Passive Income Ideas
Passive Income…having your money work for you. Using your mind to make money. Not working for your time. The list goes on…we all want to have passive income! I will itemize some great passive income ideas. Not all may work for you and there are probably many more so this isn’t all inclusive nor exclusive. Just some passive income ideas that I use myself and others that I am aware of that are effective.
Real Estate:
Let’s begin with the most well-known “passive income” category! For most real estate, I call it “semi-passive” even though you may enlist a management company. When you own a physical asset that requires upkeep and maintenance there is always some overseeing it so to me it is “semi” passive.
• Buying real estate and renting it out (with leases). This can be done by buying a turn key investment or one that needs TLC so you renovate to create value and then rent out (you could sell/flip for a faster capital gain but then it isn’t passive income stream). Lots of variations of this so I will go into detail in separate “real estate investing” articles.
• Commercial real estate larger projects or farmland. Partnerships can be effective with larger projects as you can have the opportunity for greater returns afforded to larger projects with less capital and cash investment.
• REITs or DPP (in real estate or energy)
• Vacation Rentals aka short term rentals. Think ABNB. Special tax qualifications for very short term rentals. There is a loophole on short term rentals. I believe it is less than 2 weeks. Check with your CPA or tax advisor.
Always remember, you make your money when you Buy – on the Buy side (price, terms, etc)
Finance/Business:
• Buying a turn key business. Always some overseeing even with a general manager but if it is the right fit you could have good “semi” passive income with just some executive decision making weekly or monthly or less. I enjoy decision making so I find this one fun.
• Private credit – lending money. Yes, like being your own bank. I prefer secured (collateral) when lending money. Hard money lending is included here too.
• Buying settlements with cash at a discount in exchange for a steady stream of passive income at an agreeable rate.
• Business bonds. Buying bonds in businesses looking for cash. Smaller businesses are usually looking for capital so there are opportunities but they tend to have higher risk but also pay higher rates. Higher risk/reward.
• Dividends! There are dividend stocks – commons and preferred and ETFs. ETFs are great for diversification and minimizing business risk specific to owning 1 company. Many ETFs for dividends – fixed income, bonds, value stocks, etc. There are so many. I have written separate dividend articles.
• Bonds. High grade bonds are my preferred type but there are high yield bonds, muni bonds (ideal for higher tax brackets), treasury bonds, etc. Ladders are great for liquidity.
• Index funds usually pay dividends and also have a trajectory of going up long term. SPYD, VOO are examples.
• Options. Writing (selling) covered calls and short PUTS as a great way to generate “semi” passive income. I have an entire section on options on this website. Credit spreads too.
• Angel investing but depends on your structure. It can be in form of loan or bond to business or a payment plan. Even a zero coupon setup can provide you a higher payment at maturity for just providing the capital outlay. However, be aware that startups can be higher risk.
• High yield CDs. Negotiable CDs.
• T-Bills, Bonds, STRIPs, Notes – RFR is over 4% and highest in over 15 years.
• Commercial paper. Bankers acceptances. Depends on their terms.
• Crypto lending and staking. You can stake your crypto and lend your crypto. There are a lot of opportunities to earn passive income with crypto. Know your risks with crypto.
• Annuities are an insurance product 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.
Creative:
• E-books. Write a book and sell it electronically.
• Create music, photography, or artwork and license it for use online. There are many sites that offer that and can turn it into a stream of passive income by licensing it to stock image and music sites. Then other content creators then pay for the rights to use your creations. Musicians can sell their songs on sites like AudioJungle.net and Pond5, while photographers can sell their images on sites such as Alamy and Adobe Stock.
• Turn your e-book into an audio book. Sell your audio-book online.
• Create an online course or training program of something you are experienced in and sell it online.
• Digital products can be anything, from ebooks and lesson plans to mobile apps—even NFTs. What’s key here is that you spend time building them once and then are able to sell the same asset again and again online. You can take a totally passive approach to the digital products you create, or you can devote time and money to marketing them.
• NFTs – create digital artwork and sell them. Digital intellectual property. A revolutionary way of transferring rights to a unique item. It can be artwork but so many more other “things.”
• If you’re into the NFT-space, you can make passive income by lending to others with NFTs as collateral. You create a smart contract with someone who owns an NFT, you agree on an amount to lend to them, a repayment period, and you both digitally sign this contract. Remember that most NFT lending is done via Ethereum, so you provide the funds in ETH, and they repay you in ETH. If the borrower doesn’t repay you in time (or at all), the smart contract will transfer you ownership of the collateral NFT.
• Video advertising. Create and upload helpful videos and receive ad dollars. YouTube can be a great source if you hit their set minimums.
• Sell instructions, guides, prints, patterns, and other digital downloads.
• Buy and sell royalties. Like trading intellectual property with royalties (stream of income).
• Custom designed products. By uploading original designs to print-on-demand websites like Teespring, Redbubble, CafePress and Zazzle, you can earn passive income each time someone orders a physical product with your design such as a shirt, backpack, or mug. Even better, you don’t have to handle the printing, storage or shipping, reducing much of the frustration of selling physical goods.
• Create an app and sell it.
Website:
• 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 can take a long time to build up before it becomes passive.
• Website display ads. Write a blog or create a website and display relevant ads for passive sales.
• Buying domains and selling them. Have you noticed how many domains are not available? Seems many people buy the “cool names” and then potentially resell them at a higher price. It is about supply and demand. If your domain is in high demand, then it could sell at a higher price.
Asset Sharing:
• Car rentals. This one didn’t work for me as it had too much maintenance but it works for others. If done properly it could be effective. Sites like Turo or Getaround are ones to look at.
• Advertise on your car. Yes turn your car into a billboard and use it to advertise as you drive around.
• Tool or mobile appliance sharing. Yes those costly tools in your garage that you only use sparingly such as diamond blade tile saw could be rented out hourly or daily.
Old-fashioned/Traditional:
• Vending machines
• Laundromats
• ATM machines
• Storage rentals.
• Almost anything automated. Think automated!
• Shopping rewards
As you can see there are many ways to generate passive income but everything involves risk so always exercise your best judgement.