What are the top passive income ideas? How can I make money while I sleep? Here are 30 ways you can build generational wealth.
Apparently, it is the hope of everyone to attain a certain height where they are not waking up early in the morning to attend to their 9 to 5 jobs. Even if you are not ready now, think of retirement, or days you will be old and weak to do such youth activities. This and many more reasons are why the need for a passive income and generational wealth come into thought.
Why slog from 9 to 5 every day to make money if you can earn an income doing nothing? Passive income can be a great way to help you generate extra cash flow, whether you’re running a side hustle or just trying to get a little extra dough each month. Passive income can help you earn more during the good times and tide you over if you suddenly become unemployed or even if you voluntarily take time away from work.
With passive income, you can have money coming in even as you pursue your primary job, or if you’re able to build up a solid stream of passive income, you might want to kick back a little. Either way, a passive income gives you extra security.
Most ways of earning a passive income require some initial effort, but soon you’ll be earning money while you sleep. Also, there are now more apps and platforms like sites that one can earn passive income on. Read on to check out these ways and strategies to build wealth.
In this article, we will learn;
- What is passive income?
- Myths about passive income
- Ways to earn a passive income
- How many income streams should you have?
- Passive income ideas for beginners.
- Minimize your teaxes on passive income.
What is passive income?
Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.
“Many people think that passive income is about getting something for nothing,” says financial coach and retired hedge fund manager Todd Tresidder. “It has a ‘get-rich-quick’ appeal… but in the end, it still involves work. You just give the work upfront.”
In practice, you may do some or all of the work upfront, but passive income often involves some additional labor along the way, too. You may have to keep your product updated or your rental property well-maintained, in order to keep the passive dollars flowing.
But if you’re committed to the strategy, it can be a great way to generate income and you’ll create some extra financial security for yourself along the way.
How to Get Passive Income
People typically generate passive income is one of three main ways:
- Investing. When you invest, you use money you already have to make more money.
- Asset building. This means acquiring an asset that earns money passively over time.
- Asset sharing. Sharing in this sense means selling or renting out assets that you already own.
Passive income is not…
- Your job. Generally, passive income is not income that comes from something you’ve been materially involved in such as the wages you earn from a job.
- A second job. Getting a second job isn’t going to qualify as a passive income stream because you’ll still need to show up and do the work to get paid. Passive income is about creating a consistent stream of income without you having to do a lot of work to get it.
- Non-income producing assets. Investing can be a great way to generate passive income, but only if the assets you own pay dividends or interest. Non-dividend paying stocks or assets like cryptocurrencies may be exciting, but they won’t earn you passive income.
Ways to Earn a Passive income:
1. Create an Online course.
2. Invest in Real Estate (Rental income).
3. Buy Stocks that pay Dividends.
4. Create an app.
5. Affiliate Marketing on your Website or Blog.
6. Write and Publish an E-Book.
8. Become a blogger or YouTuber.
9. Invest in a high-yield CD or savings account.
10. Flip retail products.
11. Peer-to-peer lending.
12. A bond ladder.
13. Rent out your home short-term.
14. Advertise on your car.
15. Rent out useful household items.
16. Sell photography online.
17. Sponsored posts on social media.
18. Sell designs online.
19. Start a Drop Shipping Website.
20. Invest in Crowdfunded Real Estate.
21. Create a Membership Community.
22. Sell Stock Content.
23. Buy a Laundromat.
24. Get a High-Yield Bank Account.
25. Get an Autoresponder for Your Online Business.
27. Invest In A Business.
28. Invest In Student Income-Share Agreements.
29. Refinance Your Mortgage.
30. Licensing Music.
If you’re thinking about creating a passive income stream, check out these 20 strategies and learn what it takes to be successful with them, while also understanding the risks associated with each idea.
1. Create an Online course
One popular strategy for passive income is creating an audio or video course, then kicking back while cash rolls in from the sale of your product. Courses can be distributed and sold through sites such as Udemy, Skillshare, and Coursera.
Alternatively, you might consider a “freemium model” – building up a following with free content and then charging for more detailed information or for those who want to know more. For example, language teachers and stock-picking advice may use this model. The free content acts as a demonstration of your expertise and may attract those looking to go to the next level.
Opportunity: A course can deliver an excellent income stream because you make money easily after the initial outlay of time.
Risk: “It takes a massive amount of effort to create the product,” Tresidder says. “And to make good money from it, it has to be great. There’s no room for trash out there.”
Tresidder says you must build a strong platform, market your products and plan for more products if you want to be successful.
“One product is not a business unless you get really lucky,” Tresidder says. “The best way to sell an existing product is to create more excellent products.”
Once you master the business model, you can generate a good income stream, he says.
2. Invest in Real Estate (Rental income)
When you invest in real estate, you can make money as the value of the property increases, but you’ll only see that money once you sell the property. If you’d rather have the cash flow now, invest in real estate that will bring you rental income.
Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect.
If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some, says John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles area and author of “The 7% Solution: You Can Afford a Comfortable Retirement.”
Opportunity: To earn passive income from rental properties, Graves says you must determine three things:
- How much return you want on the investment
- The property’s total costs and expenses
- The financial risks of owning the property
For example, if your goal is to earn $10,000 a year in rental cash flow and the property has a monthly mortgage of $2,000 and costs another $300 a month for taxes and other expenses, you’d have to charge $3,133 in monthly rent to reach your goal.
Risk: There are a few questions to consider: Is there a market for your property? What if you get a tenant who pays late or damages the property? What if you’re unable to rent out your property? Any of these factors could put a big dent in your passive income.
And economic downturns can pose challenges, too. You may suddenly have tenants who can no longer pay their rent, while you may still have a mortgage of your own to pay. Or you may not be able to rent the home out for as much as you could before, as incomes decline. And home prices have been rising quickly of late due in part to low mortgage rates, so your rents may not be able to cover your expenses. You’ll want to weigh these risks and have contingency plans in place to protect yourself.
3. Buy Stocks that pay Dividends
When you’re a shareholder in a successful company, you’ll get paid dividends – usually every quarter. The keyword here though is “successful” so do your research before buying stocks.
Shareholders in companies with dividend-yielding stocks receive a payment at regular intervals from the company. Companies pay cash dividends on a quarterly basis out of their profits, and all you need to do is own the stock. Dividends are paid per share of stock, so the more shares you own, the higher your payout.
Opportunity: Since the income from the stocks isn’t related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money. The money will simply be deposited in your brokerage account.
Risk: The tricky part is choosing the right stocks.
For example, companies issuing a very high dividend may not be able to sustain it. Graves warns that too many novices jump into the market without thoroughly investigating the company issuing the stock. “You’ve got to investigate each company’s website and be comfortable with their financial statements,” Graves says. “You should spend two to three weeks investigating each company.”
That said, there are ways to invest in dividend-yielding stocks without spending a huge amount of time evaluating companies. Graves advises going with exchange-traded funds or ETFs. ETFs are investment funds that hold assets such as stocks, commodities, and bonds, but they trade like stocks. ETFs also diversify your holdings, so if one company cuts its payout, it doesn’t affect the ETF’s price or dividend too much.
“ETFs are an ideal choice for novices because they are easy to understand, highly liquid, inexpensive, and have far better potential returns because of far lower costs than mutual funds,” Graves says.
Another key risk is that stocks or ETFs can move down significantly in short periods of time, especially during times of uncertainty, as in 2020 when the coronavirus crisis shocked financial markets. Economic stress can also cause some companies to cut their dividends entirely, while diversified funds may feel less of a pinch.
4. Create an app
Creating an app could be a way to make that upfront investment of time and then reap the reward over the long haul. Your app might be a game or one that helps mobile users perform some hard-to-do function. Once your app is public, users download it and you can generate income.
Opportunity: An app has a huge upside if you can design something that catches the fancy of your audience. You’ll have to consider how best to generate sales from your app. For example, you might run in-app ads or otherwise have users pay a nominal fee for downloading the app.
If your app gains popularity or you receive feedback, you’ll likely need to add incremental features to keep the app relevant and popular.
Risk: The biggest risk here is probably that you use your time unprofitably. If you commit little or no money to the project (or money that you would have spent anyway, for example, on hardware), you have little financial downside here. However, it’s a crowded market and truly successful apps must offer a compelling value or experience to users.
You’ll also want to make sure that if your app collects any data that it’s in compliance with privacy laws, which differ across the globe. The popularity of apps can be short-lived, too, meaning your cash flow could dry up a lot faster than you expect.
5. Affiliate Marketing on your Website or Blog
If you have affiliate links on your website or blog, you can earn money every time someone clicks on them. You can also earn cash by putting ads on your site.
With affiliate marketing, website owners, social media “influencers” or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the best-known affiliate partner, but eBay, Awin, and ShareASale are among the larger names, too. And Instagram and TikTok have become huge platforms for those looking to grow a following and promote products.
You could also consider growing an email list to draw attention to your blog or otherwise direct people to products and services that they might want.
Opportunity: When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission. The commission might range from 3 to 7 percent, so it will likely take significant traffic to your site to generate serious income. But if you can grow your following or have a more lucrative niche (such as software, financial services, or fitness), you may be able to make some serious coin.
Affiliate marketing is considered passive because, in theory, you can earn money just by adding a link to your site or social media account. In reality, you won’t earn anything if you can’t attract readers to your site to click on the link and buy something.
Risk: If you’re just starting out, you’ll have to take time to create content and build traffic. It can take significant time to build a following, and you’ll have to find the right formula for attracting that audience, a process that itself might take a while. Worse, once you’ve spent all that energy, your audience may be apt to flee to the next popular influencer, trend, or social media platform.
6. Write and Publish an E-Book
Writing an e-book can be a good opportunity to take advantage of the low cost of publishing and even leverage the worldwide distribution of Amazon to get your book seen by potentially millions of would-be buyers. E-books can be relatively short, perhaps 30-50 pages, and can be relatively cheap to create, since they rely on your own expertise.
You’ll need to be an expert on a specific topic, but the topic could be niche and use some special skills or abilities that very few offer but that many readers need. You can quickly design the book on an online platform and then even test-market different titles and price points.
But just like with designing a course, a lot of the value comes when you add more e-books to the mix, drawing in more customers to your content.
E.L. James wrote and self-published a piece of fan fiction that took the world by storm and led to two sequels and a movie. The Fifty Shades of Grey trilogy earned her $95 million just in 2013. Being a published author can earn you royalties, with Amazon paying every month.
Opportunity: An e-book can function not only to deliver good information and value to readers but also as a way to drive traffic to your other offerings, including audio or video courses, other e-books, a website, or potentially higher-value seminars.
Risk: Your e-book has to be very strong to build up a following and then it helps if you have some way to market it, too, such as an existing website, promotion on other relevant websites, appearances in the media, podcasts, or something else. So you could put in a lot of work upfront and get very little back for your efforts, especially at first.
And while an e-book is nice, it will help if you write more and then even build a business around the book or make the book just one part of your business that strengthens the other parts. So your biggest risk is probably that you waste your time with little reward.
A REIT is a real estate investment trust, which is a fancy name for a company that owns and manages real estate. REITs have a special legal structure so that they pay little or no corporate income tax if they pass along most of their income to shareholders.
Opportunity: You can purchase REITs on the stock market just like any other company or dividend stock. You’ll earn whatever the REIT pays out as a dividend, and the best REITs have a record of increasing their dividend on an annual basis, so you could have a growing stream of dividends over time.
Like dividend stocks, individual REITs can be riskier than owning an ETF consisting of dozens of REIT stocks. A fund provides immediate diversification and is usually a lot safer than buying individual stocks — and you’ll still get a nice payout.
Risk: Just like dividend stocks, you’ll have to be able to pick the good REITs, and that means you’ll need to analyze each of the businesses that you might buy — a time-consuming process. And while it’s a passive activity, you can lose a lot of money if you don’t know what you’re doing. Like any stock, the price can fluctuate a lot in the short term.
REIT dividends are not protected from tough economic times, either. If the REIT doesn’t generate enough income, it will likely have to cut its dividend or eliminate it entirely. So your passive income may get hit just when you want it most.
8. Create a blog or YouTube channel to become a blogger or YouTuber
Many regular people have become millionaires simply by making and uploading videos on YouTube. Every time someone views one of your videos, you make money from the ads that appear on the site. The secret is to gain a huge number of followers by uploading videos that appeal.
Are you an expert on travel to Thailand? A maven of Minecraft? A sultan of swing dancing? Take your passion for a subject and turn it into a blog or a YouTube channel, using ads or sponsors to generate your income. Find a popular subject, even a small niche, and become an expert on it. At first, you’ll have to build out a suite of content and draw an audience, but it can create a steady income stream over time, as you become known for your engaging content.
Opportunity: You can leverage a free (or very low cost) platform, then use your great content to build a following. The more unique your voice or area of interest, the better for you to become “the” person to follow. Then draw sponsors to you.
Risk: You’ll have to build out content at the start and then create ongoing content, which can take time. And you’ll need to be really passionate about the product, since that can help you maintain the motivation to continue, especially at the start as your followers are still finding you.
The real downside here is that you can outlay a bunch of your time and resources, with little to show for it, if there’s limited interest in your subject or niche. Your area of expertise may be to niche to really draw a profitable audience, but you won’t be sure of that until you experiment.
9. Invest in a high-yield CD or savings account
Investing in a high-yield certificate of deposit (CD) or savings account at an online bank can allow you to generate a passive income and also get one of the highest interest rates in the country. You won’t even have to leave your house to make money.
Opportunity: To make the most of your CD, you’ll want to do a quick search of the nation’s top CD rates or the top savings accounts. It’s usually much more advantageous to go with an online bank rather than your local bank because you’ll be able to select the top rate available in the country. And you’ll still enjoy a guaranteed return of principal up to $250,000 if your financial institution is backed by the FDIC.
Risk: As long as your bank is backed by the FDIC and within limits, your principal is safe. So investing in a CD or savings account is about as safe a return as you can find. However, while these accounts are safe, they’re returning even less these days than before. And that return can pale in comparison to inflation, which hit mid-single digits last year, hurting the real purchasing power of your money. Nevertheless, a CD or savings account will yield better than holding your money in cash or in a non-interest-bearing checking account where you’ll receive nothing.
10. Flip retail products
Take advantage of online sales platforms such as eBay or Amazon, and sell products that you find at cut-rate prices elsewhere. You’ll arbitrage the difference in your purchase and sale prices, and may be able to build a following of individuals who track your deals.
Opportunity: You’ll be able to take advantage of price differences between what you can find and what the average consumer may be able to find. This could work especially well if you have a contact who can help you access discounted merchandise that few other people can find. Or you may be able to find valuable merchandise that others have simply overlooked.
Risk: While sales can happen at any time online, helping make this strategy passive, you’ll definitely have to hustle to find a reliable source of products. Plus, you’ll have to invest money in all of your products until they do sell, so you need a robust source of cash. You’ll have to really know the market so that you’re not buying at a price that’s too high. Otherwise, you may end up with products that no one wants or whose price you have to drastically cut in order to sell.
11. Peer-to-peer lending
A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Prosper or LendingClub. Other players include Funding Circle, which targets businesses and has higher borrowing limits, and Payoff, which targets better credit risks.
Opportunity: As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you face the risk of default, meaning you could end up with nothing.
To cut that risk, you need to do two things:
- Diversify your lending portfolio by investing smaller amounts over multiple loans. At Prosper.com and LendingClub, the minimum investment per loan is $25.
- Analyze historical data on the prospective borrowers to make informed picks.
Risk: It takes time to master the metrics of P2P lending, so it’s not entirely passive, and you’ll want to carefully vet your prospective borrowers. Since you’re investing in multiple loans, you must pay close attention to payments received. Whatever you make in interest should be reinvested if you want to build an income.
Economic recessions can also make high-yielding personal loans a more likely candidate for default, too, so these loans may go bad at higher than historical rates when the economy worsens.
12. A bond ladder
A bond ladder is a series of bonds that mature at different times over a period of years. The staggered maturities allow you to decrease reinvestment risk, which is the risk of reinvesting your money when bonds offer too-low interest payments.
Opportunity: A bond ladder is a classic passive investment that has appealed to retirees and near-retirees for decades. You can sit back and collect your interest payments, and when the bond matures, you “extend the ladder,” rolling that principal into a new set of bonds. For example, you might start with bonds of one year, three years, five years, and seven years.
In a year, when the first bond matures, you have bonds remaining of two years, four years, and six years. You can use the proceeds from the recently matured bond to buy another one year or roll out to a longer duration, for example, an eight-year bond.
Risk: A bond ladder eliminates one of the major risks of buying bonds – the risk that when your bond matures you have to buy a new bond when interest rates might not be favorable.
Bonds come with other risks, too. While Treasury bonds are backed by the federal government, corporate bonds are not, so you could lose your principal if the company defaults. And you’ll want to own many bonds to diversify your risk and eliminate the risk of any single bond hurting your overall portfolio. If overall interest rates rise, it could push down the value of your bonds.
Because of these concerns, many investors turn to bond ETFs, which provide a diversified fund of bonds that you can set up into a ladder, eliminating the risk of a single bond hurting your returns.
13. Rent out your home short-term
This straightforward strategy takes advantage of space that you’re not using anyway and turns it into a money-making opportunity. If you’re going away for the summer or have to be out of town for a while, or maybe even just want to travel, consider renting out your current space while you’re gone.
Opportunity: You can list your space on any number of websites, such as Airbnb, and set the rental terms yourself. You’ll collect a check for your efforts with minimal extra work, especially if you’re renting to a tenant who may be in place for a few months.
Risk: You don’t have a lot of financial downsides here, though letting strangers stay in your house is a risk that’s atypical of most passive investments. Tenants may deface or even destroy your property or even steal valuables, for example.
14. Advertise on your car
Many businesses will pay you for letting them put their advertisements on your car. While technically you’re not making money while you sleep, you are making money simply by driving around. That’s pretty easy, right?
You may be able to earn some extra money by simply driving your car around town. Contact a specialized advertising agency, which will evaluate your driving habits, including where you drive and how many miles. If you’re a match with one of their advertisers, the agency will “wrap” your car with the ads at no cost to you. Agencies are looking for newer cars, and drivers should have a clean driving record.
Opportunity: While you do have to get out and drive if you’re already putting in the mileage anyway, then this is a great way to earn hundreds per month with little or no extra cost. Drivers can be paid by the mile.
Risk: If this idea looks interesting, be extra careful to find a legitimate operation to partner with. Many fraudsters set up scams in this space to try and bilk you out of thousands.
15. Rent out useful household items
Here’s a variation on renting out an idle car: Start even smaller with other household items that people may need but that may be collecting dust in your garage. Lawnmowers? Power tools? Mechanics tools and toolbox? Tents or large coolers? Look for high-value items that people need for a short period of time and where it might not make sense for someone to own the item. Then put together a way for clients to discover your inventory and a way for them to pay for it.
Opportunity: You can start small here, and then scale up if there’s interest in a particular area. Do people suddenly want a tent for weekend camping when the weather gets warmer or cooler? Figure out where the demand is, and then you could even go buy the item, rather than having it right on hand. In some cases, you might be able to recoup the value of the item after a few uses.
Risk: There’s always the possibility that your property is damaged or stolen, but you can mitigate this risk with contracts that allow you to replace the item at the client’s expense. If you start small here, you’re not exposed to many risks, especially if you already have the item and you’re not likely to need it in the near future. Pay particular attention to liability issues, especially if you’re renting out equipment that has the potential to be dangerous (e.g., power tools.)
16. Sell photography online
Selling photography online might not be the most obvious place to set up a passive business, but it could allow you to scale your efforts, especially if you can sell the same photos over and over again. To do that, you might work with an organization such as Getty Images, Shutterstock, or Alamy.
To get started, you’ll have to be approved by the platform, and then you license your photos to be used by whoever downloads them. The platform then pays you every time someone uses your photo.
You’ll need photos that appeal to a specific audience or that represent a certain scene, and you’ll need to tease out where the demand is. Photos could be shots with models, landscapes, creative scenarios, and more, or they could capture real events that might make the news.
Opportunity: Part of the value of selling or licensing your photos through a platform is that you have the potential to scale your efforts, especially if you can provide pictures that will be in demand. So you could potentially sell the same image hundreds or thousands of times or more.
Risk: You could add hundreds of photos to a platform such as Getty Images and not have any of them really generate meaningful sales. Only a few photos may drive all of your revenue, so you have to keep adding photos as you search for that needle in the haystack.
It may require substantial effort to go out and shoot photos, then process them and keep up with the events that may ultimately drive your revenue. And motivation could be hard to maintain: Every next photo might be your lottery ticket, though it almost certainly won’t be.
17. Sponsored posts on social media
Do you have a strong following on social media such as Instagram or TikTok? Get growing consumer brands to pay you to post about their product or otherwise feature it in your feed.
You’ll need to keep filling your profile with content that draws in your audience, though. And that means continuing to create posts that grow your reach and engage your followers on social media.
Opportunity: Leveraging your social media presence is an attractive business model. Draw eyeballs and clicks to your profile with strong content and then monetize that content by setting up sponsored posts from brands that appeal to your followers.
Risk: Getting started here can be a Catch-22: You need a large audience to get meaningful sponsored posts, but you’re not an attractive option until you get a meaningful audience. So you’ll have to focus a lot of time first on growing your audience with no guarantee that you’ll be successful. You can end up spending tons of time following the trends and building content, in the hopes that you eventually get the sponsorship that you’re aiming for.
Even when you’ve got the sponsored posts you’re looking for, you’ll need to keep posting to draw in your audience and remain an attractive option for advertisers. That means committing to more time and monetary investment, even if you do have a lot of autonomy on exactly when to do it.
18. Sell designs online
If you have design skills, you may be able to turn them into a money-maker by selling items with your printed designs on them. Businesses such as CafePress and Zazzle allow you to sell items such as T-shirts, hats, mugs, and more with your own designs.
Opportunity: You can start with your own designs and see what the market is interested in, and expand from there. You may be able to capitalize on the surging interest in a current event and design a shirt that captures the spirit of the times or at least a snarky take on it. And you can also set up your own web storefront through a site such as Shopify to market your goodies.
Risk: Printing partners allow you to ship items without directly investing in the merchandise yourself, avoiding one of the biggest risks of tying up your capital. But you may be able to get better pricing if you invest in some of the inventory yourself. Another big risk here is that you could invest a lot of time with little payoff, but this avenue might be interesting if you’re already doing the design work for another purpose, such as personal interest.
19. Start a Drop Shipping Website
Canada’s Shopify is most people’s go-to platform for creating online stores that offer drop shipping. With drop shipping, you have a site that offers certain manufacturers’ products and when someone orders something through your site, your system simply sends the order to the relevant manufacturer.
20. Invest in Crowdfunded Real Estate
Investing in real estate is expensive, but these days there are crowdfunding platforms like Realty Shares and Fundraise that can help you get more bang for your buck.
21. Create a Membership Community
A membership community website involves people signing up for a fee to get access to extras. It’s a great way to add value to your online course and get an additional income without the extra work.
Everyone likes free stuff. In fact, some of the world’s thriftiest millionaires and billionaires might blow your mind.
22. Sell Stock Content
Publishers of books, magazines, and websites all use stock images such as photographs or graphics as illustrations and pay a licensing fee to the people who created the images. Stock content can also include videos, music, and sound effects.
23. Buy a Laundromat
Buying an established laundromat business is cheaper than starting one from scratch. If you then get someone else to do the day-to-day running, which doesn’t require a lot of effort, you can simply watch the money come in.
24. Get a High-Yield Bank Account
A high-yield bank account is one that pays higher interest than a regular savings or chequing account. Check with your bank to see what your options are and let your savings work for you.
25. Get an Autoresponder for Your Online Business
With an autoresponder, you can provide good customer service without actually having to do anything. It sends an automatic response to emails and you can later follow up with the customer. You can also use autoresponders for marketing purposes.
Annuities are insurance products that you pay for but can then provide you passive income for life in the form of monthly payments. The terms with annuities vary and are not always a great deal so it’s best to talk to a trusted financial advisor if you’re interested in purchasing an annuity.
These investments aren’t for everyone – they can come with high fees, and not be worth it. But if you have zero risk tolerance for loss, and are looking for a passive income stream, this could be a good potential idea for you your portfolio.
27. Invest In A Business
Another way to generate passive income is to invest and be a silent partner in a business. This is very risky, but with risk comes the potential for high returns. For example, several years ago both Lyft and Uber were looking for private investors to invest in their companies. Today, they are worth billions – but you as an investor would only reap that benefit if they go public via an IPO, or get acquired. So, it’s risky.
But there are ways to reduce your risk. For example, you can invest small amounts in many companies by lending them money in small bonds.
There are now tools available where you can loan money to a business and get paid a solid return for doing it!
Revenue Sharing Notes
MainVest is a company that allows you to invest in a business that agrees to share a percentage of their future revenue until their investors receive a return on investment. You can start investing in businesses for as little as $100, and you get repaid your principal and interest over time.
Lend To Businesses For Inventory
28. Invest In Student Income-Share Agreements
An Income-Share Agreement (ISA) is an alternative to student loans. By using an ISA, a student’s tuition is paid for in exchange for a percentage of their future income.
Who is funding these ISAs? Private investors and universities fund them. Investors basically take a bet on a student’s future.
You see these most commonly at coding academies and trade schools, but they are growing in popularity.
Edly is a company that allows you to invest in ISAs. They have two options – one you can invest directly in a note, and the other in a fund that they use for future notes. Depending on timing, there might not be any open notes available to invest.
You must be an accredited investor to invest, and there is a $10,000 minimum. However, they are targeting 8-14% returns, which is awesome.
29. Refinance Your Mortgage
This may sound strange in a passive income article, but refinancing your mortgage can be a great way to free up a lot of income and save you $100,000s over the life of your loan. That’s a pretty good gain in my book.
Right now, interest rates are still near historic lows, and if you haven’t checked out your mortgage lately, now’s a great time to shop around and compare rates. If you can save 0.50% or more on your loan, you’re potentially adding tens of thousands of dollars back into your pocket. Not many investments can beat that.
30. Licensing Music
Just like stock photos you can license and earn a royalty off of your music when someone chooses to use it. Music is often licensed for YouTube Videos, commercials, and more.
With the amount of YouTube videos and podcasts that are being created, there is more demand than ever for music – and people are willing to pay for it.
The key way to do it is to get your music in a library that people can search. Check out this guide on how to license your music.
Others also include;
- 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 canceling out your rewards). Check out this list of the best Cashback Rewards Cards.
- 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!
- Buy and Sell Websites: Flipping websites is like flipping houses without all the work involved. You simply buy an existing site, tweak it a bit and then sell it at a profit. However, you need to do your research to buy sites that really are profitable.
- Buy a Vending-machine Business: A vending-machine business requires almost no effort. For it to be successful, though, you need to place your vending machines in the right spots and stock them with what the customers in that area would want.
- Let Someone Else Run Your Business: Once your business is established and making enough money, you may be able to afford to get a trusted, competent person to run it for you. Many of the world’s richest people have nothing to do with the day-to-day operations of their businesses except attend a board meeting once in a while.
- Get a Job That Pays You to Sleep: Believe it or not, there are people who will pay you for literally sleeping on the job. The most common ways to earn money this way are to take part in sleep studies or to test mattresses and bedding. You don’t even need to worry about what to wear to work.
How many income streams should you have?
There is no “one size fits all” advice when it comes to generating income streams. How many sources of income you have should depend upon where you are financially, and what your financial goals for the future are. But having at least a few is a good start.
“You’ll catch more fish with multiple lines in the water,” says Greg McBride, CFA, chief financial analyst at Bankrate. “In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream.”
Of course, you’ll want to make sure that putting in effort into a new passive income stream isn’t causing you to lose focus on your other streams. So you do want to balance your efforts and make sure you’re choosing the best opportunities for your time.
Passive income ideas for beginners
- High-yield savings account. A high-yield savings account can be an easy way to get an extra boost on your savings beyond what you’d receive in a typical checking or savings account. It won’t be much, but it’s a simple way to get started with passive income.
- Certificates of deposit. CDs are another way to generate some passive income, but your money will be tied up more than it would be in a high-yield savings account.
- Real estate investment trusts. REITs are a way to invest in real estate without having to put in all the effort that comes with managing properties. REITs typically pay out the majority of their income in dividends, making them an attractive option for investors looking for passive income.
Minimize your taxes on passive income
A passive income can be a great strategy for generating side income, but you’ll also generate a tax liability for your effort. But you can reduce the tax bite and prepare for your future, too, by setting yourself up as a business and creating a retirement account. This strategy won’t work for all these passive strategies, however, and you’ll have to be a legitimate business to qualify.
- Register with the IRS and receive a tax identification number for your business.
- Then contact a broker who can open a self-employed retirement account such as Charles Schwab or Fidelity.
- Determine which kind of retirement account might work best for your needs.
Two of the most popular options are the solo 401(k) and the SEP-IRA. If you stash the cash in a traditional 401(k) or SEP IRA, you can take a tax break on this year’s taxes. The solo 401(k) is great because you can stash up to 100 percent of your earnings into the account, up to the annual maximum. Meanwhile, the SEP-IRA allows you to contribute only at a 25 percent rate. In addition, the solo 401(k) permits you to make an additional contribution of up to 25 percent of your profits in the business.
If you’re thinking of going this route, compare the differences between the two account types or look at the best retirement plans for the self-employed.
Passive Income Frequently Asked Questions
How do I generate passive income?
Passive income is the idea that you deploy time and/or money and receive income with no further work. You have to do something to generate passive income upfront, but then you can rely on that income in the future.
What are some examples of passive income?
Investing is a great example of passive income. You invest money in company stock, and you receive a dividend payment and appreciation on the investment. Another popular example is real estate. You buy a property, and you enjoy the rent as passive income.
Does passive income really work?
Yes! Passive income is how the rich continue to build wealth. When you don’t have money, you can leverage your time and effort to create income streams that will grow into the future. As you accumulate money, you can deploy that money (and even combine it with your time) to generate more and more passive income.
Where can I invest to have passive income?
If you want to invest to generate passive income, dividend stocks and mutual funds are great ways to do it. You can also invest in debt instruments, like bonds. If you want a safer approach, you can invest in a money market account or CD to get a risk-free return on your money.
What are the most popular passive income ideas?
There are lots of popular passive income ideas. The most popular include investing in the stock market, owning real estate, investing in a business, and even simply keeping your money in a high yield savings account. All of these approaches generate passive income, but they do require upfront capital.
Does passive income really require “no work”?
This is a myth. Passive income always requires something upfront: time or money. However, the idea that it becomes passive after you do the work is what’s alluring about it. For example, you spend 6 months writing a book, and you can enjoy the royalty income from your book for the rest of your life without any further work. That’s not to say that doing more work won’t boost your income, but there is an element that requires nothing more to earn.