Passive income is highly sought after and often misunderstood.
Passive income streams require an upfront investment and a lot of nurturing in the beginning. After some time and hard work these income streams start to build and are able to maintain themselves, bringing you consistent revenue without much effort on your part.
Speaking from personal experience, adding passive income streams to your portfolio can help you increase your earnings and accelerate your financial goals in tremendous ways.
For example, you can use passive income streams to help you get out of debt or achieve financial independence sooner. Like Fundrise - you can start investing in real estate for just $500. It's one of our favorite ways to build passive income.
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If you want to get started earning passive income here’s what you should know first.
If you want to skip straight to the ideas, here you go:
Or just want to see my favorites? Check out this video of my top ways to earn a passive income and then check out the links below:
What It Takes To Earn Passive Income
Before we get into the passive income ideas I think it’s a good idea to first clear up a couple of misconceptions. Although the word “passive” makes it sound like you have to do nothing to bring in the income this just isn’t true. All passive income streams will require at least one of the following two elements:
1) An upfront monetary investment, or
2) An upfront time investment
You can’t earn residual income without being willing to provide at least one of these two. Today, I have a big list of passive income ideas you can try regardless of the category you fall in.
Passive Income Ideas Requiring an Upfront Monetary Investment
These types of passive income require you to invest money up front to generate the passive income later. Don't be alarmed though - you can start with as little as $5 with some of these ideas, so it's achievable for everyone.
1. Dividend Stocks
Dividend stocks are tried and true way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time.
For any of these investment opportunities, make sure you open an account at the best online brokerage, and get rewards while doing it. We recommend Fidelity or TD Ameritrade because they both offer low-cost investing options. You can also compound your dividend returns by looking at places that allow you to invest for free.
Here are some other great places to invest:
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2. Peer to Peer Lending
P2P lending is the practice of loaning money to borrowers who typically don’t qualify for traditional loans. As the lender you have the ability to choose the borrowers and are able to spread your investment amount out to mitigate your risk. The most popular peer to peer lending platform is Lending Club. You can read our full lending club review here: Lending Club Review.
What's great about Lending Club is that investors are earning 4-6% returns on average - and that's all passive income. You simply lend your money, and you get paid back principal and interest on that loan. The median return on cash flow is 4.1% - which is better than any money market fund you're going to find today.
3. Rental Properties
A cash flowing rental property is a fantastic way to bring in a monthly income. To make this truly passive you can outsource the running of the properties to a management company.
One of my favorite ways to get started with rental properties is through crowd funding. Similar to LendingClub, you can start investing in real estate for as little as $5,000 at platforms like RealtyShares (We offer our readers a $100 bonus when you make your first investment using promo code Partner100).
Another similar platform is FundRise. They only have a $500 minimum to get started and offer a variety of options we love as well! FundRise has really been a great performing passive income investment over the last year!
If you want to invest in single family homes, we recommend Roofstock. This company allows you to buy cash-flow positive single family rentals - online! You can sign up and start searching properties today. Check out Roofstock here.
The great thing about using a platform versus doing it yourself is that the income is even more passive.
4. High Yield Savings Accounts And Money Market Funds
If you don't want to think much about your money, but want it to work for you, a basic place to put it is in a high yield savings account or money market fund.
The difference is in the account type and where it's located. Typically, high yield savings accounts are located at banks, and are FDIC insured. Money market funds can be located at both banks and investment companies, and are only sometimes FDIC insured.
Interest rates have been rising, so putting more money into a savings account can generate a safe passive income stream.
Find the best high yield savings accounts and money market funds here.
5. CD Ladders
Building a CD Ladder requires buying CDs (certificates of deposits) from banks in certain increments so that you can earn a higher return on your money. CDs are offered by banks and since they are a low risk investment they also yield a low return. This is a good option for the risk averse.
If building a CD Ladder sounds complicated, you can also stick to a traditional high yield savings account or money market fund. While the returns aren't as amazing as other things on this list, it's better than nothing, and it's truly passive income!
Check out these great deals on the best high yield CDs (or the full list of the best CD rates here):
Annuities are an insurance product that you pay for but can then provide you passive income for life in the form of monthly payments. The terms with annuities vary and are not always a great deal so it’s best to talk to a trusted financial advisor if you’re interested in purchasing an annuity.
These investments aren't for everyone - they can come with high fees, and not be worth it. But if you have zero risk tolerance for loss, and are looking for a passive income stream, this could be a good potential idea for you your portfolio.
7. Invest Automatically In The Stock Market
If you're not interested in picking dividend paying stocks (and I can understand that), there are still ways to invest passively in the stock market. You can automatically invest in various ways through what's called a robo-advisor.
A robo-advisor is just like what it sounds like - a robotic financial advisor. You spend about 10 minutes answering a few questions and setting up your account, and the system will take it from there.
The most popular robo-advisor is Betterment - which you can setup to automatically invest in and they will handle the rest for you. What's great about Betterment is that they charge one of the lowest fees in the robo-advisor industry, and they make it really easy to invest automatically.
Sign up for Betterment here and get started investing for a passive income!
8. Invest In A REIT (Real Estate Investment Trust)
If you're concerned about investing directly in real estate, or maybe you're not yet an accredited investor, that's okay. You can still take advantage of real estate in your investments through REITs - Real Estate Investment Trusts.
These are investment vehicles that hold property within them - and you as the owner get to benefit from the gains, refinances, sale, income (or loss) on the property.
You can invest in a REIT at any major brokerage - such as Fidelity or TD Ameritrade. Both of these companies have REIT ETFs which you can invest in for free - so you can take advantage of investing in real estate commission free!
9. Refinance Your Mortgage
This may sound strange in a passive income article, but refinancing your mortgage can be a great way to free up a lot of income and save you $100,000s over the life of your loan. That's a pretty good gain in my book.
Right now, interest rates are still near historic lows, and if you haven't checked out your mortgage lately, now's a great time to shop around and compare rates. If you can save 0.50% or more on your loan, you're potentially adding tens of thousands of dollars back into your pocket. Not many investments can beat that.
10. Pay Off Or Reduce Debt
Along the same lines as refinancing your mortgage, if you can pay off or reduce your debt, you're making huge progress in building income. But just like other things in this topic - it takes a monetary investment to make that happen.
The great thing about paying off debt is that it's a straight return. If you have a credit card at 10% interest, paying it off is a 10% return on your money! That's huge.
There's two approaches you can take with debt: refinance or consolidate, or balance transfer and pay down.
If you have student loan debt, it could make a lot of sense to refinance the debt. You can see if it makes sense in 2 minutes at Credible without a hard credit check. If you decide to proceed, College Investor readers get a $200 bonus when they refinance through this link.
If you have credit cards or other debt, it can make sense to consolidate with a personal loan. This is typically the best option when you can't see yourself paying off the debt in a year, but want to lower your interest. Credible also allows you to compare personal loan options, so check it out here and see if it makes sense.
Finally, you could get a 0% balance transfer card and use your 0% time to pay off the debt. There are some credit cards right now that offer 15 months at 0% with no fees - that gives you over a year to pay off your debt. Learn more about these cards here.
11. Invest In A Business
Another way to generate passive income is to invest and be a silent partner in a business. This is very risky, but with risk comes the potential for high returns. For example, several years ago both Lyft and Uber were looking for private investors to invest in their companies. Today, they are worth billions - but you as an investor would only reap that benefit if they go public via an IPO, or get acquired. So, it's risky.
But there are ways to reduce your risk. For example, you can invest small amounts in many companies through equity crowdfunding. There are a lot of crowdfunding platforms that are enabling this, so research it and see if it makes sense for you. Check out our Mega Guide To Crowdfunding Investments here.
Passive Income Ideas Requiring an Upfront Time Investment
The next section of passive income ideas require a time investment. Instead of using money, you need to put in sweat equity to make these happen.
Almost all of these ideas require starting a personal blog or website. But the great thing about that is that it's incredibly cheap to do. We recommend using Bluehost to get started. You get a free domain name and hosting starts at just $2.95 per month - a deal that you won't find many other places online! You can afford that to start building a passive income stream.
12. Sell an eBook Online
Self Publishing is mainstream today. When you purchase an eBook off of Amazon there’s a pretty good chance you’re buying a self-published book. Self-publishing is also ridiculously easy. I tried this a few years ago and couldn’t believe how simple the process was. To self-publish a book you’ll first need to write and edit it, create a cover, and then upload to a program such as Amazon’s Kindle Direct Publishing. Don’t expect instant success though. There will need to be a lot of upfront marketing before you can turn this into a passive income stream.
13. Create a Course on Udemy
Udemy is an online platform that lets its user take video courses on a wide array of subjects. Instead of being a consumer on Udemy you can instead be a producer, create your own video course, and allow users to purchase it. This is a fantastic option if you are highly knowledgeable in a specific subject matter. This can also be a great way to turn traditional tutoring into a passive income stream!
14. Selling Stock Photos
Do you ever wonder where your favorite websites, blogs, and sometimes even magazines get their photos? These are normally bought from stock photo websites. If you enjoy photography you can submit your photos to stock photo sites and receive a commission every time someone purchases one of them.
One of the biggest marketplaces to sell stock photos is DepositPhotos. You can upload your photos are earn money whenever someone uses them.
15. Licensing Music
Just like stock photos you can license and earn a royalty off of your music when someone chooses to use it. Music is often licensed for YouTube Videos, commercials, and more.
16. Create an App
If you own a smartphone or tablet then it’s safe to assume you have several apps downloaded. But have you ever had an amazing idea for an app? If so, you could consider hiring a programmer to create your app for you. You could then sell it on the App store for residual income.
17. Affiliate Marketing
Affiliate marketing is the practice of partnering with a company (becoming their affiliate) to receive a commission on a product. This method of generating income works the best for those with blogs and websites. Even then, it takes a long time to build up before it becomes passive. If you want to get started with affiliate marketing check out this great list of affiliate marketing programs.
18. Network Marketing
Network marketing, or multi-level marketing, seems to be on the rise. Companies such as Young Living Oils, Avon, Pampered Chef, and AdvoCare are all multi-level marketing companies. You can earn passive income through network marketing by building a team underneath you (often referred to as a down line.) Once you have a large team you can earn commissions off of their sales without having to do much.
19. Design T-Shirts
Sites like Cafe Press allow users to custom design items like T-shirts. If your design becomes popular and makes sales you’ll be able to earn royalties.
Even Amazon has gotten into this business. Amazon has a new service called Amazon Merch, where you simply upload your designs and Amazon takes care of the rest (making it, packing it, and shipping it).
20. Sell Digital Files on Etsy
I’ve been into home décor lately and I had to turn to Etsy to find exactly what I wanted. I ended up purchasing digital files of the artwork I wanted printed out! The seller had made a bunch of wall art, digitized, and listed it on Etsy for instant download. There are other popular digital files on Etsy as well such as monthly planners. If you’re into graphic design this could be an amazing passive income idea for you.
Semi-Passive Small Business Ideas
I call these semi-passive income because they are more like a business, less like the ideas above. They all also require a small combination of time and money investment. But once you invest, you can earn more income and typically do so passively.
However, these all do require some ongoing time investment, so they aren't 100% passive like having a savings account.
21. Rent Your Place On Airbnb
AirBNB is great because you can earn money on a space you already own. It does require a little work up front to prep your place, list it, and clean up after guests, but it's pretty passive otherwise.
22. Car Wash
It’s always been a dream of mine to own a car wash. This seems like such a great way to earn a semi-passive income. While regular maintenance will be needed at a car wash it’s something you can either hire out or perform once a week.
As a side note, I'm talking about the really basic car wash that is cinderblocks, a pressure washer, and coin operated. If you're going to run a drive through car wash, it's definitely a business vs. a passive income stream.
23. Vending Machines
Vending machines are another great low maintenance small business idea. I have a friend who has vending machines all over neighboring towns. He replenishes and cashes them out once every two weeks. His vending machine business is part of his retirement plan.
24. Storage Rentals
My cousin owns a set of storage rentals and receives monthly checks for letting customers rent these out. The only time she seems to do any work for these is when she has an opening for one of the storage units.
If you're not sure about getting into this space, you can also invest in storage rentals via a REIT. FundRise invests in commercial properties like storage rentals and you can get started for as little as $500.
I debated on listing this one here because while in theory it seems like owning a laundromat would be semi-passive I anticipate there would be a whole lot of ongoing maintenance needed. You be the judge on this one.
Easy Passive Income Ideas
Last on the list I wanted to point out a couple of easy passive income ideas. These require no money and no upfront work. While the earnings are menial you still can’t beat easy passive income!
26. Cashback Rewards Cards
If you pay your bills with a credit card make sure it offers cash back rewards. You can let your rewards accrue for a while and possibly put the easy money you earned toward another passive income venture! (Be sure that the card you select doesn’t have an annual fee or you might be cancelling out your rewards). Check out this list of the best Cashback Rewards Cards.
27. Cashback Sites
Just like cashback rewards cards you should opt to use a cashback site when shopping online. If you don’t you’re giving up free money that requires little to no work! We just compared the two most popular sites - eBates versus TopCashBack.
How to Get Started
While it can be tempting to want to pick five passive income ideas to get started with I’d really encourage you to pick one in the beginning. You need time and the ability to focus to really a grow a passive income stream. Master one thing before moving on to the other.
It’s going to take a substantial amount of time or money in the beginning but I promise earning passive income is everything it’s cracked up to be! Pick an idea, make a plan, and dedicate yourself until that income stream comes to fruition.
What are some of your favorite passive income ideas?