Passive income (or residual income) is defined as income that is earned through methods requiring little to no effort.
One of the most common methods for earning passive income is rental properties.
Theses properties are paid for by the tenant requiring very little ongoing work. And any work that is required could be outsourced, making it 100% passive.
But there’s one catch to passive income.
It generally requires one of two things. CASH or UPFRONT WORK.
Going back to the rental property example, you’ll need to have enough cash to purchase a home to rent out upfront. You could also receive a mortgage for the property, but you’ll still be required to pay a down payment.
Another popular form of passive income is content creation.
This could be blogging, creating videos, or using social media to profit.
In this example, there isn’t much (if any) cash required upfront. However, you’ll need to put in a tremendous amount of work to grow your audience and begin making money.
Many of the world's richest people have developed hundreds of different passive income streams, allowing them to live a life working as they desire to.
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Why Passive Income is Awesome
As mentioned above, passive income will allow you to make money without significant ongoing work.
This makes it a great option for those working a full-time job or want more flexibility with their earnings.
Passive income allows for almost unlimited earnings potential, giving you the ability to make as much money as you’d like.
The benefits of passive income can best be described in one word.
Passive income gives you FREEDOM. The freedom to live where you want and engaging in actives you WANT to participate in.
Best Methods of Passive Income
Rental properties and content creation are just a couple of examples of passive income streams. And while there are literally thousands of techniques to building residual income streams, we’ll outline some of the most common, and profitable, below.
Whenever you think of a rental, you probably think of a rental home.
But that’s just the beginning.
You can build a passive income stream by renting out just about anything, including homes, commercial properties, or even a single room in your home.
When deciding to rent anything, there are a few precautions you should take to ensure your assets are protected and can continue to produce income.
- Get insurance. No matter what you choose to rent, purchase insurance that protects your assets in case of damages that could occur by renters.
- Vet tenants. You should always vet your tenants to ensure they are a reputable renter. When renting smaller assets, you should require personal information for your records in the case a mishap occurs.
- Maintain assets. Your property will need routine maintenance to keep it operational and running efficiently. When it comes to real estate, you’ll need to complete routine checkups on your property to ensure it is being cared for within reason.
Rental homes are the most common type of rental property. You can often finance your purchase through a bank assuming you have the income and creditworthiness available.
You’ll need to be transparent with your lender about what you plan to do with the home.
Almost all lenders will require a full 20% down payment on rental properties but there are several hacks to decrease that amount if needed.
- Get a hard money loan. You can get cash for your down payment via a hard money lender. These loans typically have higher interest rates but could be considered if you can pay it back quickly. Some banks will not approve a mortgage if a hard money loan is suspected as the source of your down payment. You should check beforehand to see what options are available.
- A HELOC (Home Equity Line of Credit) is another opportunity to take cash out of your home to use as a down payment. This will have a lower interest rate than a hard money loan with the potential of purchasing the home entirely in cash if you have enough equity in your home.
Once you have your finances sorted to purchase the property, you’ll need to determine a rental price.
It is common to rent out a single-family home for 1% of the home’s purchase price per month.
For example, if you purchase a home for $175,000, it is common to rent your home for $1,750 per month. You’ll need to browse your local market before deciding on a rental price, but this is a good start.
When it comes to sourcing tenants for your rental home, you have a couple of options.
You could market your property yourself and use your own networks to find potential renters or you could use a property management firm to place tenants for you.
A property management firm comes with a cost, but can oftentimes be worth your money. They will handle the vetting process to ensure a good fit for your property as well as other management tasks.
If you have a large network of reputable renters, you may not need this service.
Before a tenant moves in, you’ll need to construct and sign a lease agreement detailing the “Do’s” and “Don’t”s while they are living on your property. If you decide to use a property management firm, they may be able to help with this process.
Short Term Rentals
Short term rentals are a relatively new concept when it comes to real estate investing.
The popularity of rental sites like Airbnb and VRBO has given rise to the number of short term rental properties across the globe.
There are several benefits and drawbacks to short term rentals.
- Greater flexibility. No long term tenants allow you to use the property as desired.
- Potential for increased revenue. Because your property is rented for short periods of time, you can charge a premium.
- More risk. Because you do not have long term commitments, your short term revenue can be volatile based on seasonality and other factors.
- Fees. Websites will charge fees to list your property for rent. In addition, you’ll need to consider cleaning fees and licensing fees for your property.
- Amount of work. A short term rental will require more work to maintain and keep rented than a normal rental property.
Not ready to take the leap into short term rentals but still want to monetize your real estate?
Short term rental websites allow you to list single rooms for rent, also. Even if it’s just a few nights every month, this is a great way to earn passive income with little work required.
Commercial Real Estate
Just as people need homes to live in, businesses need offices to work in.
Commercial properties tend to be more lucrative than residential real estate but with that comes a unique skill set required.
When renting commercial space, you need to understand the different classes of space and how to market them.
It’s also common for commercial real estate to go vacant for longer than typical residential properties.
If considering commercial real estate, there are a few main types:
- Office space
- Warehouse space
- Storage units
If new to commercial real estate, it’s wise to partner with someone knowledgable in the area.
Creating great content is not easy. It can take years to master your niche and understand how to promote your content effectively.
There are many different forms of content from writing to video and the new kid on the block, audio content (or podcasting).
Each have their own pros and cons, so it’s best to start with the form you are most experienced and passionate about.
Blogging can be a great source of passive income if you have the patience and skills to grow.
For new bloggers, you might become demoralized if you are not gaining traffic in the first few months. This is when most people will give up.
To become a successful blogger, you must be capable of writing excellent, and unique content that keeps readers engaged over the long haul.
If you are gifted in that way, you’ll next need to understand how to promote your content.
For written content, there are a few main methods of promotion: social media, SEO, and paid advertising. By mastering these skills, you can grow your blog readership and start thinking of how you will make money off of your content.
Once you have a solid foundation or readers, you should then understand how you will monetize your blog. You could consider display advertising, selling an eBook or course, or offering sponsored content.
There is no right or wrong answer when it comes to the right monetization strategy, so it’s smart to test different types to see what performs the best.
Blogging is not easy. It’s vital to learn the tips to becoming a successful blogger before starting your journey.
Video content has picked up steam over the last decade as mobile phones are now capable of producing high quality shots with the convenience of having a camera in your pocket.
Producing video content requires a slightly larger skill set than writing. You must be capable of editing and shooting videos that keep viewers watching.
In addition, you’ll need to have a personality that allows you to stand out among many others.
Similar to blogging, you’ll also need to craft a plan to promote your videos.
Many video creators will promote their content with an accompanying website or blog, as well as using keywords to rank their videos on social media platforms and search engines.
Once you’ve learned how to promote your videos, you’ll need to understand how you will profit from them. Depending on your content types the most common monetization strategies are ads and affiliate marketing (more on this below).
Audio provides a unique medium of content creation that gives people more flexibility on when they can consume it.
Because you can listen to podcasts virtually any time of day, they are a perfect medium of content while driving your car, going for a walk, or listening while cleaning.
You’ll need to understand the basics of audio mixing and audio editing to become a great podcaster. Similar to video content, you’ll also need a personality that makes your content unique.
Just as with video content, many podcasts will have an accompanying website or blog as well as social media profiles. You’ll also need to know how to upload your content to popular podcasting platforms to maximize your listeners.
Monetizing audio content is usually done one of two ways: show sponsors or affiliate marketing.
Content Creation Tips
When it comes to creating any types of content, here is some advice to help you get started.
- Choose a medium and niche you enjoy and are passionate about
- Be prepared to work for little to no income at first
- Try to find a niche where competition is not fierce
- Create content frequently and consistently
- Don’t give up!
Stock Photography or Videography
Stock photography is a great method of earning passive income by selling photos online. The majority of your work is done up front and it requires relatively little cash to get started.
You’ll need a camera capable of taking high quality pictures or videos in addition to editing software to maximize the quality of your shots.
Where to sell stock photos or videos?
Some of the most common places to sell your pictures or videos are through:
- Adobe Stock
- Getty Images
- iStock Photo
How to become a stock photographer
If you have the equipment and are skilled at shooting and editing your photos, your next step is to become a verified seller.
The registration process varies depending on the website, but they will usually consist of inputting your personal information and examples of your best shots for review.
Once reviewed, you should receive a response noting whether you have been approved or rejected.
Then, you’ll be able to list your photos or videos for sale. Your pieces will require a short description allowing you to tell searchers what your photo is about or includes. You should try to include search phrases that people might be looking for.
You’ll earn a commission for each piece sold. If you want to maximize your earnings, you should aim to use several venders instead of only one. The amount earned per photo varies by platform.
Related: How to Make $500 a Day
Dividend investing is one of the more straightforward ways to build a passive income stream. It requires very little work upfront but instead requires cash to get started.
The process of dividend investing is quite simple. You’ll need to purchase a dividend paying stock to start. Then, you’ll use your dividend earnings to purchase more shares, further increasing your future earnings allowing them to grow exponentially.
There are a couple of drawbacks, however.
Stocks can be volatile. Once you start investing, you should consider this money untouchable for a few years to minimize the risks that come with short term volatility. Stock prices increase or decrease daily, making it more difficult to estimate your total gains.
The other drawback is the time required to grow your money. Dividend investing will not produce extreme results within a year, or even two years.
You’ll need to be willing to let your money grow over 5+ years to start seeing the benefits of compound interest.
Interested in dividend investing? Read our guide to building an income stream with dividends here!
Write a Book
Writing a book or eBook are great ways to build passive income. This partially falls under content creation but we believe it deserves its own section.
Writing a book will require a significant amount of time upfront but can produce income for a lifetime. You might also need some cash upfront to pay for an editor and designer.
When deciding to write, you’ll need to brainstorm ideas for your novel or eBook. It’s best to chose a topic you’re passionate about and enjoy so you can maintain your motivation throughout the process.
Promoting Your Book
After writing your book, you’ll need to promote it in order to make money.
Some of the best ways to promote your book are:
- Create a website. Selling your book on your own website allows you to maximize your reach.
- Share your book on social media. Sharing your book on social media allows your family and friends to support your efforts.
- Local book clubs or stores. Many local bookstores will support fellow local authors.
- List your book on Amazon. This will allow you to reach hundreds of millions of people.
Related: How to Make 10K a Month
Vending machines are a great way to profit off of convenience. Customers are willing to shell out a few extra bucks for their favorite beverage or snack.
This business will require a mix of both time and money to start but can quickly become profitable based on your location.
The steps to creating a vending machine business are quite simple.
You’ll need to purchase your machines, source your inventory, find a location for your machine, and restock as necessary.
By owning several vending machines, you can increase your efficiency and become more profitable.
Learning how to start a vending machine business might seem complicated at first glance, but with a little research, you could be surprised about how easy it can be.
Affiliate marketing is a broad definition for receiving cash in exchange for facilitating a transaction. This is usually done online through links in which a cookie is carried through to the final purchase, giving you credit for the sale.
This can also be done through custom promotional codes in which a company will create a code for your use only.
For each sale, you’ll receive a portion of the earnings.
There are many different ways to become an affiliate marketer. Some of the most common are outlined below.
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If you have a large following on social media, affiliate marketing is a great way to monetize your efforts. By posting information about your affiliate products, you can entice your followers to complete a purchase, earning you money with little effort.
Website or Blog
Whenever you come accords a website or blog that is promoting a product, there’s a good chance it could be an affiliate link. If you are to click through the link and make a purchase, the website owner will receive a portion of the sale.
Tips to Being a Successful Affiliate Marketer
It takes a unique skill set to become a successful affiliate marketer. you need to be trustworthy, ethical, and knowledgeable about the process.
When deciding which products or companies to partner with, you should pick one that matches with your audience.
For example, if your audience is interested in digital marketing, you could partner with companies offering digital marketing service like email marketing providers or website hosting companies.
High Interest Savings Accounts
This form of passive income is similar to dividend investing with one main difference.
A savings account has a predetermined rate with little risk.
While dividend yields and stock values can change due to quarterly business performance, your savings account will provide a set rate.
This rate can still change, but it is likely tied to the Federal Funds rate.
Interest rates tend to be lower than most dividend stocks but they are also much safer.
If you’re looking for a place to store your cash AND earn money simultaneously, a high yield savings account is a great option.
If you own a car and tend to drive it frequently, consider wrapping your car and getting paid to drive places you normally visit.
Companies like Carvertise.com match your car with a company to advertise.
They will pay to have your vehicle wrapped and pay you monthly for your driving.
Once the campaign is complete, they will remove the wrap from your vehicle leaving nothing behind.
This is a fabulous way to make money doing something you likely do everyday, driving.
The requirements are pretty simple. You’ll need to input your personal information as well as the year, make, and model of your vehicle to get started.
Your earnings are determined by your location, amount of driving, and the company you are matched with.
Some people have reported making upwards of $200 per month but $100 per month is the most common.
Related: Get Paid to Advertise
Create an Online Course
If you are knowledgeable or skilled in a particular area, consider creating an online course to profit on your skills.
There are thousands of skills people are willing to pay to learn, so it’s important to find one that you are both good at and enjoy.
Pinterest marketing, instrumental skills, or language courses are just a few examples of topics that would make for superb online courses.
Creating an Online Course: Step 1 – Pre Launch
Once you’ve decided on a course to build, you should research some of the most common teaching methods for that skills.
This will help you to decide whether your course will be in a written or video (or mix) format.
Then, it’s time to start creating. Create your course in a manner that is easy to follow, challenging, and rewarding.
Once you have it completed, try giving it away for free to a select group of people. This could be your friends or family, but select a handful who might want to learn your skill.
Once they’ve completed, or failed the course, try to get any and all feedback regarding your materials. Ask questions about the difficulty, the ease of use, and anything else you may find beneficial.
Once the feedback has been received, go back and make any final adjustments or edits to your course before officially releasing it to the public.
Once it’s ready, you’ll need to create a launch plan.
How will people know about your course? How much will your course cost? What are the logistics of your course and payment offerings? How will your course be delivered?
You’ll need to fine tune these operational challenges before offering your end product.
If you have it all defined, perfect! It’s time to launch.
Creating an Online Course: Step 2 – Launch
Launch day has finally arrived. You have a plan ready to generate sales of your course and are super excited.
It’s time to push your product live. This means making it available on your website, sending a promotion email, and posting to your social media channels about your new offering.
Creating an Online Course: Step 3 – Post Launch
Once you’ve launched your product, its time to start analyzing. How many sales did you have? What were the engagements on your promotions? Did you receive any feedback from potential customers?
By analyzing this data, you can make more informed decisions on how to promote and market your course to ultimately become more profitable.
Consider Peer to Peer Lending
Peer to peer lending is a relatively new format of an old concept.
By lending money to individuals (peers), they’ll pay you back your original investment plus an agreed amount of interest.
In today’s world, this is mainly completed online, through websites that connect lenders and borrowers.
The interest rate you receive will depend on several factors including the borrowers creditworthiness, the length of the loan, and the amount requested.
Similar to dividend investing, you can use your returns to reinvest your money for it to grow even further.
Some of the top peer to peer lending website are listed below.
Rent Out Your Car
Just as renting out your home can provide a solid foundation of passive income, so can renting out your vehicle.
Websites like Turo and Getaround make renting your car easy.
You’ll need to provide the year, make, and model of your car to get a better understand of the amount you can make.
Depending on your vehicle, you can make anywhere from a few hundred dollars per month to upwards of $1,000 per month.
Keep in mind that you won’t have access to your car if renting, so you’ll need to ensure you have another way of commuting.
Tips to Making Money Renting Out Your Car
Depending not he service you choose, you might be able to profit more than others.
The largest challenge in making money renting your car is getting it booked. To improve your booking rate, you can opt to deliver the vehicle to the renter.
Use Cash Back Websites
While this isn’t necessarily a way to make money, it does provide an opportunity to save money on your everyday purchases.
Websites like Rakuten, Honey, and Retailmenot offer cash back on purchases from many major retailers.
The amount you’ll receive depends on the store but you can expect to earn at least 1% back on many purchases.
Some retailers may opt to offer as much as 5 or 10%+ back, so be sure to stay on the lookout to maximize your savings.
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Biggest Passive Income Challenges
As previously mentioned, building a passive income stream requires cash or a significant amount of upfront work.
If you don’t have the time or cash to start, I advise you to rethink your priorities as a passive income stream can set you up for success later in life.
Some passive income streams require cash upfront to start.
Dividend investing, rental properties, or peer to peer lending all require some amount of cash to get started.
The amounts required vary on the type of investment and anticipated returns.
For example, those looking to make $1,000 in passive income in one year using dividend investing might need around $35,000 to get started (assuming a 3% dividend yield).
You might be thinking “WHOAH… I can’t do that!”
Passive income takes time to build.
Instead of starting big, start will a small investment and watch it grow.
This will entice you to invest more into your streams, further growing them.
Otherwise, you can also consider borrowing money to invest. This can be somewhat risky, and you’ll need your returns to exceed the interest rate on your loan to become profitable.
For investments like real estate, it can make sense to borrow money because of its relatively low interest rate and tax incentives.
Time to Build
Passive income is by no means a get rich quick scheme.
It can take a significant amount of time to build your income streams and start making money.
Some methods may be quicker than others. Usually, residual income streams that require cash upfront will be become profitable quicker than those requiring no cash.
But that comes with the cost of cash upfront.
If you don’t have a significant amount of cash, plan to be in it for the long run.
How Long Does it Take to Build a Passive Income Stream?
Depending on your method, building a passive income stream can take months if not years to start earning money.
For those building income streams with cash upfront, you can expect to see some returns relatively quickly.
For example, it you deposit $1,000 into a high interest savings account, you’ll be paid interest at the end of the month.
For those creating content, it might take several years to start growing your investment (time).
For those looking to build their income stream quicker, here are a few tips to help.
- Invest money in your business. For those creating content, consider investing money to promote your content and pay others to help you create content. This will help you to grow at a quicker rate.
- Build multiple streams. If you need cash fast, having multiple sources of income can help you to grow more rapidly.
- Dedicate more time to your income sources. By dedicating more time in your residual income streams, you can expedite your growth rate.
Is Passive Income Right For You?
Passive income is not for every person. It is better suited for some more than others.
You must be okay with putting in extraordinary work or money to build a successful passive income stream.
And it will not guarantee overnight success. Most passive income streams will take months, or years to build.
Do you hate your day job? Passive income is for you.
Do you want to make more money? Passive income is for you.
Do you want more flexibility with your time? Passive income is for you.
Do you want to work on things you enjoy? Passive income is for you.
Are you afraid of taking risks? Passive income is NOT for you.
Are you lazy and avoid work at all costs? Passive income is NOT for you.
Do you need to be paid upfront for your work? Passive income is NOT for you.
Not every passive income stream is successful
It’s important to keep in mind that not every passive income stream is successful. You might have a poor rental tenant or flop on your affiliate marketing plan.
This doesn’t mean you should give up!
Just because one passive income idea does not work for you, doesn’t mean none of them will.
Try to create a plan using a different stream instead.
Testing different income streams is a great way to keep your earnings diversified, setting you up for long term success.
Conclusion: Why Aren’t You Creating Passive Income?
Passive income is an incredible way to make money without much ongoing work required to maintain it. With some work or cash up front, you can build a stream of income that lasts a lifetime.
The methods of creating passive income are limitless. From starting a blog or renting out a portion of your home to dividend investing, there’s no reason not to start building your passive income streams today.
Don’t be mistaken, however. Creating passive income streams does require much work and time upfront. You’ll need to be willing and capable of dedicating your efforts to building your streams in order to be successful and make money.
We want to hear your thoughts on passive income! Have you built a stream that makes money each month? Comment below!
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