Passive income refers to making money without having to work constantly. You do the heavy lifting first, and then a little more effort here and there keeps the money flowing. Consider an online course: once built, you only need to update it on a regular basis to continue generating money.

You may have heard the phrase “make money while you sleep.” That’s the main attractiveness of passive income. Whether you’re developing a blog, a course, an ebook, videos, or an online store, these projects can produce cash even while you’re not actively working on them.

Another way to earn passively is through investments. This includes putting money in real estate investment trusts (REITs) or mutual funds. These options can provide a steady income with minimal ongoing effort.

All income streams are significant, but for financial independence, passive income frequently outperforms active income. Active income comes from your present employment or business; it is the compensation you receive for ongoing work. If you cease working, this income also stops. Your time is directly proportional to your earnings.

However, passive income does not require your constant active involvement. Once you’ve established passive income streams, they can continue to generate revenue for you for years. If you want to achieve financial independence, focusing on passive income may be a better option.

Remember, creating passive income streams usually requires an upfront investment, either money or time. Building a passive income source that matches your active income takes significant effort at the start. This upfront commitment is crucial to the success of your passive income.

Everyone could use a little extra cash. Passive income is one of the more practical and flexible methods to earn extra money without having to take on a second job, which, let’s face it, is not always practical or flexible.

Passive income is becoming more popular as typical employment trends shift and people look for new ways to achieve their financial goals. We will look at numerous alternatives for passive income, as well as the expenses and risks associated with them.

Passive Income Opportunities for Wealth Creation

There are numerous ways to generate passive income. Your specific situation will determine which option is best for you. Consider your hobbies and abilities, how much time you have to spend to a specific enterprise, how much money you have to invest, and your risk tolerance. Some alternatives, like as real estate investing, often need a larger initial money investment and have higher risks, but others, such as licensing stock photos or developing a mobile app, necessitate a greater time commitment.

Below are six of the most popular passive investment opportunities:

1. Rent out your property.

Renting your home or apartment—or part of your property—can provide a steady stream of passive income. You can lease your property as a long-term rental or earn money with short-term rentals through Airbnb, Booking.com, VRBO and similar platforms. You can also rent unused portions of your property, such as a room or building that can be used as a storage space or a parking space in your driveway.

Keep in mind: Renting out your property is dependent on you having extra space in your home or a second home, and it can also come with a loss of privacy, particularly if you are still residing there. You’re also on the hook when things break, and when stuff needs cleaning.

If you don’t have the flexibility for a rental arrangement, taking in a roommate can also provide a passive income source through rent and shared expenses but again, you are trading some privacy and autonomy.

2. Invest in real estate.

Buying residential or commercial property with the intent to rent is another popular way to earn passive income. While long-term investments in real estate with the goal of having that property appreciate over time can be viewed as a traditional investment, the money earned through rent as that property appreciates can be viewed as passive. This is a long-term commitment, but once you are able to rent the property and create a management structure, it can provide substantial passive income.

Before diving in, it’s important to remember that owning rental property comes at a great cost, with many potential headaches. Similar to renting out your property, you would be responsible for managing and maintaining the property as well as collecting rent. If you are not able to find renters, you’re still responsible for the mortgage payments and other property costs.

Another more “passive” passive way to invest in real-estate is through Real-Estate Investment Trusts (REITs), which are securities based on income-producing real estate that trade like a stock and are listed on the major exchanges.

According to Charles Schwab, REITs must pay out 90% of their annual taxable income in dividends. Because of this, they may out a higher rate of dividends than many equities and many fixed income investments, which can create a solid passive income stream. No investment is risk-free, however, and REITs are also known to have highly inconsistent, variable returns, as well as high management fees, so be sure to research the pros and cons before pursuing this investment.

3. Invest in a business.

Providing capital for a privately-held business can generate passive income because your equity stake in the business will earn a share of the profits. Options include funding a startup, investing in a small local business, or investing through crowdsourcing investment platforms such as AngelList, Kickstarter and StartEngine.

There is risk in any business, especially start-ups, so this type of investment is more appropriate to people familiar with taking on this type of investment and understand the nuances of specific business arrangements.

4. Buy dividend-paying stocks.

Dividends represent a payment by a company, typically made on a quarterly basis, to its shareholders from income generated by the business. Investing in stocks that pay dividends can provide a steady income stream.

Read Also: The Importance of Financial Planning in Wealth Creation

While this may seem like a no-brainer, it requires a great deal of research. First, you must do all the basic due diligence involved in buying a stock (dividends don’t matter if you select a poor stock and lose principal). Then you must research the history of the dividends paid and the financial environments that lead to stronger dividends.

Many investors prefer purchasing stocks that pay dividends, but it is part of an overall investment plan with dividends being reinvested. That said, you can structure your broader investment plan with dividend paying stocks in order to provide money on hand and treat the principal as your long-term investment.

5. Savings or CD/term accounts.

Placing funds into a savings account, term savings account (similar to a certificate of deposit or “CD”) is a common, safe way to earn passive income. In addition to earning interest, your funds are federally insured up to at least $250,000 if your financial institution is backed by the FDIC or NCUA. While many investors may have given up on interest income after a long period of a near zero interest rate policy by the Federal Reserve, rates have gone up substantially in the last few years.

6. Take advantage of your skills and passions.

If you’re a creative person or simply have an area of expertise or passion, there are many opportunities to use your talent to generate passive income. For example, photographers can license or sell their photographs online via Getty Images, iStock, Shutterstock and other stock photography platforms.

If you’re a tech person, you can create an app to sell on Google Play, Apple App Store, Kongregate and other app marketplaces. While this involves a great deal of work, once built, you have created a passive income stream.

If you have a specific field of expertise, you can develop and publish an online course to teach others how to use a computer program, do auto maintenance, home repairs or build a deck. You are only limited by your imagination. Chances are, you have an area of expertise that would be of value to someone.

You can also generate passive income either through ad revenue or sponsorship by posting content on Patreon, TikTok, YouTube and other social media platforms. Whether it’s travel, gaming, tech gadgets or another interest, sharing your passion and insights through vlogs, product reviews, tutorials and other types of content can build an appreciative audience and earn you extra money.

How to Build Passive Income

Store people’s stuff.

People have a lot of stuff—and they’re always looking for cheap ways to store it. If you have some space in the basement or the garage, what could be easier than having people pay you to store their stuff? You’ll just need to make sure their items are safe and secure.

Check out websites like Neighbor, iStoreit or Store At My House to get started. These are services that can put your indoor or outdoor space to work. Will people pay a ton to have you store their off-season wardrobe? Maybe not—but it can add up over time.

And if you have a barn, garage or even just carport space to store vehicles, boats, campers and other high-dollar toys, people will pay more to keep them safe and weatherproof. Set it (safely) and forget it—talk about passive income!

Start a blog or YouTube channel.

If you have a brilliant idea that appeals to a specific audience, you could create something like an educational blog or a YouTube teaching series that doesn’t require constant new material to generate online traffic.

If your content is engaging and gets enough daily traffic, you could sell ad space on your blog or ad spots on your channel. After you put in the heavy lifting, you can sit back, relax and enjoy streams of passive income for every set of eyeballs that watches your content. Not bad!

Now, keep in mind, some forms of passive income are less passive—aka more work—than others. There’s a lot of competition out there in the digital space, so even though you don’t have to go out and spend a million dollars on cutting edge technology and advertising to get attention, you do need to update your content on a regular basis to keep getting looks.

That could mean adding brand-new videos and posts, or you could just update the keywords and outdated details from time to time.

Invest in real estate investment trusts (REITs).

What if you’re not interested in being a landlord? There is another way to invest in real estate with something called a real estate investment trust (REIT). A REIT (pronounced “reet”) is a type of investment that pools your money with other investors’ money to buy properties—it’s basically a mutual fund that buys real estate instead of stocks.

But you should only consider investing in REITs once you’re making progress and maxing out all of your tax-advantaged retirement accounts. And be careful. While there are some good REITs out there, there are still a lot of bad ones that use debt to purchase properties—which means more risk for you as an investor.

You should always talk with your investment professional before you start investing in REITs—you’ll be glad you did.

Take advantage of high-yield savings accounts. 

Whether you’re trying to build an emergency fund or save for your next vacation, high-yield savings accounts and money market accounts are one of the easiest ways to create a passive income stream and help you reach some of your short-term financial goals.

You can find plenty of online banks and financial institutions out there today offering online savings accounts and money market accounts with annual percentage yields (APYs) between 3–4%. That yield is much higher than the national average for savings accounts, which is only 0.37%.³ (Since online banks and financial institutions have lower overhead costs than typical brick-and-mortar banks, they can offer better rates for their customers.)

Let’s say you have a fully funded emergency fund with $25,000, and that money is in a savings account or money market account with a 4% APY. That account will make $1,000 in interest growth over the next year—and you didn’t have to lift a finger or save an extra penny! And of course, the more you save, the more interest you’ll earn.

You may be feeling overwhelmed by the number of options to create passive money, but all you have to do is discover one that works for you!

Whether you want to increase your monthly spending money, ensure that your income keeps up with inflation, or save money for a down payment on a home or car, passive income sources can provide profits that will give long-term financial growth and help you achieve your financial goals. Each form of passive income opportunity has its own set of risks and rewards, so be cautious and thorough when deciding which endeavor is best for you.