Best Ways to Create a Passive Income Stream
If you’re looking for ways to earn income without spending your time on money, you’re not alone. According to Ben Johnston, chief operating officer of lending platform Kapitus , we can thank a combination of “the trend toward remote work, a tight job market with greater work flexibility, and a greater ability to reach consumers through online marketplaces.” For many, passive income streams are the ultimate goal—the promise of earning money while you sleep, travel, or pursue other interests. While creating sources of passive income will require some initial effort, the long-term benefits can be life-changing. Here are some of the best ways to create a passive income stream.
Rental income
One of the most classic examples of passive income is rental property. Johnston explains that “with the advent of rental aggregation sites like Airbnb and VRBO, even more property owners can now earn passive income by renting out what they already own, from unused vacation homes to unused bedrooms in their main home “
By purchasing a property and renting it out to tenants, you can receive monthly rental payments while doing relatively little ongoing work beyond maintaining and managing the property. Johnston also points out how this income stream benefits from tax deductions for mortgage interest, property depreciation and property management and maintenance costs. Buy strategically in areas with strong rental markets and property values that are likely to increase in value over time.
Of course, all this is easier said than done. Purchasing and properly maintaining real estate is no easy financial feat.
Dividend shares
Investing in dividend-paying stocks allows you to earn passive income simply from owning shares. Companies that offer dividends provide investors with regular income as the stock price moves up and down in the market, and you can reinvest the dividends to increase your income stream by compounding over time.
If you invest enough money in a dividend-paying company, you can earn some serious income every quarter . Most of us don’t have enough investment to make it that profitable, but it is theoretically possible. Check out companies with a solid history of consistent dividend payments. For more information, see our beginner’s guide to dividend investing .
Affiliate Marketing
If you have a website, blog, or social media following, you can earn passive income through affiliate marketing. This involves earning commissions for promoting other companies’ products and services. Amazon Associates is one of the popular affiliate programs, but there are affiliates for all types of products and niches.
Online courses and e-books
Develop and sell digital information products such as online courses or e-books. After the initial effort of creation, you can continue to earn income from every purchase without any additional effort on your part. Promote products on your platforms or online marketplaces.
Peer-to-peer lending
Act like a bank by lending money to others through peer-to-peer lending platforms. With sites like Prosper or Funding Circle , you can earn interest on borrowers’ payments while spreading your investment across many different loans to reduce risk.
Dropshipping
Dropshipping allows you to sell products without any inventory. When an order is placed through your online store or, say, sold through Amazon , it is sent to the supplier who handles the delivery. You save the difference between retail and wholesale prices.
This model can be expensive, especially when it comes to customer experience. Of course, the overhead is low; there are also lower incomes . If you’re wondering whether dropshipping can still work for you, Amazon has a guide to the pros and cons here .
Concert work
Johnston also notes how ride-sharing apps like Uber and Lyft, as well as freelancing apps like Fiverr and Upwork , allow you to find work in your spare time. “While it’s not exactly passive income,” Johnston admits, “it allows workers to earn extra income during downtime.” Many drivers take a taxi while commuting to the office, allowing them to earn income during downtime. Other professionals, such as graphic artists and accountants, can work part-time on nights and weekends using freelancing sites to earn extra money while maintaining a regular 9-to-5 job.
Tips for making the most of your side hustle
Some of the most successful entrepreneurs start their business as a “side hustle” and then grow into a full-time business. According to Johnston, “Exploring a new market and generating income from a different source allows an entrepreneur to make mistakes and try new things. Trial and error is part of the process: you must have the discipline to be a planner, but also the flexibility to update the plan—or abandon it completely – when the market shows that changes are necessary.
For investment properties in particular, Johnston says that “success involves having the discipline to buy the property at the right price and securing a mortgage that can be more than covered by the cash flow of rental income minus maintenance and management costs.” A good rule of thumb is that you will need to charge a monthly rent of 1% to 2% of the purchase price to reliably make a profit on your real estate investment.
What should you avoid? Johnston warns about multi-level marketing schemes circulating in the market. “While early adopters of these models can make money,” Johnston says, “the later you get into the game, the smaller the economics become available, and start-up costs can ultimately outweigh any potential profits.” Keep a safe distance from scams such as those selling home cleaning products , cosmetics or kitchenware .
For more ideas, check out some of the best side hustles with little or no start-up costs .