Passive income strategies are a real way of earning money with smart observation. It’s a great supplementary source of income that allows you to take charge of your life. It also can be a great lifeline in emergencies. Here are ten passive income strategies that will allow you and your family to live on their own terms once and for all.
Passive Income Strategies
Contents
1. Selling informational products
How Does It Work?
This method is probably one of the most common passive income strategies. It involves creating something that helps teach people a skill, whether it be an e-book or an online course, selling it on places like Udemy and Coursera, and then letting the cash roll in as thousands of people buy your product.
Sounds easy, right?
What’s In It For Me?
Well, not so fast. In order to make money from the course, it had better be a really good one that gives people up-to-date info on the subject at hand. Making a high-quality course takes quite a lot of effort and research to create, so prepare to invest quite a lot of time into creating this course.
Also, to make any substantial income from the course you are selling, it’s gonna have to cost your consumers at least one hundred dollars.
Now, you may be asking, are consumers really going to pay $100 for a course? Oh yes they will. Some who choose this avenue charge thousands or even tens of thousands for just one course, and their courses still sell like hotcakes.
So if you have a skill that you’re really good at that you want to share, and you want some extra cash on the side, making a paid course might just be for you.
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2. Affiliate Marketing
How Does it work?
This may be a favorite method of fake gurus and scammers on Youtube, but make no mistake, this is one of the legitimately great passive income ideas out there.
But what is affiliate marketing? In affiliate marketing you put what’s known as an affiliate link on either your social media account or your website to send people to a third party to help them drive traffic and sales on their sites. Then, when that third party makes a sale, you get a portion of the earnings.
What’s In It For Me?
Affiliate marketing is technically considered passive because in theory you can generate income just from having that affiliate link on your site. But in practice, that isn’t necessarily the case, as you will likely have to use your site or social media to promote that third party’s product or service.
Luckily, there are plenty of fun ways you can promote a product and start earning commissions from other businesses. You can start a blog, create a YouTube channel, start a podcast, or even use your existing social media posts to promote a product or service of another business.
3. Renting out properties
How Does It Work?
You may be thinking that only millionaires and billionaires can make money off of real estate and other passive income strategies like it, but that is actually not the case. Normal people can actually make a decently large passive income from rental properties.
But how can you put this into action? You can do it by simply taking a second mortgage, getting another house, and eventually having tenants pay the bills.
What’s In It For Me?
But there is a bit of research to do and parameters to define before you do this. The first thing you should do is to have a defined income goal. Let’s say you want to make $20,000 of passive income per year from the property, and that this property has a mortgage payment of $3,500 and another $500 in taxes, maintenance, and other expenses per month (this example is pretty unrealistic, but it too shall pass for this article) To attain your income goal, you will need to charge your tenant $5700 every month so they can live on the property.
But this isn’t the only thing you should look at before purchasing a property. You should also look at the demand for the type of property you are looking into, as a property with low demand can put a massive dent in your passive income stream. Conversely, a property in high demand can increase your income substantially.
And one more thing, tenants damaging property, paying late, or you being too cash-strapped to rent out the home can put huge dents in your passive income, which may cause you to lose your entire investment.
4. Dividend-paying stocks
How Does It Work?
You’ve probably heard about this one at least once or twice before seeing this post. But what exactly are they? Dividend stocks are stocks that pay out dividends, portions of a company’s earnings that are paid out to stockholders.
What’s In It For Me?
Sure, it may take quite a bit of time to make a sufficiently large portfolio, but over time, you’ll be looking at annual returns of over 20%, providing you find the right stocks to invest in.
But how do you find the right stocks to invest in? If you are a novice, you should probably look into ETFs (exchange traded funds) before getting into actual dividend paying stocks. These are investment funds that hold stocks, commodities, and bonds, but they trade like stocks. These are usually managed by people who are experienced in the markets, so you better believe they have good investments on hand.
However, ETFs can plummet in value very quickly, especially in times of uncertainty like in early 2020 during the coronavirus pandemic.
On the other hand, if you have a bit more experience in the markets, you can actually invest in the stocks themselves. But this requires that you do a little bit more research into the companies selling the stocks you are looking into. Things like the dividends themselves, their relative strength in their industry, their price-earning ratio and debt-equity ratio should all be taken into consideration before a purchase.
Basically, be a good consumer before putting your money on the line.
5. Peer-to-peer lending (P2P)
Another great option when it comes to passive income strategies is peer-to-peer lending. This is where you give another person a personal loan via sites such as Prosper or LendingClub.
How Does It Work?
The loan-giving process is just the same as at a normal bank. The loan applicant applies for a loan and sends their application and financial profile to you. Then you examine the application, decide to give them the money, and then you charge interest on the loan to get your money’s worth.
What’s In It For Me?
But before you accept just any application that comes your way, understand that these loans are not secured. Because of this, you are looking at a higher risk of your borrower defaulting, so look at the loan application with a keen eye so you don’t dig yourself into a hole. Default rates for peer-to-peer sites can be as much as 4%, so choose your loans wisely.
However, there are measures you can take to counteract this increased risk of defaulting. One thing you can do to keep the money coming in is to diversify your loaning “portfolio” by spreading your investment out among multiple smaller loans instead of banking your capital on one massive loan. This way, if one of your loans defaults, you can still have some other loans bringing in money.
But even with these measures on hand, it still takes quite a bit of time to figure out how to master the metrics of P2P lending, so it isn’t really as passive as some would have you believe. Also, whatever you make from these loans should be reinvested towards diversifying your portfolio.
6. CD Ladders
How Does It Work?
You don’t hear about these often, so what are they? A CD ladder is a strategy where you put money into equal deposits and invest them into certificates of deposits, or CDs for short. These CDs will also have different maturity dates, or days when the final payment for a CD is due, making this a sort of ladder.
Certificate deposits are fixed interest bonds, meaning that their interest rates don’t increase or decrease for whatever reason overtime, so your income will be very steady for the duration of time they are in effect.
But how do you go about building a “ladder”? The first thing you need to do is open up separate CDs to invest money into. If you had $30,000 to invest, you would open up six CDs with $5,000 invested into each one. The first one should mature in one year, the next one two, the next after in three, and so on until the last one takes six years to mature.
Then, as soon as they mature, you renew them as four year CDs. If you start building your CD ladder in, 2019, your ladder ideally will be structured so that when each CD matures, you renew them as four-year CDs.
What’s In It For Me?
This allows you to leverage higher interest rates on the long-term CDs while building the ladder. You’ll also be able to pull a sixth of the funds out per year without penalty by one CD maturing each year.
CD ladders are some of the safest investing strategies out there, allowing you to bring in passive income easily with a far lower risk of losing your money than something like an ETF. Plus, if your bank is verified by the FDIC, you are pretty much guaranteed a return on your investment. But with this safety, rates of return can be far lower than an ETF or shares in a company.
7. Advertising On Your Car
Imagine if you could make money while driving to and from work every day? Cool, right? Well, if you contact an advertising agency, you can make this dream a reality.
Actually, it isn’t that simple. While you do need to contact an agency to get the ball rolling, there is more that goes into it.
How Does It Work?
The advertising agency decides if you are a good fit for them, and to do this they monitor your driving habits such as where you go and how many miles you drive. This is how they decide how they can use your car to advertise for their clients.
If they decide you are a match, they will wrap your car with the ads at no cost to you. Yes, it may seem weird at first, but you’ll get used to the stares and grow to love them as your bank account begins to grow.
What’s In It For Me?
There are plenty of legitimate providers who will pay you to advertise with the help of your car. But while you’re looking around, make sure to be on the lookout for fraudsters and scammers who are out to take your money. Most of these will try to get you hooked via an email where they will then send you a fake check to siphon as much money as possible from your account.
8. Good ‘ole compound interest
Oh, so just use compound interest in a savings account? Okay.
Well, not so fast. To make a truly passive income, make sure that this savings account is a high-yield one.
How Does It Work?
What does that mean? A high-yield savings account is a savings account where interest rates are far higher than the national average. Like, way higher. Some of these accounts can offer interest rates as high as 3%.
What’s In It For Me?
These accounts are as passive as passive income strategies can be. Just put some money in and watch as the floodgates open with interest pouring out.
But which banks actually offer these savings accounts? Most banks offering these accounts are online banks such as the American Express National Bank or Marcus by Goldman Sachs. From there, you can put some money into an account and sleep knowing your bank account is growing every day.
Not only that, but like CD ladders, you are pretty much guaranteed a return on investment. But this can go awry easily in an economic downturn or recession. As of now during the COVID-19 crisis, these accounts are only putting out 0.8% interest.
9. Rent out your home
How Does It Work?
Like dividend stocks and course selling, this one is as old as time itself. Sites like Airbnb have been doing this for years and have allowed many to make passive income using this method.
But what exactly does this method entail? In a nutshell, this takes a room of your house and allows tenants to move in with you for a while while they pay you rent to live with you in that part of your home. Not only that, but you get to set the rent prices that your tenant has to pay.
What’s In It For Me?
There are other cool benefits to this as well. By having another person live with you, you’ll have some nifty tax breaks and deter vandalism that happens to empty homes.
However, being a landlord does come with some responsibility. It’s up to you to make sure your home looks good for your tenant.
Not only that, but you will also have to market your listing to make it attractive to tenants. This can be challenging, but here are some words you should use in your ads to attract potential tenants:
- Granite
- State-of-the-art
- Vaulted ceilings
- Stainless steel appliances
- Hardwood floors
Once your ad is ready, you can place it in newspapers and websites to be seen by potential tenants. In some cases, a real estate agent will work with you to help you rent your home out. If they help you get any tenants, they may take part of your earnings as a commission.
When tenants start looking into your home as a place to stay, make sure to choose your tenant very carefully. You need to not only make sure the tenant pays you on time, but also keeps your home looking good. If your tenant damages your property or pays late, it can put a large dent in your passive income.
But when all conditions are met, you will have a very low-risk source of passive income.
10. Invest in an REIT
How Does It Work?
Sure, you may have heard of investing in real estate, but have you ever heard of investing in an REIT? No? Well, here are the basics.
An REIT, or Real Estate Investment Trust, is essentially the real estate version of an ETF. In an REIT though, real estate replaces stocks and bonds. It may not be the most well-known of passive income strategies, but it sure is effective.
So how can you make money off of these? You can either buy shares in these companies, or invest in an ETF that holds shares in the given company. Essentially an ETF inside of an ETF. From there, they lease properties and collect rent and give dividends out to their shareholders.
What’s In It For Me?
Sounds like a cool way to make money, right? But with any shares-type investment comes plenty of research on the REIT that you are investing your hard-earned money into. Not only that, but you can have your dividends cut significantly if the company falls on hard times.
But when you have all the ropes learned, it’s smooth sailing from there.
Conclusion
So there are plenty of great passive income strategies that are safe and fun, too. Sure, you may have to put in quite a bit of work, but the results are definitely worth it. And the best part? You don’t need oodles and oodles of cash on hand to do it.
However, if passive income doesn’t convince you, here are some other great ways to make money: