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Making money in your sleep is the ultimate dream for hands-off investors. Finding the best sources of passive income may allow you to do just that.
What Is Passive Income?
Passive income is money you can earn without too much ongoing effort. After you identify and establish a stream of passive income, you won’t need to tend to it every day—but that doesn’t mean you won’t have to do some work now and then.
Most passive income ideas require an initial investment of time, money or other resources. They also require a degree of monitoring or regular maintenance to keep things on track, but they won’t require you to commit tens of hours a week or make small talk at the water cooler.
How to Get Passive Income
People typically generate passive income in one of three main ways:
- Investing. When you invest, you use money you already have to make more money.
- Asset building. This means acquiring an asset that earns money passively over time.
- Asset sharing. Sharing in this sense means selling or renting out assets that you already own.
Let’s take a look at different passive investing ideas that leverage investing, asset building and asset sharing.
Passive Income Ideas: Investing
Investing offers the biggest opportunities for generating passive income, but it might require big sums of money to generate meaningful returns.
Dividend stocks reward investors with regular payouts of company profits. Because you have to own the stock to receive dividends, you likely will have to tie up thousands, if not tens or hundreds of thousands, of dollars to earn significant income from dividend stocks. (The S&P 500 provides an average dividend yield of just over 1%, for instance.)
Dividend investing isn’t without its risks. Companies may fall on hard times and be unable to pay out dividends or have to decrease them. Look to preferred stocks or dividend aristocrats for higher dividend yields.
Owning real estate is one of the oldest ways to generate passive income. But it’s not as easy as simply buying a house or land. When you own a rental property, repair and maintenance requirements can become major time and money drains, unless you hire a property manager, which will only cut further into your income. In addition, buying real estate may require an upfront investment of hundreds of thousands of dollars.
If you’d prefer to avoid the cost and headache, consider alternative sources of real estate investing, like real estate investment trusts (REITs) or real estate crowdfunding platforms like Fundrise or RealtyMogul. You’ll just need to make sure a crowdfunding doesn’t require you to be an accredited investor to invest with them.
Peer-to-peer lending works exactly like it sounds: You act as a lender to a third party, often through a ready-made platform like Prosper. You’ll then earn interest as the initial amount you loaned is paid back.
Peer-to-peer lending comes with not-insignificant risk that the person or people you loan to may default on their loans. You may choose to spread your funds across many different loans to minimize that risk. You meet income or net worth requirements for your peer-to-peer platform of choice. Some require you to be an accredited investor, and even Prosper has lower state-specific financial requirements.
Domain Name Investing
Domain investing—also known as domaining—is somewhat like trading stocks. You purchase inexpensive domain names and hope you’ll be able to resell them at a profit. You’ll typically want to target common terms or specific proper nouns, and keep in mind that .com domains run at a premium over almost all others in the U.S.
While it’s cheap to get started—you can get some domains for $10 or less—it carries the risk that you won’t be able to sell the domains you purchase and therefore will lose your initial investment. You’ll also be on the hook for the annual fee each year through your registration service.
Owning and operating vending machines can provide a (mostly) passive income stream. You’ll need to find a location and shell out at least a few thousand dollars to get started. From there, upkeep just requires you spend a little time each week restocking and servicing your machines, though you can outsource these tasks if you’re willing to sacrifice some profits.
Anytime you buy physical property as an investment, however, just remember that you’ll need to allocate space for storage as well as take on the risk that comes with moving perishable products.
Passive Income Ideas: Asset Building
As the name implies, asset building requires the upfront time and effort to build an income-generating asset. While it may not carry the steep financial costs of investing, it does come with the risk that the assets you invest your time in creating may not sell.
Digital products can be anything, from ebooks and lesson plans to mobile apps—even NFTs. What’s key here is that you spend time building them once and then are able to sell the same asset again and again online. You can take a totally passive approach to the digital products you create, or you can devote time and money to marketing them.
Music and Photo Licensing
If you’ve got a creative streak, you can turn your photographs or music into a stream of passive income by licensing it to stock image and music sites. Other content creators then pay for the rights to use your creations. Musicians can sell their songs on sites like AudioJungle.net and Pond5, while photographers can sell their images on sites such as Alamy and Adobe Stock.
Custom Designed Products
By uploading original designs to print-on-demand websites like Teespring, Redbubble, CafePress and Zazzle, you can earn passive income each time someone orders a t-shirt, coffee mug or other physical product emblazoned with your design. Even better, you don’t have to handle the printing, storage or shipping, reducing much of the frustration of selling physical goods.
Affiliate sales are passive income generated when someone makes a purchase after clicking a link or using a referral code that you publish on a website, video or podcast. You’ll generally earn a flat rate commission or a percentage of their purchase.
You can find affiliate links for just about any type of product or service, meaning you could make passive income from anything from mattress reviews to software evaluations. Keep in mind, however, that this space is very competitive, and most successful affiliate marketing requires high-quality ongoing content production.
Passive Income Ideas: Asset Sharing
If you aren’t able to devote time or money to generating passive income, take a look around you. You may be able to make money out of assets you already own by renting or leasing them to others. Think of it as Airbnb for [insert asset here].
If you have extra room in your backyard, garage or carport, you may be able to turn a profit by renting out space you aren’t even using. Sites like HomeCamper let you lease land to travelers looking to pitch a tent (or park a recreational vehicle) in your area, and JustPark helps you rent out parking spaces on your property.
Tapping your home for passive income could include anything from renting out a spare bedroom to listing your house on Airbnb or Vrbo when you’re out of town to renting it to movie productions. Kathy Kristof, CEO of SideHusl.com, notes that she’s rented her own house by the hour to movie and advertising producers using Giggster, pulling in $1,400 in a single day.
You don’t have to drive Uber to make a profit from your car. You can rent it to others in need of a set of wheels using sites like Turo or Getaround—or if it’s…