography with DSLR cameras specifically. Your niche and content are key to the success of your site.
Audiences visit niche sites to search for information, resources, and recommendations about a specific topic so your content must appeal to them. You can create a niche by offering content on popular topics you are passionate, experienced, and knowledgeable about.
Income school’s Project 24 teaches ways to earn passive income with a niche site within 24 months, but you have to be willing to put in the hard work at the beginning. With your niche site set up right and created following their tested and proven strategies, you can earn well over $1,000/month by running a niche site.
With a growing audience, you can monetize your site and earn passive income through ads, affiliate marketing, selling merch, offering courses, email marketing, etc. With time, and with a couple of successful niche sites under your belt, you can earn thousands of dollars monthly as passive income.
How do You Increase Passive Income?
The average millionaire is estimated to have seven streams of income. That doesn’t mean seven jobs. Most millionaires have figured out additional streams of income other than their mainstream.
Here are a few passive income ideas to help you build up your personal wealth.
1. Make Money from Daily Activities
Earn money by redeeming money on your everyday purchases.
When you use Swagbucks, you earn points for shopping you’re already doing online from places like Amazon, Walmart and Starbucks. Plus, earn extra points for watching videos about a variety of topics, browsing the web and answering surveys. You can then redeem those points for gift cards to your favorite stores or get cashback via PayPal.
Just like Swagbucks, with InstaDollar you can earn residual income for doing stuff online that you already do, though you also get paid for doing a wider variety of tasks that you do with Swagbucks like checking email and playing games. Overall, the concept and reward structures are nearly identical. With InboxDollars, you do get a $5 sign up bonus, but you won’t be able to collect it until you build up $30 worth of rewards.
2. Make Your Car Work for You
Another daily activity you can turn into passive income is driving.
If you’re already driving around to run errands, why not pick up a passenger or two? Driving your car with Uber will help you make money by driving people to their assigned destination.
You can also place advertisements on your car to earn money while you’re driving around.
If can even make money when your car is not being used while you’re on vacation, traveling or just during a typical workday. With an app like Getaround, you can make thousands of dollars by renting out your car while you’re not using it. Plus, Getaround car owners get the best parking spots in town, a $50 monthly credit to rent whatever vehicle they like and $1 million in primary insurance coverage.
3. Get a High-Yield Savings Account
Online banks have started to offer enticing interest rates that can help earn money on your savings.
With CIT Bank, you can get a 1.55% return on your savings. It is not money you are going to get rich from but it is free money. And since there are no monthly fees, that’s a double win from CIT Bank.
An alternative option is Discover. Like CIT Bank, Discover offers competitive rates on their savings accounts. The big perk with Discover is that there is no minimum opening balance.
4. Rent out a Room in Your House
If you have a spare bedroom, you can rent out your room through Airbnb. It is totally up to you when the room is available, what the daily rate is and you make the rules for your guests.
A great way to make money while you’re on vacation or out of town is renting out your whole place on Airbnb.
It might feel weird leaving your space in the hands of strangers but luckily Airbnb has up to one million dollars of insurance in case something goes wrong. There’s also a rating system, so you can review the renter’s reputation before letting them rent your place.
5. Invest in Crowdfunded Real Estate
With just $500 you can start investing in real estate via a Starter Portfolio from Fundrise. You will get to take advantage of a REIT (real estate investment trust) with more flexibility and potentially high returns. Performance reports indicate that you will get returns of 12.25% on your initial investment.
Another crowdfunding real estate platform to consider is RealtyShare. It is similar to Fundrise but the minimum investment is $5,000. With this platform, there is more control and you are allowed to choose what properties you want to invest in, instead of relying on the performance of the entire portfolio.
If you choose either of these options, keep in mind that since they are private funds and not public stocks, you won’t be able to easily liquidate your investment and access your cash right away. Your investments could be tied up from anywhere from six months to five years. However, you’ll most likely still receive monthly or quarterly payments, depending on which investment opportunity you select.
6. Invest in Dividend Paying Stocks
Investing in stocks that pay quarterly dividends is the oldest and one of the best ways to generate passive income.
Let’s say you buy shares of Colgate-Palmolive stock. When you buy stocks the price is likely to ruse over time, you will get paid for each share of stock you own. Over the past seven years, Colgate-Palmolive has paid between $0.34 and $0.68 each quarter for every single share owned by stockholders.
If you’re trying to develop a long-term investment strategy, you might want to reinvest those dividends but if you’re strictly looking for passive income, you do well to cash those dividends.
If you’re new to investing, Ally Invest has free courses to help you have a better understanding. If you would like the guidance of financial advisors, you just need an initial investment of at least $2,5000 to get professional help for as low as $0.62 per month.
7. Peer-To-Peer Lending
If you want a higher than average return rate on your investment and would like to feel like you’re contributing to society, consider becoming a part of the Lending Club. The Lending Club takes your investment and uses it to help people borrow to start a business, consolidate debt and pay for medical care.
Here’s how it works:
- Open an account and transfer as little as $0.01 as a minimum initial deposit
- Build your portfolio by investing in a range of loans in increments of as little as $25
- Get paid by receiving monthly payments as borrowers repay their loans
- Reinvest payments or withdraw your money
8. Affiliate Marketing
With affiliate marketing, you earn a commission by promoting a product. The product you promote online should be something you know about and that you believe is high quality.
There are a few ways to get started as an affiliate. You can either form an affiliate relationship with directly with a specific company or through a commission platform like the Commission Factory, RewareStyle or ShareASale. You could also sign up as an Amazon affiliate.
So how do you get started? You’ll need a blog.
When you have an online presence, you have a place to give recommendations and share your knowledge about products. This is an essential part of affiliate marketing. Having a blog opens you up to all sorts of revenue streams. Not only can you earn passive income online with affiliate commissions, but you can also make money on advertising, too.
9. Create and Sell an Online Course
Perhaps, you have certain knowledge and excelled skill level with a particular topic. You can use these skills that you have earned during a very long career to make you money.
You can create an online course to teach anything from Algebra to the guitar on platforms like Udemy or Teachable. The best part about this passive income idea is that once you do the initial work of setting up your course, you will continue to get paid when people take it.
What Are Some Examples of Passive Income?
1. Investing
Investing is one of the most common and accessible methods of generating passive income. Over the long term, the stock market has consistently generated steady returns, even if it has ups and downs in the short term.
There are a couple of ways to earn money from stocks. You could buy high-dividend stocks for regular cash payouts based on company earnings. Or, hold onto ordinary low-dividend stocks and let them grow in value until you’re ready to sell at a profit. It’s also possible to buy shares of REITs (real estate investment trusts) and earn a share of income from the real estate projects they hold. You can get started investing with as little as $100!
2. Crowdfunding real estate
As mentioned above, REITs are a simple way to earn a share of income from real estate, but with those, you don’t get to choose specific properties to invest in. If that sounds interesting to you, the next level up is contributing to crowdfunded real estate.
Through programs like Fundrise and RealtyMogul, you’re able to buy a stake in specific real estate projects from the comfort of your couch and earn a share of the income from them too. Most platforms require a minimum investment of at least $1,000, and sometimes more.
3. Owning managed rental properties
The top tier of the real estate methods—owning your own! But if you’re not up for the job of screening tenants and being a landlord, you can turn this into a passive income strategy by hiring property managers. Of course, this costs a fee, but it takes a lot of work off your hands. Owning rental properties is not without risk, though.
For instance, the property could stay vacant for too long or repairs might cost you a lot of money. Even so, with caution and due diligence, owning real estate can be very lucrative.
4. Buying bonds and/or CDs
Bonds and CDs (certificates of deposit) are two very low-risk ways to get your money making money. The tradeoff for this safety is usually fairly low returns and having your money committed for a certain amount of time.
For instance, checking current CD rates shows that you can earn about 2% for a one-year CD. There is usually a penalty if you need to withdraw early, so make sure you don’t need the cash soon.
With bonds, how much they pay mostly depends on how stable the bond issuer is. U.S. savings bonds are guaranteed by the government and are very safe. Corporate bonds depend on a variety of factors to determine their risk factor and interest rate. Generally, you can expect to see anywhere from 1-4% as a bond’s annual interest rate.
5. Publishing ebooks
When it comes to how to create passive income with no money, you’ll have to invest effort upfront instead. Passive income ideas like this and the next few only become passive over time.
Self-publishing books on Kindle is one popular way to monetize fiction or nonfiction writing. Actually writing the book will require the most time and effort of the process, of course. You’ll probably also want to research some marketing strategies to get your title out there.
After that, you get to sit back and make sales! Even if you only charge a couple dollars, it can add up as people continue buying copies for years into the future.
6. Building a niche affiliate website
The upfront work of this method includes finding a niche to write about, creating an attractive website, researching keywords that will drive traffic to you, and joining affiliate programs. Once it’s set up, you’ll earn ongoing income from any affiliate sales your content generates.
You might want to make occasional updates to keep the site active and update keywords. When it comes to websites like these, think small and specialized. Review websites for a specific type of product can be successful and easy to monetize.
7. Coding apps/software to sell
If you already have tech skills, think of a program that would improve people’s lives or be fun to use. Even simple apps can be successful. For instance, look at the story of Flappy Bird: an extremely simple yet addictive game that went viral and at one point was earning its creator $50,000 a day from ad revenue.
This story is an exception rather than a rule, but it demonstrates that you don’t have to build the fanciest, most complicated apps to earn a profit. Once your app is available for sale, there’s little ongoing work besides making any necessary updates.
8. Selling stock photos
This isn’t a passive income idea that will usually make you rich, but it is relatively easy. Once you’ve done the work of taking photos and listing them on a stock photography site like Shutterstock, your photos can bring you a little cash on the side for years to come.
These days, most smartphone cameras are capable of producing high-quality images, so you don’t necessarily even need to upgrade your equipment (unless you’re already a hobbyist photographer and have a DSLR on hand!).
Think about the types of photos companies might want to use for websites, articles, etc. The subject matter might not always be the most exciting, but getting paid is exciting, right?
9. Owning a vending machine or ATM
This is one of the more unusual passive income ideas that not as many people realize is possible. You find vending machines and ATMs everywhere, but might not stop to consider who owns them!
When you buy or rent an ATM, you can place it in a location you own or negotiate to share profits with someone who has property in a more lucrative location. You make profit from ATM fees charged each time someone uses the machine.
You’re responsible for keeping the machine stocked with cash, but you can turn this into a passive income source by outsourcing this work to a trusted third party.
Vending machines are similar. You’ll want to place it somewhere with a decent amount of foot traffic, and you can outsource the restocking of snacks or drinks inside the machine. Inventory costs can be very low when you’re buying in bulk, so it’s a chance for a decent profit margin.
10. Flipping domain names
Domain names are like the real estate of the internet: everyone wants a good one, but there’s a limited supply. Most people want a .com domain that’s memorable and relatively short so it’s easy for people to type.
If you’re a creative type with a little business acumen, a good passive income hustle could be buying domain names you think could be profitable and in-demand and listing them for sale. You can often do this relatively cheaply, but it’s not without risk since you could find yourself paying for a domain name that just won’t sell.
Passive Income Ideas With Little Money
Passive income can be earned in two ways. The first is to make your money work for you. This could be done by investing in the stock market, real estate, or a business.
The second way to earn passive income is to invest your time. For example, you can start a side hustle. While it’s definitely possible to earn passive income with no money, it isn’t easy. It will require a lot of initial hard work and comes with no guarantees.
If you want to give it a shot here’s how to create passive income with no money.
1. Create An Information Product
If you have expertise in any particular subject you can create an information product and sell it online. This could be a course, a guide, or an eBook.
Here are some examples:
- Rosemarie Groner of Busy Budgeter earned over $58k in January from selling two short informational guides and a personal finance workbook. (Note: she did spend a lot of money on Facebook advertising to reach that level but that is NOT necessary when you’re just getting started.)
- Greg Jeffries earned over $30k in one year by creating online courses. He also shares where you can sell those courses.
The information product you create could be on any topic. If you need some ideas visit Amazon and start looking at some of the best-selling book topics and see if any of those match up to your expertise. (Even if they don’t it doesn’t mean there isn’t a market for what you have to share!)
2. Write A Kindle eBook
Another popular way to earn passive income with no money down is to write an eBook and sell it on Amazon through the KDP program.
KDP stands for Kindle Direct Publishing and is Amazon’s program for self-publishers. While you will have to write your book, figure out Kindle formatting and come up with a cover design, it costs you nothing to self-publish a book through Amazon.
If your Kindle eBook is priced at $2.99-$9.99 you’ll receive a 70% royalty on the sale price of each book. When your book is priced below $2.99 or above $9.99 you’ll only receive a 35% royalty.
If you want to check out a real-life example Steve Gillman of the Penny Hoarder shares how he earned $2,000 from a Kindle eBook. He covers his writing process, marketing strategies, and other key takeaways.
3. Sell Stock Photos
If you’re a freelance photographer or just enjoy taking photos and are good at it, you can earn a passive income selling your stock photos online.
Different sites will have different rules and commission rates. However, there are a ton of different places you can submit photos to.
The great thing about selling stock photos is that one photo can be purchased by many different people.
4. Consider Multi-Level Marketing
Multi-level marketing can leave a bad taste in people’s mouths ometimes. In fact, there’s nothing like logging into Facebook and seeing a dozen people trying to sell an MLM product. I get it.
However, all multi-level marketing doesn’t have to be done in such an in your face type fashion. If you can find a product that is truly helpful and that you’d tell people about anyway then you have a fair shot of making MLM work.
But beware of MLM firms that are focused extensively on recruitment or strongly encouraging you to buy more and more of their own products. MLM can work, but it can also fail you.
5. Sell Your Class Notes
Are you a college student? If your answer is “Yes” and you happen to be an excellent note taker you can sell your class notes for passive income.
Study Soup has a program that allows college students to upload notes and study guides and sell them to other students who need help.
Top note takers have earned as much as $2,300 per semester.
Passive Income Investments
Creating passive income takes time, energy, and resources to consolidate and benefit from. Passive income becomes a thing of joy when you have put everything in place and you can then step aside and watch as the money begins to flow in.
Think of this as what you need to be doing if you haven’t started doing it already – making passive money from your assets.
Consider that you have income-producing assets, say some real estate that pays you rents, some stocks that pay out dividends, or even a business that generates profits.
All these things are passive income and there are a lot of opportunities around you that you can tap into to begin generating passive income. A few of them are as follows:
1. Crowd-funded Agritech farming
The challenge with agriculture is that investing in this lucrative business is labour-intensive and it is very high-risk in nature. Farms are often affected by things like pests and weather conditions, hence, there’s a lot to consider before starting up your own farm.
Because, you don’t have the time to start farming, agritech businesses have come up with the perfect solution to get others to do the job while you make money in the comfort of your home without having to lift a single farm tool.
Agri-tech websites are connecting real, local farmers with investors. The farmer needs capital to fund their farming operations while you, the investor, are in search of trusted ventures to pump your funds into and begin to make a profit.
Most times, there is a minimum amount attached to each farm unit you decide to put your money behind.
You are given an expected interest on your returns and you are at liberty to pick as many farm units as you so desire. When the farming cycle elapses, your initial capital comes back to you, and you are given a profit based off your investment.
Let’s run through a quick scenario, if you bought 2 units of poultry for 50 thousand naira each, your total investment is 100k.
In the event that the farming cycle for that farm is 6 months with a 14% return upon completion, at the end of 6 months, you will be paid 100k which is your capital, plus 14% of your investment which would then amount to N14,000 if you do the math.
There are numerous online platforms to help you get started with this. Do a Google search, compare interest rates, and confirm the authenticity of the platform while you’re at it.
2. Real Estate
Housing & real estate have been known to rake in serious money as passive income around the world for years. If you are looking at a passive income that will come in year-on-year, real estate is the surest way forward. One thing that is on a constant rise is the price of land.
Known as an element that appreciates in value, forward-thinking investors are quick to acquire lands, leave them to appreciate in value for a few years, then resell at more than twice the initial cost.
If your intention is to build a house, all you will have to do is complete the project and let the housing agents do all the work while your rent is paid as at when due.
Whether you are renting or selling out entire buildings, apartments, event centers, hotels, shops, or office spaces, a substantial amount is guaranteed to come to you as steady monthly or annual revenue.
3. Fund a Business
When you find a particular business with potential, do not hesitate to invest in it as you also get to earn returns from it. You don’t have to partake in the day-to-day running of the business but you will have some influence in the decision-making of the business.
4. Invest In Treasury Bills And Government Bonds
Although treasury bills are currently scarce and difficult to purchase, they notwithstanding have always served as a viable means of investment yielding returns.
Treasury bills are short term government debt security that do not accrue interest but rather is issued at a discount on the redemption price.
They are usually sold off to address inflation and manage liquidity in the economy. The 3 available tenures for treasury bills are 91 days, 182 days or 364 days.
Take this example into consideration: If you purchase a 182-day N 100,000 treasury bill at a discount rate of N 90, 000 the Federal government of Nigeria will issue you an IOU for N 100, 000 and will commit to paying you back in 182 days.
In this period, you will cash out to the tune of N10, 000 in profit at 10% interest rate. You make money when the bond is purchased back from you at full price and you don’t get monthly interest payments.
What is happening here is that you are lending to the government and it pays you back with interest. Bonds and notes on the other hand are securities that have stated interest rates that are paid semi-annually until they become mature.
The core difference between bonds and treasury bills is that bonds and notes are issued in two-, three-, five- and ten-years terms while treasury bills are long-term investments with terms exceeding 10 years.
5. Dividend-Paying Stocks
High dividend stocks give you room to amass passive income at a higher annual rate in comparison to regular bank investments. With stocks, your capital appreciates enabling you to earn dividends and benefit from capital gains.
What happens is that you begin to receive your dividends periodically. Although the initial investments may be heavy on your pockets, what you stand to gain is considerable seeing as you are not doing any mind-bending work.
Endeavor to seek the counsel of a financial consultant who can help you navigate the stock market rollercoaster and advise on the best strategies for high returns.
Passive Income UK 2021
1. Dividend Paying Stocks
Dividend-paying stocks may not provide the explosive price appreciation seen with pure growth stocks, but they offer steady, predictable returns. And because of those steady returns, they tend to enjoy more price stability while providing a regular cash flow.
But unlike fixed-income investments, like certificates of deposit, dividend-paying stocks also offer capital appreciation to go with those dividends. That will give you the benefit of both a stable cash flow and price appreciation. What’s more, these stocks typically pay higher dividend yields than the sub-1% rates currently being paid on savings accounts, money markets, and CDs.
“The advantage to buying a stock that consistently pays a dividend versus a bond is bond payments are fixed and don’t increase over time,” notes Robert R. Johnson, Professor of Finance at Heider College of Business, Creighton University, and CEO and Chair at Economic Index Associates. “Dividend-paying stocks not only have a cash flow, but typically that dividend payment increases markedly over time. In addition, stock prices generally rise over extended periods of time.”
2. Real Estate
Of course, we mean investment real estate, the kind that produces rental income. If you own your home, you’re already aware of the potential for capital appreciation. Investment real estate plays on that appreciation, and more.
With investment property, you’ll rent the home to tenants. At a minimum, the rent should cover the monthly mortgage payment. But as rent levels rise over the years, the property will eventually produce a positive cash flow.
All while that process is taking place, the value of the property is rising. At that point, you’re profiting from two different directions – capital appreciation and a net profit on rent.
If you hold the property until the mortgage is paid, you’ll have a choice to either keep the property and collect an even larger share of the rent as profit, or sell the property for a huge, one-time windfall.
In fairness to reality, however, it has to be said that rental real estate is at best a semi-passive investment. You will need to be involved in purchasing the property, getting it ready for occupancy, and finding new tenants each time a previous one moves out. And throughout the process, there will be maintenance and repair requirements that will cost you money, time or both.
3. Real Estate Investment Trusts (REITs)
If you want to invest in real estate, but you don’t want the responsibility of maintaining one or more individual properties, you can invest in real estate investment trusts, commonly known as REITs.
REITs are something like mutual funds that invest in real estate. But not just any real estate – a typical REIT holds commercial properties. Those can include office buildings, retail centers, large apartment complexes, medical facilities and other types of non-residential property.
REITs distribute net income from the trust in the form of dividends. But you’ll also participate in capital appreciation when properties within the trust are sold.
Historically, commercial property has been one of the most profitable ways to invest in real estate. REITs will give you an opportunity to invest in these properties, similar to the way you invest in stocks. You can buy and sell shares in these trusts through major brokerage firms.
“Real Estate Investment Trusts (REITs) are a unique business structure that invests in real estate and requires the organization to distribute over 90% of its funds from operations to investors in order to qualify as a REIT,” explains Greg Hahn, Chief Investment Officer at Winthrop Capital Management.
Hahn suggests National Retail Properties (NNN) and Medical Properties Trust (MPW), each offering distribution yields greater than 5%.
Hahn also cautions: “REITs are highly leveraged since the underlying real estate in the trust is typically secured with a senior commercial mortgage loan up to 75% on a loan-to-value basis. While REITs offer higher income for investors, they are highly volatile and are more correlated with the stock market than with bond investments.”
4. Peer-to-Peer (P2P) Loans
P2P lending is a way to earn higher returns on your investments by making loans directly to consumers. P2P lenders make personal loans available to consumers for various purposes, and monthly payments are collected and paid to the investors in those loans.
As an investor, you don’t typically purchase an entire loan. Instead, you’ll purchase slices of loans, referred to as “notes”. These notes can be purchased for as little as $25. That means you can spread an investment of $5,000 across 200 different notes.
Because you are acting as a direct lender to consumers, the interest rate returns on your investment are much higher than you can get through more conventional investments.
One of the largest of the P2P lending platforms, Prosper, reports an average annual return of 5.3%, which is well above what you can get with bank savings products and U.S. Treasury securities. (The traditional leader in the P2P space, Lending Club, is no longer accepting new investments due to their recent acquisition of Radius Bank.)
5. Create and Sell an Online Course
Now the online course strategy will require something of an upfront investment, and that will be your time and effort in creating the course. But you can get help doing that through online services, such as Udemy and Kajabi.
You’ll need to choose your course topic carefully. It will need to be one where you have expert knowledge of the subject matter. The topic potential here is almost unlimited. You can produce online courses on how to start a new business, how to invest, build a tiny home, get out of debt, homeschool your children – you name it.
One of the best ways to find online course topics is to scout around and see how many there are in a given niche. If there are a large number, it’s an excellent sign that demand for that topic is high.
Once you’ve created your course, you can sell it through blogs and websites that cover the same topic niche. You can offer your course under an affiliate arrangement, in which you’ll pay sites a percentage of the fee you’ll collect for each course sold through that site.
If you get your course advertised on multiple related websites, the cash from sales will come rolling in, without any effort from you. You can increase your cash flow from the same product by advertising for sale on additional websites.
6. Intermediate Bond Funds
If you like interest income investments, intermediate bonds can be an excellent choice. They pay much higher rates of interest than banks and US Treasury securities.
And while they aren’t risk-free, they’re much more stable than long-term bonds. Intermediate bonds typically have maturities of less than 10 years, which makes them much less sensitive to interest rate changes that can lower the market value of longer-term bonds when interest rates rise.
“REITs and dividend stocks are stocks, which means they’re risky” warns Holmes Osborne, at Osbourne Global Investors. “Meanwhile, real estate is at an all-time high – and also risky. Intermediate bond funds are the safest of the group of investments mentioned.”
Probably the best way to invest in bonds in a way that will provide adequate diversification is through bond funds.
An example is the Schwab U.S. Aggregate Bond ETF. It has a current yield of 2.4%, with a five-year average annual return of 4.31% through the end of 2020. The average maturity of the bonds in the fund is eight years, and more than 85% are rated AAA. That will give you high-interest returns in combination with a reasonable level of security.
7. Robo-advisors
Robo-advisors may be the ultimate form of passive investing. For a very low advisory fee, a robo-advisor will construct a diversified portfolio, then provide ongoing management. That will include periodic rebalancing to maintain target asset allocations, and reinvestment of dividends. As an investor, your only job will be to fund your account – then relax.
“A robo-advisor—also known as a robo, a roboadvisor or a robo-adviser—is a type of brokerage account that automates the process of investing,” reports Forbes Contributor, Miranda Marquit. “Most robos charge lower fees than conventional financial advisors because they invest your money in prebaked portfolios made primarily of specially chosen, low-fee exchange-traded funds (ETFs). Some robo-advisors also offer access to other more customized investment options for advanced investors or those with larger account balances.”
Two of the most popular robo-advisors are Betterment and Wealthfront. Each will provide complete portfolio management for a very low fee of just 0.25% of your account balance. The passive nature of these robo-advisors makes them an excellent choice for either a retirement account or a taxable investment account.
8. Real Estate Crowdfunding
Real estate crowdfunding is another way to invest in real estate, but one that’s more specialized. That’s because they give you an opportunity to invest in very specific real estate investments.
An example is Fundrise. The platform offers two very distinct investments. The first is what’s known as an eREIT, which is a non-publicly traded REIT available only through Fundrise. You can invest in an eREIT with as little as $500. The Fundrise eREIT has been producing returns ranging between 8% and 12% per year over the last several years.
Similar to publicly traded REITs, the Fundrise eREIT also invests in commercial real estate, like office buildings and apartment complexes.
But the platform also gives you the ability to invest in individual real estate transactions. This is done through a Fundrise eFund, which requires a minimum investment of $1,000.
Within the fund, either raw land is purchased and developed for sale, or existing properties are acquired, rehabbed, and sold at a profit.
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It’s an opportunity to participate in the type of real estate transactions that produce big returns, but are also the kind you don’t want to take on by yourself.
9. Buy Royalties
This is probably the most unique passive investment on this list, if only because few people are aware it even exists. But it’s a true source of passive income, but one with a unique twist.
Rather than investing in securities or property, you’ll be investing in licensing arrangements. In doing so, you’ll participate in the revenues generated by a wide variety of ventures, including music, videos, syndicated TV programs, mineral rights, products, oil and gas, and even venture capital financing deals.
All become available because the product creator or the original investor chooses to sell off royalties to generate immediate cash. By investing in those products or ventures, you’ll earn royalty income on your investment. It’s even possible to resell a royalty you’ve purchased later on.
You can invest in royalties through the Royalty Exchange. The exchange has been involved in a variety of royalty investments, including those by popular artists. The company claims to have completed more than 1,000 transactions worth over $84 million. The average return on investment is greater than 10% per year.
Before going into this type of investment, understand that each deal available is unique. The underlying product, the required minimum investment, the expected annual return, and the terms of the arrangement will vary with each royalty you invest in.
Finally
Passive income sources aren’t just for the wealthy. Everyone has to start somewhere. And there are many passive income sources you can get started in for less than $1,000.
Don’t let a lack of knowledge stop you from achieving your goal to have passive income–even if you want a lot of it! Do further research about the passive income ideas we’ve mentioned here.
Decide on four or five that seem right for you. Then get to work earning some passive monthly income.
