Most of us think about being able to retire one day and live your dream. You think about it quite often. If you’re anything like me , you think about it probably more than you should. I would love to be able to quit my job and travel the world. I know that is not realistic without a plan. One way to start to achieve your dream is being able to generate passive income. Passive income is money you earn in a way that requires little to no daily effort to maintain. Passive income is earnings derived from a rental property,limited partnership, or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.
Before we get into the passive income ideas I think it’s a good idea to first clear up a couple of misconceptions. Although the word “passive” makes it sound like you have to do nothing to bring in the income this just isn’t true. All passive income streams will require at least one of the following two elements:
1) An upfront monetary investment, or
2) An upfront time investment
You can’t earn residual income without being willing to provide at least one of these two.
- Real Estate/ Rental income– Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect. If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some. To earn passive income from rental properties, you must determine 3 things: 1. How much return you want on the investment.*
- The property’s total costs and expenses.
- The financial risks of owning the property.
For example, if your goal is to earn $10,000 a year in rental income and the property has a monthly mortgage of $2,000 and costs another $300 a month for taxes and other expenses, you’d have to charge $3,133 in monthly rent to reach your goal. There are a few questions to consider: Is there a market for your property? What if you get a tenant who pays late or damages the property? What if you’re unable to rent out your property? Any of these factors could put a big dent in your passive income.
Purchasing properties to earn rental income is another way to build passive income. Long-term rentals can provide a reliable source of cash if they are located in a healthy market for renters, but they also carry long-term stressors like maintaining those properties, as well as paying multiple mortgages, property tax bills and other costs.
You could also focus on short-term rentals through a platform like Airbnb, which is dependent on a steady flow of visitors to your area. Or, start small: Rent out a room in your house to begin to bankroll your rental property empire.
If you’re looking for a more traditional path to real estate investment, check out Roofstock. This company allows you to buy cash-flow positive single family rentals – online! You can sign up and start searching properties today.
Do you not want to be a landlord, but still want real estate exposure and income? Then consider being a limited partner in a large development. With these options, you can invest in multi-family or commercial properties. You get the income and tax treatment just like regular real estate ownership, but you don’t do any of the work!
Farmland isn’t sexy, but it has a lot going for it when it comes to real estate investing. It’s slow, steady, pays consistent rent, and everyone needs to eat.
2. Selling Informational Products – Another popular strategy for passive income is establishing an information product, such as an e-book, or an audio or video course, then kicking back while cash rolls in from the sale of your product. Courses can be distributed and sold through sites such as Udemy, Skillshare and Coursera. Information products can deliver an excellent income stream, because you make money easily after the initial outlay of time. It takes a massive amount of effort to create the product, and to make good money from it, it has to be great. Always strive to make the best possible content and market to the intended audience. This can be a lucrative ways to earn passive income.
3.Blogging/ Affiliate Marketing
A way to build passive income at home is to start a blog and build traffic. With a larger reader base, it’s possible to generate revenue through display advertising, using a program such as Google Adsense, or to run sponsored content, which means companies pay you a fee to publish a post on your blog.
Another way to monetize a blog is affiliate marketing, which allows you to earn commissions if your readers purchase a product or service you’ve recommended or linked to. All these tactics require a lot of upfront investment of time to build traffic, as well as pressure to maintain the blog to keep that traffic.
With affiliate marketing, website owners, social media “influencers” or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the most well-known affiliate partner, but eBay, Awin and ShareASale are among the larger names, too. When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission.
Affiliate marketing is considered passive because, in theory, you can earn money just by adding a link to your site or social media account. In reality, you won’t earn anything if you can’t attract readers to your site to click on the link and buy something.
Affiliate marketing is an income idea that requires you to have a website or platform you can use to promote other companies, or “affiliates.” When someone uses your affiliate link to purchase a product or sign up for a service, you get paid.
4. Dividends – Last on the list of my top ways to earn passive income is to invest in dividend stocks. Dividends are distributed as part of the company’s earnings to investors on a regular basis, such as quarterly. The best ones increase their payout over time, helping grow future income.
Dividend stocks are tried and true way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time.
For any of these investment opportunities, make sure you open an account at the best online brokerage, and get rewards while doing it
Dividend stocks typically are less volatile than growth stocks and help diversify your portfolio. Investors can also choose to reinvest dividends. To read more about Dividend Stocks: The Basics , click HERE.
Whatever the reason for wanting to do so, building and earning passive income is always a great idea if you want to invest for a financially fit future. If you chose not to work for someone else forever, you have to be able to think outside of the box. Doing so requires tact and thought. These are just my top four ways to build passive income. There are a multitude of other ways. Find your passion and try to channel that into a means to reach financial freedom.