When it comes to making money, we all love passive income. It feels great and offers security to have sources of passive income flowing in on a consistent basis.
That sounds great, but if you don’t already have a source of passive income, how do you go about creating one? That brings us to the question, what are the best passive income sources?
What Is Passive Income
First of all, what is passive income? Passive income is basically money you earn from some source other than an employer or money from being self-employed. Usually, it’s income from a source like rental property or other business that you don’t actively participate in.
For this article we will consider passive income to be anything that generates income while you are sleeping, vacationing, or otherwise not working. But it does not mean you are completely absent from the source that generates the income. You’re always going to have to do something initially and even ongoing to keep that passive income source doing what it’s supposed to do, making you money.
Does Passive Income = Risk
There’s a risk in everything we do. You risk falling down going up the stairs. You risk a broken heart with love. Money and income are no different. There’s going to be something that you risk losing in any type of passive income.
The question is, what are you risking and how much of it. With passive income, you can risk investment capital, savings, your time, or any combination.
So before starting down the path of generating passive income, you need to ask yourself the question, what are you willing to risk? If you don’t want to risk losing some money, then you shouldn’t pursue any opportunity that will require a substantial investment of money. Also, how much of it are you willing to risk?
You can risk money, time, or both. And each source of income has a money and time aspect tied to it.
Top 5 Best Passive Income Sources
First of all, let’s talk about the “types” of passive income that are out there. One type may suit you better than another, especially if you have money to invest.
- Making money with money. Real Estate is a good example of this type of passive income. You can buy a property with the sole purpose of renting it out for passive income. Lending and investing is another type of passive income that falls into this category.
- Selling assets you own. If you have things you can sell on eBay, this is a kind of passive income. Other things that fall into this category would be renting an extra room in your house or room over a garage, or liquidating financial assets.
- Saving money. Passive income can also be generated by finding ways to save money on your monthly bills. Anything you can do to put money back into your pocket at the end of the month is also generating passive income.
- Building your own passive income source. Anything you can put effort into once, like an eBook/Kindle Book, website, or another digital asset, then reap the rewards over and over again, is passive income.
Here’s what I consider to be the best passive income sources at the time of this writing.
1. Real Estate Rentals
Real Estate has almost always been a good money maker for passive income. If you have real estate you can rent out, that’s passive income source just waiting to be tapped.
Otherwise, there’s always rental property on the market. You might also consider purchasing fixer-uppers as a rental property. Companies like Realtymogul.com make investing in real estate easy.
- Usually a solid source of passive income. Especially if you utilize leases.
- Since you own the property you gain from the increase in value over time.
- Equity in the form of upgrades, painting, remodeling, etc. will increase the value of your property.
Disadvantages & Risks
- Dealing with troublesome renters. Although you can mitigate some of this risk by doing background checks, it doesn’t always work. Even the best renters can come up short, not to mention dealing with evictions.
- Rental property repairs. All property needs repairs sooner or later. This can take up time and money. Additionally, some renters generate more wear and tear on the property than others.
- With real estate, you’ll also have annual taxes and property insurance that must be factored in. And if your rental is vacant for any portion of the year that can eat into your profits.
- Depreciation in market value. This can be due to neighborhoods going downhill, rezoning, etc. Some things you just can’t control.
2. Dividend-Paying Stocks, EFTs, And Others
Although it takes a little time and some money, buying dividend-paying stocks and exchange-traded funds (EFT) can be a very profitable investment vehicle that can generate a $1,000 or more month once you build up your portfolio if done right. So I’ve included it here as one of this year’s best passive income sources. Getting started is easy with companies like M1Finance.com.
- When compared to other types of stock, dividend stocks are fairly safe investments when you do your homework.
- Dividend stocks can pay anywhere from 15% to as much as 25% in the right stock.
- EFT’s offer greater trading flexibility over traditional mutual funds as they are traded during the day. This makes daily management very easy. They trade like a stock, can be purchased on margin, and sold short. They also offer lower costs and tax benefits.
- Very passive form of making money.
- Dividend stocks aren’t always a sure bet. Looks can be deceiving if you don’t look at the long term and annualized returns. Despite having a high current yield, the ten-year overall return could be negative. Surprise!
- Dividend-paying EFT’s may not be as high as traditional dividend stocks.
- EFT’s, while having lower costs than mutual funds are higher when compared to traditional stock.
3. YouTube Ads
If you already make videos or if you like making videos of yourself, this one might be for you. Simply post YouTube Ads. If you’re already making videos it’s a no-brainer. If you want to be a YouTube sensation then go for it. Although it does take some effort in making the videos, once made, they’re totally passive.
Just look at some of the people who are making big bucks doing this. There’s “Slime Queen” where people simply tune in to watch her play with slime! What??? Yes, play with slime. She has millions of followers and makes $1,000’s. And I’m sure you’ve heard of “The King of Random”! They do all kinds of crazy experiments, projects, and well, totally random stuff! Again, millions of followers and a great passive income!
- It can be very fun.
- Your videos can go viral.
- You could be famous!
- Takes time to make videos.
- You need to have an existing video platform or come up with a great idea for video content.
- You’ll need to invest in some decent video hardware/software to record with.
4. Create a Digital Product
Digital products are everywhere nowadays and anyone can do it. What makes them unique is that you typically have a low upfront investment (unless you’re having someone create a product for you) and can be done right from the comfort of your home. This makes it one of the best passive income sources.
- Write eBooks or Kindle Books
- Instruction guides
Anything that solves a problem or provides some kind of service can be sold. Digital formats don’t have to be just books either. You can have an Android or iPhone App created a website, or use videos.
- Recurring passive income can be very long term, especially for evergreen products.
- It can be done with little upfront investment.
- Requires that you create some sort of product.
- You’ll need to find a good marketing avenue.
5. Affiliate Marketing
Affiliate Marketing is becoming a very popular way of making money online. With the massive shift to online purchasing currently underway the opportunities are huge!
What is Affiliate Marketing? You basically sell someone else’s product through a special affiliate link, usually from a website you create. People buy through your link and you make a profit.
Today with social media platforms like Facebook, Twitter, Pinterest, and of course YouTube, any one of these platforms can be used to promote affiliate products as well. So you don’t necessarily need to have a website or blog, although it’s highly recommended.
Once you’ve established a presence online and start getting traffic, your affiliate products can sell day and night, 24/7/365. And you can create as many affiliate websites or businesses as you want. You can also jump-start your affiliate business by getting some quality training.
- Long term passive income potential.
- Affiliate websites/businesses can be sold for nice profits.
- It can be scaled up dramatically increasing revenue.
- There are literally millions of products to promote.
- No inventory or employee overhead.
- Low startup costs.
- Takes time to establish.
- Requires up-front work to create traffic source(s).
Wrapping It Up
Passive income comes in many forms. From typical real estate rentals to digital products and Affiliate Marketing. What’s best for you may depend largely on what you’re willing to invest as far as time and money.
Also, the best passive income sources for one person is not the same for another, as different investment vehicles appeal to different personalities and areas of expertise.
The bottom line. Do your homework and educate yourself on the particular investment choices you’re considering for passive income. May your income streams flourish.
To Your Massive Success,
PS. Please scroll down and leave any comments or questions you may have. I’d love to hear from you.