How to Choose Which Passive Income Stream to Use
If you want to make more money, passive income is one of the best ways to do it. Making money from a job or part-time job is great, but if you can set up a passive income stream that makes money even when you’re not actively working – well, that’s kind of a dream come true, isn’t it?
But how are you going to generate this passive income? Do you want to create a product that “sells itself”? Engaging in dividend investing or peer-to-peer lending? Buy property?
Sam Dogen of Financial Samurai has a great overview of all the passive income options available and how to pick which one is right for you. Each option is assigned a numerical score based on risk, return, feasibility, liquidity, and more. Plus, you will receive unique insights based on Dogen’s personal experiences for each source of income.
For example, here’s what Dogen says about real estate:
To generate a net operating income after tax (NOPAT) of US $ 10,000 from real estate leases, you must own US $ 50,000 real estate with an unheard of 20% net rental yield, US $ 100,000 real estate with rare net rental yield of 10% or higher yield. realistic real estate for $ 200,000 with a net rental yield of 5%. When I talk about net rental income, I’m talking about rental income minus all expenses, including mortgages, operating expenses, insurance, and property taxes.
In expensive cities like San Francisco and New York, net rental yields can drop as much as 2%. This is a sign that there is a lot of liquidity buying properties to add value rather than generate income. This is a more risky proposition than buying real estate based on rental income.
Unsurprisingly, when Dogen sums up all the numerical ratings, the property is next to last.
On the other hand, real estate crowdsourcing comes second in terms of the best ways to generate passive income. If you are unfamiliar with real estate crowdsourcing, here is Dogen’s explanation:
Real estate crowdsourcing allows you to surgically invest as little as $ 1,000 in a residential or commercial property project with a potential 8-13% annual return based on historical data. These returns are much better than the average returns on private equity, CDs, bond markets, P2P lending, and dividend investments. With P2P lending, borrowers can sometimes default and leave you with nothing. At least with crowdsourced real estate investing, there is a physical asset that supports your investment.
You should read the entire Financial Samurai article to get a complete picture of all your passive income options – and if you’re trying to decide which passive income stream is right for you, ask yourself how much time, money and risk you want to invest in your project. with passive income.
If you have a lot of time and money and are willing to take some risks, perhaps real estate is for you.
If you have less time and money, real estate crowdfunding through Fundrise or dividend investing may be the best options.
If you are creative and have a lot of free time, creating and marketing a product may be the best way to generate passive income.
There is no source of passive income that does not require at least some investment, both in money and in time, before it makes any profit. But understanding which passive income stream to use will help you find the best investment for your current income level and affordability, which can make the difference between bringing that passive income stream to the point where it is starting to generate income and giving it up to the point where it starts to generate income. how it will start generating income. Stream really gets a chance to get started.