Build Your Wealth With Any Of These 20 Smart Passive Income Ideas
Build Your Wealth With Any Of These 20 Smart Passive Income Ideas
Published on September 16, 2022 17:51 PM by Michael Davis
The concept of passive income has gained significant traction of late. While earlier the options were limited, the evolution of various online platforms has given individuals the opportunity to augument their primary income.
A pandemic like COVID-19 has also accentuated the need for a passive income. Let us dig deep into passive income and how you can generate one.
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What Is Passive Income?
"The best time to plant a tree was 20 years ago, The second best time is today"- Ancient Chinese Proverb.
Passive income refers to income that doesn't require much effort in terms of money, time, and resources. It does not warrant active participation, and you need not devote fixed dedicated hours to build a passive income. Unlike regular income, passive income requires little maintenance.
The retired hedge fund manager, Todd Tresidder, says, "Many people think that passive income is about getting something for nothing," adding, "It has a 'get-rich-quick' appeal… but in the end, it still involves work. You give the work upfront."
But if you are committed to the strategy, it can be a great way to generate income, and you'll create some extra financial security for yourself.
Best 20 Passive Income Ideas
If you are 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.
Write An E-Book
Writing an e-book can be the best opportunity to take advantage of the low cost of publishing and even leverage the worldwide distribution of Amazon to see your book by potentially millions of would-be buyers. E-books can be relatively short, maybe 30-50 pages, and relatively cheap to create since they rely on your expertise.
You will need to be proficient on a specific topic; however, the topic could be alcove and use some specific skills that very few offer but that many readers need. You can design the book on an online platform and then test-market different titles and price points.
But just like 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.
Opportunity: An e-book not only 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.
The Risk Involved: 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 podcasts, or media, or something else. So you could put in plenty of work upfront and get very little back for your efforts, especially at first.
And while an e-book is nice, it'll help if you write more and then even build a business around the book and make the book one part of your business that strengthens the other parts. So your huge Risk is probably that you waste your time with little reward.
Create A Course
One famous method for generating passive income is creating a video or audio course, then kicking back while cash rolls in from selling your product. These courses can be sold and distributed through sites like Udemy, Coursera, and SkillShare.
Or you might consider a "freemium model" – building up a following with free content and then charging for more detailed information or those who want to know more. For instance, language teachers and stock-picking advice may use this model. The free content demonstrates your expertise and may attract those looking to go to the remaining level.
Opportunity: A course can deliver a good income stream because you make money easily after the initial outlay.
The Risk Involved: Tresidder says, "It takes a massive amount of effort to create the product. And to make excellent money from it, it has to be great. There is no room for trash out there."
He says you must build a strong platform, market your products and plan for more products if you want to be successful.
Tresidder added, "One product is not a business unless you get really lucky. One of the best ways to sell an existing product is to make more excellent products."
Once you master the business model, you generate an excellent income stream.
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With affiliate marketing, social media "influencers," website owners, and bloggers promote a third party's product with a link to the product on their site or social media profile. Amazon might be the best-known affiliate partner; however, eBay, Awin, and ShareASale are among the larger names, too. And Instagram and TikTok have become the biggest platforms for those looking high to follow and promote products.
You could consider growing an email list to draw attention to your blog or direct people to products and services they might want.
Opportunity: When a visitor uses the link and purchases from the third-party affiliate, the website owner earns a commission. The commission range from 3% to 7%, so it will likely take a significant way for your site to generate high income. However, if you can grow your following or have a more lucrative niche, such as software, fitness, or financial services, you may be able to make some coin.
Affiliate marketing is deliberated passive because, in theory, you can earn money by adding a link to your site or social media account. You will not earn anything if you can't attract readers to your site to click on the link and buy something.
The Risk Involved: If you're starting, you'll have to take time to create content and build traffic. It can take considerable time to build a following, and you'll have to find the right strategy for attracting that audience, a process that might take a while. Worse, once you have spent all that energy, your audience may be apt to flee to the next popular influencer, trend, or social media platform.
Investing in rental properties is a useful way to earn passive income. However, it often requires more work than people expect.
Suppose you don't take the time to learn how to make it a profitable venture. In that case, 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 apathetic income from rental properties, Graves says you must determine three things:
- How much return do you want on the investment
- The property's total costs and expenses
- The financial risks of owning the property
The Risk Involved: Some questions to consider: Is there a market for your property? What if you get from the tenant who pays late and damages the property? What if you are unable to rent out your property? Any of these factors could put a huge dent in your apathetic income.
And economic downturns can pose challenges, too. You may have tenants who can no longer pay their rent, while you may have a mortgage to pay. Or you may not be given rent the home out for as much as you could before as incomes are canceled. And home prices have been rising fastly due to relatively low mortgage rates, so your rents may not be able to close your expenses. You will want to weigh these risks and have contingency plans to protect yourself.
Sell Photography Online
Selling photography online might not be one of the most obvious places to set up a passive business; however, it could allow you to scale your efforts, especially if you can sell the same photos repeatedly. They might work with an organization such as Getty Pictures, Shutterstock, or Alamy.
To get started, you will have to be approved by the platform, and then you license your images to be used to download them. The platform then pays you every time to use your
You will need photos that appeal to a specific audience or represent a certain scene, and you'll need to tease out where the demand is. Photos could be shots with models, landscapes, or creative scenarios, or they could capture real events that might make the news.
Opportunity: Part of the value of selling and licensing your images through a platform is that you have the potential to scale your efforts, especially if you can provide images that will be in demand. That means you could sell the same picture hundreds or thousands of times.
The Risk Involved: You could add hundreds of photos to a platform such as Getty Images and not have any of them generate meaningful sales. Only a few images may drive all of your revenue, so you have to keep adding images as you search for that needle in the haystack.
It may require substantial work to go out and shoot images, process them and keep up with the events that ultimately drive your revenue. And motivation could be hard to maintain. Every next image might be your lottery ticket, though it almost certainly won't be.
Flip Retail Products
Take advantage of online sales platforms like eBay or Amazon, and sell products you find at cut-rate prices elsewhere. You will 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 will be able to take a price advantage between what you can find and what the average shopper may be able to find. This could work well if you have a contact to help access discounted merchandise that few others can find. Or you may be able to find precious merchandise that others have overlooked.
The Risk Involved: While sales can happen at any time online, helping make this strategy passive, you'll have to hustle to find a reliable source of products. Plus, you'll have to invest money in your products until they sell, so you need a vital source of cash. You'll have to know the market, so you are not buying at a price that is too high. Otherwise, you may wind up with products that no one needs, and prices you have to cut to sell drastically.
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Buy Crowdfunded Real Estate
Suppose you are interested in investing in real estate but don't want to do much of the heavy lifting (management, repairs, handling tenants, and more). In that case, another option is using a crowdfunding platform to invest in property. An experienced investing team takes out the real estate, and then you can decide to invest in it and how much you are comfortable with.
You will pay a yearly management fee to the real estate platform and have minimum investment amounts ranging from ten to tens of thousands of dollars.
Opportunity: You can access private real estate deals that may be attractive, and knowledgeable investors have preselected them. You can check out the back on the platforms, so you will have some idea of what level of returns you can expect and over what time frame. Real estate investments can help expand your portfolio, helping to smooth your returns.
Some platforms invest in equity, while others invest in debt. Generally, the stock returns in exchange for more Risk, while debt offers lower returns in exchange for less Risk. Some platforms make you an accredited investor with a certain minimum income or assets. Popular platforms include Fundrise, Yieldstreet, and DiversyFund.
The Risk Involved: You're on the hook to make your investments on many crowdfunding platforms. So while past returns may look good, they are no predictor of future success. And you will have to make the judgment call about what to buy. That means you will need to read the prospectus for every deal you are interested in and understand the pros and cons.
Real estate is typically funded with very high levels of debt financing, making it susceptible to any economic downturn. You will want to understand how long they will lock up your money in the investment and when you can access it, especially in an emergency.
Shareholders in companies with dividend-yielding stocks get a payment at regular intervals from the company. Companies pay cash dividends quarterly out of their profits, and all you want to do is own the stock. Dividends are the price per share of stock, so the more shares you own, the higher your payout.
Opportunity: Since the stock income 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. They will deposit the money in your brokerage account.
The Risk Involved: The tricky part is choosing the right stocks.
For example, companies problem with a very high dividend may be unable to sustain it. Graves warns that novices jump into the market without thoroughly investigating the company's problem with the stock.
Graves says, "You have got to investigate each company's website and be comfortable with their financial statements," adding, "You should spend more than two weeks investigating all companies."
There are ways to invest in dividend-yielding property without spending much time evaluating companies. Graves advises going with exchange-traded funds. ETFs are investment amounts that hold assets such as stocks, goods, and bonds; however, they trade like stocks. ETFs diversify your holdings, so if one company cuts its payout, it does not affect the ETF's price or dividend too much. Here are the best ETFs to choose from.
Graves says, "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."
Another key factor is that stocks or ETFs can move down significantly in short periods, especially during times of uncertainty, as in 2020 when the coronavirus crisis shocked financial markets. Economic stress can cause some companies to cut dividends, while diversified funds may feel low of a pinch.
Investing options with Bankrate's brokerage reviews with comparison.
A P2P (peer-to-peer) loan is a personal loan between you and a borrower, facilitated through a third-party intermediary such as Prosper or LendingClub. Other players include Funding Circle, which goals businesses with higher borrowing limits, and Payoff, which goals better credit risks.
Opportunity: As a lender, you get more income via interest payments made on the debit. However, because the loan is unsecured, you could end up with nothing in the event of a default.
To cut that problem, you need to do two things:
- Diversify your lending portfolio to invest smaller amounts over multiple credits. Prosper.com and LendingClub's investment per loan is $25 (minimum).
- Analyze historical information on prospective borrowers to make informed picks.
The Risk Involved: It takes time to master the metrics of P2P Lending, so it's not entirely passive, and you'll want to vet your prospective borrowers carefully. Since you are investing in multiple loans, you must pay close attention to the payments received. What you make in interest should be reinvested if you want to build an income.
Economic recessions can make high-yielding personal loans more likely to default, so these loans may go bad at higher than historical rates when the economy worsens.
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Create An App
Creating an application could be a way to make that upfront fund of time and reap the reward over the long haul. Your app might be a game and one that helps mobile users perform some hard-to-do functions. Once your application is public, users download it, and you can generate income.
Opportunity: An app has a big upside if you can design something that catches the fancy of your audience. You will have to consider how best to generate sales from your app. For instance, you might run in-app ads or have users pay a nominal fee for downloading the app.
If your app gains popularity and you receive feedback, you will likely need to add incremental features to keep the app relevant and popular.
The Risk Involved: The biggest problem here is probably that you use your time unprofitably. If you commit little and no money to the project or money that you would have spent anyway, for instance, on hardware, you have little financial downside here. But it's a crowded market, and truly successful apps must offer users a compelling value or experience.
You'll also want to ensure that if your app collects any data, it complies with privacy laws, which differ across the globe. The application's popularity can be short-lived, meaning your cash flow could dry up faster than expected.
A REIT is a real estate investment, a fancy name for a company that owns and manages real estate. REITs have a special legal structure to pay little or no corporate income tax if they pass most of their income to stakeholders.
Opportunity: You can buy REITs on the stock market like any other company or dividend stock. You will earn whatever the REIT pays out as a dividend, and the best REITs have a record of increasing their dividend annually so that you could have a growing stream of dividends over time.
Like dividend stocks, folks REITs can be riskier than owning an ETF consisting of dozens of REIT stocks. A fund provides immediate diversity and is usually plenty safer than buying individual stocks — and you'll still get a nice payout.
The Risk Involved: Just like dividend stocks, you'll have to be able to pick the good REITs, and that means you will need to analyze each of the businesses that you might buy, a time-consuming process. And while it is a passive activity, you can lose a lot of money if you don't know what you are doing. Like any stock, the price can fluctuate in the short term.
REIT dividends are not protected from the worst economic times, either. If the REIT does not generate enough income, it will likely have to cut its dividend or eliminate it. So your passive income may get hit when you want it most.
Rent Out A Parking Space
Do you have a parking space you're not using or could be used by someone else? You could trade that point for some cash. It could be an even best set-up if you have an area that could fit several cars or that would be useful for multiple events or venues.
Opportunity: Your parking spot could be worth real money in particular high-demand areas or during high-demand times (for example, during a concert or sporting event). For example, you might have a money-maker if you live near a place with frequent commuters strapped for parking spots. You might have a good chance of turning a profit by renting to someone who needs the spot daily rather than for one-off events.
The Risk Involved: This idea might not be particularly risky, but you want to ensure you aren't violating any restrictions from your residence or other entity by renting a parking space. It is probably worthwhile having a disclaimer of liability as a condition of parking in your spot, too.
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A Bond Ladder
A bond ladder is one series of bonds that mature over the years. The staggered maturities allow you to decrease the reinvestment problem, which is the Risk of reinvesting your money when bonds offer too-low interest payments.
Opportunity: A bond ladder is a classic apathetic investment that has appealed to retirees and near-retirees for decades. You can sit and collect your interest payments, and when the bond matures, you "extend the ladder," rolling that principal into a recent set of bonds. For instance, you might start with bonds of one year, three years, five years, and seven years.
In a year, when the initial bond matures, you have bonds remaining for two years, four years, and six years. You can use this recently matured bond to buy another year or roll out to a longer duration, for example, an eight-year bond.
The Risk Involved: 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 the federal government backs Treasury bonds, corporate bonds are not, so you could lose your principal if the company defaults. And you will want to own many bonds to diversify your problem and eliminate the risk of any single bond hurting your overall portfolio. If the overall interest price rise, it could push back the value of your bonds.
However, with these concerns, many investors turn to bond ETFs, which give a diverse fund of bonds you can set up on a ladder, eliminating the Risk of a single bond hurting your returns.
Invest In A High-Yield CD Or Savings Account
Investing in a high-yield certificate of deposit or savings account at online banking can allow you to generate a passive income and get one of the highest interest rates in the country. You do not even have to leave your house to make money.
Opportunity: To create the most of your certificate of deposit, you will want to quickly search the nation's top CD rates or the top savings accounts. It is usually much more advantageous to go with an online bank than your local one because you will be able to select the top rate available in the country. And you will still enjoy a guaranteed return of principal up to $250,000 if the FDIC backs your financial institution.
The Risk Involved: Your principal is safe if your bank is backed by the FDIC and within limits. So, investing in a certificate of deposit or savings account is about as safe a return as possible. However, while these accounts are safe, they are returning less these days than before. And that return can pale compared to inflation, which hit mid-single digits last year, hurting the real purchasing power of your money. However, a CD or savings account will yield better than holding your money in cash or a non-interest-bearing checking account where you'll receive nothing.
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Sponsored Posts On Social Media
Do you have a following such as Instagram or TikTok? Get growing consumer brands and features to pay you to post about their product in your feed.
You must keep filling your account with content that draws in your audience. And that means continuing to create a story that grows your reach and engages your followers on social media.
Opportunity: Leveraging your social media appearance is an attractive business model. Draw eyeballs and clicks to your accounts with strong content, and then monetize that content by setting up sponsored posts from brands that appeal to your followers.
The Risk Involved: Getting started here can be a Catch-22: You need a large audience to get meaningful sponsored posts; however, you are not an attractive option until you get a meaningful audience. So you will have to focus a lot of time initially on growing your audience with no guarantee that you'll be successful. You can spend tons of time following the trends and building content in the hopes that you eventually get the sponsorship you are aiming for.
Even when you have the sponsored posts, you're looking for, you will need to keep posting to draw in your audience and remain an attractive option for advertisers. That means committing to the time and monetary investment, even if you have a lot of autonomy on exactly when to do it.
Advertise On Your Car
You may be able to earn some money by simply driving your car around the city. Contact a specific advertising agency, which will evaluate your habits, including where you drive and how many miles. If you are a match with one of their advertisers, the agency will "wrap" your car with the ad at no cost. Agencies are looking for the latest cars, and drivers should have a clean driving record.
Opportunity: While you have to get out and drive if you're already putting in the mileage, this is a great way to earn hundreds per month with little or no extra cost. Drivers can be paid by the mile.
The Risk Involved: If this idea looks interesting, be careful to find a legitimate partner. Many frauds set up scams in this space to try and bilk you out of thousands.
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Rent Out Your Home Short-Term
This straightforward strategy takes advantage of space you're not using and turns it into a money-making opportunity. If you're going away for the summer, have to be out of town for a while, or maybe even want to travel, consider renting out your current space while you are gone.
Opportunity: You can point your space on any numerical of websites, such as Airbnb, and set the rental terms yourself. You will collect a check for your efforts with minimal extra work, especially if renting to a tenant who may be in place for a few months.
The Risk Involved: 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. For example, tenants may deface or even destroy your property or steal valuables.
Rent Out Useful Household Items
Here is a variation on renting out an idle car: Start even smaller with other household items that people may need but may be collecting dust in your garage. Lawnmowers? Power tools? Mechanics tools and toolbox? Tents large coolers? Look for high-value deals that people need for a very short time and where it might not make sense for someone to own the item. Then together, a way for clients to discover your inventory and a way for them to pay for it.
Opportunity: You can begin small here and then scale up if interested in a specific area. Do people suddenly want a tent for weekend camp when the weather gets warmer or cooler? Find where the demand is, and then you could purchase the item rather than having it on hand. In some cases, you might be able to recover the item's value after a few uses.
The Risk Involved: There is always the possibility that your property is damaged or stolen; however, 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 are not exposed to many risks, especially if you already have the item and you're not likely to need it shortly. Pay particular attention to liability problems, especially if you're renting out potentially dangerous equipment (e.g., power tools.)
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Sell Designs Online
If you've design skills, you may be able to return them to a money-maker by selling items with your printed designs on them. Businesses such as Zazzle and CafePress allow you to sell properties such as T-shirts, hats, mugs, and more with your designs.
Opportunity: You can start with your designs, see what the market is interested in, and expand from there. You may be able to capitalize on the surging interest in an event and design a shirt that captures the spirit of the times and a snarky take on it. And you can set up your web storefront through a site such as Shopify to market your goodies.
The Risk Involved: Printing partners allow you to ship items without directly investing in the merchandise, avoiding one of the huge risks of tying up your capital. However, you may be able to get better pricing if you invest in some of the inventory yourself. Another big risk is that you could invest a lot of time with little Payoff. Still, this avenue might be interesting if you're already doing the design work for another purpose, such as personal interest.
Create A Blog Or YouTube Channel
Are you on travel to Thailand? A maven of Minecraft? A sultan of swing dancing? Take your affection for a subject and back it into a blog or a YouTube channel, using ads to generate your income. Find a trending subject, even a small niche, and an expert on it. Initially, you will have to build out a suite of content and draw an audience; however, it can create a steady income stream over time as you become known for engaging content.
Opportunity: You can leverage a platform, then use your best content to build a following. The more unique your voice and area of interest, the better for you to become "the" person to follow. Then draw sponsors to you.
The Risk Involved: 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 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 downside is that you can outlay your time and resources with little to show for it if there is limited interest in your subject or niche. Your area of expertise may be to niche to draw a profitable audience, but you won't be sure of that until you experiment.
Passive Income Ideas For Beginners
A high-yield savings account can be a simple way to get an extra boost on your savings beyond what you receive in a typical checking or savings account. It won't be much; however, it's a simple way to start with passive income.
Certificates of deposit. CDs are another way to generate passive income, but your money will be tied up more than it would be in a high-yield savings account.
REITs (Real estate investment trusts) are a way to invest in real estate without putting in all the effort that comes with managing properties. Real estate investment trusts typically pay out most of their income in dividends, making them an attractive option for investors looking for passive income.
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How Many Income Streams Do You Have?
There's no "one size fits all" advice regarding generating income streams. How many sources of income you have depends on where you are financially and your financial goals for the future. However, having at least a few is a good start.
Greg McBride, chief financial analyst, CFA, at Bankrate, says, "You'll catch more fish with multiple lines in the water," adding, "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."
Yes, you'll want to ensure that putting effort into a new passive income stream isn't causing you to lose focus on your other streams. So you want to balance your efforts and choose the best opportunities for your time.
Minimize Your Taxes On Passive Income
A passive income can be a smart strategy for generating side income, but you will also generate a tax liability for your effort. But you can also reduce the tax bite and prepare for your future by setting yourself up as a business and creating a retirement account. However, this strategy won't work for all these passive strategies, and you will have to be a legitimate business for quality.
- Register with the IRS and get tax identification numbers for your business.
- Then contact a broker who can open a self-employed retirement account, such as Charles Schwab (Fidelity).
- Determine which type of retirement account might work well for your needs.
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Which Passive Income Source Is Best?
The question of which apathetic income source is best is based on several factors. Still, some of the important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you have to invest, and the potential to succeed. Typically, the lower the barriers to entry, the crowded the competitors' fields and the lower the success rate.
So you will need to weigh the opportunity against these factors and see which passive income strategy works best for you.