What Is Passive Income?
Passive income is essentially money you earn while not actively working for it.
Generally, a passive income stream requires a decent investment of time and/or money upfront, but once you have the stream set up, it could continue making money for you forever.
So, let’s talk about some of the best ways to generate passive income!
Invest in a Rental Property
Owning a property and renting it out to tenants is a great way to build a solid, reliable source of passive income. After all, people always need a place to live, right?
Of course, this does depend on you finding a good property in a desirable location and making sure your tenants are properly vetted.
If you think owning a rental property might be a good option for you, check out our article on How to Buy Your First Rental Property.
Start a Website
If you have a particular interest in a certain subject or field, starting a website could be a great way to share your knowledge with the world while bringing in some regular passive income.
Your website could be a blog, a product review center, or a tool that helps users research things like travel destinations or real estate.
When you have enough users visiting your site, you’ll be eligible for ads from search engines, or you can sell ad space on your site to individual advertisers!
Start a YouTube Channel
Similarly to starting a website, starting a YouTube channel is a way for you to share what you’re passionate about while creating the potential for advertising revenue. This is one of the more popular passive income ideas among the younger crowd.
You’ll have to get a couple thousand views under your belt first, but once you’re there, YouTube will run ads before and/or during your video and pay you for it.
If you do manage to create a website or a YouTube channel that’s generating a good bit of traffic, you can pursue relationships with affiliate partners who will pay you to market their products.
You might get a commission every time a user clicks on a link that your affiliate partner gives you or every time they buy a product after following the link.
Many people have built successful online stores by buying products wholesale and reselling them on Amazon or another e-commerce site.
For example, if you see that there is a particular consumer interest in beauty products, you could buy such products in bulk and have them shipped to you.
Since you’re buying in bulk, your per-unit cost will be fairly low. You can then become an Amazon seller and resell the products you bought for a normal retail price, securing a sizable profit margin for yourself.
The downside of doing this middleman work is that you will have to shell out a lot of money up front in order to secure a wholesale price on the products you’re buying.
Additionally, since you’re trying to sell so many products, it could take years for your inventory to clear out and leave you with a big profit.
When a company turns a profit, they can choose to put that money back into the company or to give that money to its stockholders in the form of dividends, or any combination of these two options.
There are several companies in the stock market that are known for regularly giving out dividends to their shareholders, and even growing the amount of their dividend every year.
Some investors will pursue an “income” investing strategy that involves putting a lot of money into such companies and collecting the dividends those companies give out every quarter.
If you have enough money to invest in these companies, the amount of your dividends could even be enough to replace a full-time salary!
Another good way to build passive income is to lend your money out to others.
There are several ways to do this, each involving a different level of risk and reward.
The safest way to lend money would be to lend to the U.S. government. You can do this by buying a U.S. Treasury bond.
You can buy these bonds online, and you’ll receive bond payments plus interest until the term of the bond is over.
If you buy a Treasury bond with a longer term, the interest rate will be higher (most of the time).
You can also lend money to your bank. A certificate of deposit, or CD, is an agreement in which you leave a predetermined sum of money with your bank, and at the end of the term, the bank gives you back your money plus interest.
This is also a relatively safe way to lend money because CDs are backed by the FDIC.
If you want to take on more risk and have the opportunity to charge higher interest rates, you can participate in peer-to-peer, or P2P, lending.
As the name suggests, P2P lending is a system that allows individuals to borrow money from other individuals, rather than from a bank.
You can find P2P lending platforms online, and becoming a lender will allow you to earn interest on the money you lend.
Invest In a Business
If you have the money to invest in a business but don’t have time to actually work to build the business, you can invest in the business and become a silent partner.
You’ll shell out money to buy yourself ownership in the business, but one of the other owners will do the work necessary to run it.
Not every business owner is looking for an arrangement like this, so you’ll have to find an owner who is willing to grant you a stake in the company for contributing your money.
Create a Course on Udemy
Udemy is one of the best massive open online course (MOOC) platforms out there.
You can log onto Udemy and find a full, educational course for just about anything. There are over 155,000 courses taught in more than 65 languages for users to enjoy.
With Udemy, you can learn everything from playing an instrument to financial modeling.
If you have a good amount of knowledge about any topic, no matter how random or niche it might be, you can create a course on Udemy! Once you create a course, users can pay to take it at any time.
Click here to read our review of Udemy.
Creative work (music, photography, art)
This is one of our favorite passive income ideas, and it can be a rewarding way to monetize your talents without having to put in a bunch of money up front.
If you’re skilled at playing an instrument or creating beats with a music creation software, taking professional photographs, or creating physical or digital art, you can turn your creations into cold, hard cash!
You can sell the rights to your art to a distribution platform, then receive a commission every time someone buys your beat to use in a song or your photo to use on a website.
Many of the passive income ideas listed in this article require quite a bit of investment on the front end.
If you don’t have thousands of dollars to put into starting a passive income stream, don’t worry.
Start with something simple that makes you happy, and then the opportunity for monetization will come!