The following is a guest post from my friend Jim at Wallethacks. Today Jim is going to talk about some ideas that you might want to add to your own passive income pyramid. I hope to be back on Friday with a good set of Black Friday/Cyber Monday deals that you don’t have to run around to get.
When I was a kid, my parents rarely talked about money in front of me and my sister.
It was a “parent” thing and I was supposed to focus on my school work and getting good grades. When you get good grades, you get into a good school. Once you graduate that school with good grades, you can get a good job. You work that good job with its good paycheck and ride off into the sunset.
That was the path.
It wasn’t until I was in college that I learned your job was really just one source of income. It was the most labor-intensive one because you needed to work to get paid, but once you started saving up money, your money could make money. Your money could make money while you slept, played video games, or went on vacation.
Many people call this “passive income” because you don’t have to do anything to earn it. You still have to spend less than you earn, so you have funds to invest, but once it’s going, you don’t have to intervene daily to have it generate income.
So how do you create sources of passive income? Are some passive income investments better than others? Yes – here are the ones I think offer the best opportunity given the risk.
1. Crowdfunded Real Estate
One of the very best passive investments you can make – and one previously available only to wealthy investors – is commercial real estate. That includes office buildings, retail shopping centers, large apartment complexes, and many other different types of non-residential real estate. It’s such a successful investment class because it offers a combination of regular income from rents and capital appreciation from increases in property values.
But with the many real estate crowdfunding platforms now available, small investors can invest in commercial real estate, often with just $1,000 or less. It’s a perfect passive income source, since the investments are professionally managed, and you’ll receive your income and appreciation gains without any effort on your part.
Here are some examples of real estate crowdfunding platforms you need to check out:
- Fundrise is considered one of the top real estate crowdfunding platforms in the industry. It enables you to invest in their private eREIT, which means you can spread an investment of just $1,000 across several different properties. And one of the biggest advantages is that you don’t need to be an accredited investor. Those are investors who are required to be either high income, high net worth, or both.
- stREITwise is also a REIT, as the name implies. And just as is the case with Fundrise, you can invest with as little as $1,000. The platform claims a return of 10% on your money!
- RealtyMogul is open to both accredited and non-accredited investors. You can invest in one of their REITs for as little as $1,000, but you can also invest in individual projects for just $5,000.
These are just a few of the companies that are in this space.
2. Dividend Growth Stocks
Interest-bearing investments are safe, solid sources of passive income. But interest income will be the only source. You can also consider investing in high dividend stocks, that offer a combination of regular dividend income, plus growth potential.
One of the best ways to do this is by investing in what are known as Dividend Aristocrats. These are large companies, components of the S&P 500, that have a history of increasing their dividends for at least the past 25 years. The list of dividend aristocrats typically includes more than 50 stocks. But they’re some of the most well-known companies in the world, including Johnson & Johnson, Coca-Cola, and McDonald’s.
They’re also among the best performers when it comes to price growth. That’s because stocks that have a long history of increasing dividends similarly have excellent track records of increasing revenues and profits. They’re a natural attraction for any investor looking for sources of passive income.
There’s even an exchange-traded fund (ETF) based on Dividend Aristocrats. The ProShares S&P 500® Dividend Aristocrats® ETF (NOBL) will allow you to invest in the entire group of more than 50 stocks through a single fund.
But if you prefer to invest in individual stocks – perhaps to cherry-pick the highest paying companies in the group – several websites put out updated lists of the dividend aristocrats. Those lists also include the current dividend yield.
Steady dividend income, plus capital appreciation, is a tough combination to beat. Dividend aristocrats are one of the very best sources of passive income.
3. Writing an E-book
Writing an e-book qualifies as a semi-passive source of income. That’s because you will need to invest time and effort to create an e-book. But once you do, and you begin selling it, it becomes a legitimate passive income source.
Once you have an e-book written, the next step is to market it. It’s fairly easy to do if you already have a successful blog or website. But even if you don’t, you can sell the e-book under affiliate arrangements.
That’s where you offer the book for sale on established blogs and websites, then split the proceeds of each sale with the site owner. For example, if you price your e-book at $20, you pay $10 to the site owner, and $10 goes to you.
If you can set up affiliate arrangements with several popular blogs and websites, those seemingly small $10 profits can turn into hundreds or even thousands of dollars in passive income each month.
And if you can write and successfully sell one e-book, you can add another, and then still others. With income coming from affiliate programs for multiple e-books, you might just earn enough revenue to quit your job.
4. Start a Blog
Some people start blogs because they have a passion for a specific topic. But many others do it to earn money. Often, that starts as just a side income. But as the blog grows, along with the income it generates, it turns into a full-time occupation.
Though much like writing an e-book, running a blog is a semi-passive income source. That’s because you will need to invest time, effort, and even some money in setting up a blog. You’ll also need to create content regularly. The content generates visitor traffic, which can then be monetized through advertising and affiliate sales. It’s similar to what we discussed above with the e-book concept, except you’re the advertiser, not the creator of the product.
Eventually, when the blog is generating sufficient cash flow, you can subcontract out content creation to freelance writers. At that point, you’ll essentially be managing your blog and collecting income.
Some people have become Internet millionaires using this method. If you have a good idea for a blog, this is one of the best ways to generate a very large income, that will eventually become mostly passive.
5. Peer-to-Peer Lending
Savings accounts don’t pay much these days, a product of low interest rates, and so if you want a real source of passive interest income, the best strategy by far is to bypass the banks and become a direct lender.
You can do that through peer-to-peer (P2P) lending platforms. These are online websites where consumers come to borrow money for a variety of purposes, and investors come to fund those loans at much higher rates of interest than they can get at banks.
The loans offered are primarily personal, that charge double-digit interest rates. In the most typical case, the borrower is consolidating high-interest credit cards into a single personal loan through the P2P website. That has the effect of making the borrower less risky as a result of the consolidation.
But it’s a real opportunity for investors, who often earn as high as 10% on their money. And you can usually invest with as little as $1,000. You don’t have to purchase individual loans either. Instead, you invest in slivers of loans, referred to as “notes”. Each note is around $25, which means you can spread a $1,000 investment across 40 different loans.
If you’re interested in this source of passive income, you can check out the following platforms:
There are many others in the space, but these are three of the most popular.
6. Renting Out Space in Your House
There are several different ways you can do this. The most obvious is to purchase a property with more than one unit, then live in one while you rent out the other(s).
Still another way – and one that doesn’t require buying a multiunit home – is to simply rent out space in your house. That can mean taking in a boarder, who will pay you either a weekly or monthly rent. If you have extra space in your home, the space is fairly private, and taking in boarders is legal in your community, it’s a completely passive way of earning extra income from your home.
But if neither of those ideas appeals to you, or they’re unworkable, you can also look into Airbnb. By participating in Airbnb, you can earn income from your home while you’re on vacation or away on business. It works especially well if your home is in a prime location, either in a large city or near a resort area.
And if you choose to go the Airbnb route, and want to supercharge your income, check out our post, How To Maximize Your Earnings as an Airbnb Superhost
7. Invest in Royalty Income
Do you know all those songs you listen to and love on the radio, TV, the Internet, and your smartphone? The artists behind the music are making money every time their songs are played. This is what is referred to as royalty income. And you can get a piece of it, even though you have nothing to do with the creation of the music.
Musicians often sell the royalties to their music as a way of raising immediate cash, sometimes because they just want to move on to something else. When they do, you can get a part of those royalties by making a relatively small investment.
There’s even an online exchange where you can invest in royalty income, called the Royalty Exchange. It won’t make you rich, but if you have the cash to invest, it can provide you with an ongoing source of passive income.
If you’re getting tired of the 9-to-5 grind, but you don’t have time to build alternative income streams, look into sources of passive income. With just an investment upfront, of either money or effort, you can often build a completely passive source of income that will benefit you for years to come. And if you get good at it, you’ll enjoy it for the rest of your life.
And I think Warren Buffett put it best – “If you don’t find a way to make money while you sleep, you will work until you die.”
Amen to that.