The Best Passive Income Ideas That Actually Work

Best Passive Income Ideas

If you're like me you're always in search of the best passive income ideas. Honestly, though, passive income sounds a little bit like a leprechaun: a mythical creature that provides you with money without you having to work for it.

But passive income–otherwise known as residual income or investment income–is the real deal, unlike magical bearded men with pots of gold. I have several passive income streams going on in my own life (as you'll see below) and I'm building up reservoirs to tap in the future.

My passive income helps me to grow my wealth (see my savings goals here) and frees up my time so I can focus on building my business.

So how do you tap into passive income? At least with leprechauns, you know that you need to find the end of a rainbow. So even if the instructions are impossible to follow, they are at least clear. Trying to create passive income, on the other hand, can feel much more confusing.

That’s why I believe that creating passive income in your own life starts by exploring the best passive income ideas out there today.

There’s no reason to try and reinvent the wheel here when there are a number of strategies that are already working for people. Just take what is already effective and find a way to make it yours.

While some of the best passive income ideas require capital and maybe even a little effort up front, at the end of the day, all of these ideas could be producing regular, consistent passive income for you for years to come.

1. High-Interest Savings Accounts

Hands-down, the easiest way to start earning passive income is to take your money and put it into a high-interest savings account.

I love this method because it’s truly and completely passive and your money is secure in a rock-solid FDIC insured bank account. Right now, some of the banks are paying 2% or more for your money. See current interest rates.

Granted, that’s not a massive return–but considering you’re not really putting your money at risk, this is a great way to create some passive income in your life to allow you to stay in line with inflation rates today.

To give you an idea of what kind of return you can expect using this approach I’ve put together a quick example.

Let’s say you put $10,000 into a high-interest online savings account that pays 2% annual return. At the end of one year, you’d produce $200 of passive income (10,000 x .02). Again, that’s not an amount of money you can retire on, but it’s still $200 you don’t have to toil for.

Of course, rates with savings accounts typically fluctuate overtime so your actual passive income will vary. This year so far, I've banked around $700 in interest from my savings. This is earned from my emergency fund money, which I hold in Capital One 360.

Average Yield: Low

Liquidity: High

Risk Level: None

Resource: 7 Ways to Kick-Start a Winning Saving Habit (Start Now!)

2. Stock Investing

Investing your money is one of the oldest passive income strategies on the books. Investing in stocks (or funds of stocks) means that you are becoming a (very) partial owner in the company whose stock you own. When you purchase a stock, your expectation is that the value of the stock will either increase or decrease, and your goal is to buy low and sell high. (This is what everyone is shouting about on the floor of the NYSE in movies about the world of high finance).

To make stock investing part of your passive income strategy, you would first have to decide if you’re going the DIY route and just need a brokerage, or if you want your passive income strategy to truly be passive so your investments are automatic.

If you choose to pick your own stocks or funds, then you can open an account with an online stockbroker and start your investing.

If you’d prefer to be more hands-off, you can open an account with a robo-advisor that will give you all the benefits of stock investing without having to do all the legwork.

So how much can you make in passive income through stocks? Well, the S&P 500 returned 11.7% annually from 1973 to 2016. Assuming you invest $10,000 in stocks that perform at this annual rate (which is not guaranteed, of course), then you would produce $1,170 in passive income in a year ($10,000 x 0.117).

The vast majority of my investing is in retirement accounts and won't be tapped for income until I reach at least 59.5 years old. However, I have a very small taxable investing portfolio (less than $5k) with Ally Invest where I invest in a handful of stocks that I value. I do not use the earnings as income – I simply hold these stocks. But I have an unrealized gain of $340 from this year so far.

Average Yield: High

Liquidity: High

Risk Level: High

Resource: Best Automatic Investing Apps to Start Investing

Stash: Automatic Investing Price: 1st month free, then $1 per month Stash is our most popular automatic investing app for beginning investors. No minimums. Buy partial shares. Stash: Automatic Investing

3. Dividend Stock Investing

Some stocks pay out what’s known as a dividend on regular basis. Instead of keeping all of the profits in the business the company chooses to pay some out to shareholders in the form of a dividend.

Some companies do this so consistently that investors are able to create a portfolio of stocks all paying out between 2-10% annually. With enough money invested this could produce a nice annual income.

Some of the stocks I own above pay a dividend (which get automatically reinvested), but I have never built a true dividend portfolio.

Average Yield: High

Liquidity: High

Risk Level: High

4. Bond Investing

When you invest in bonds, you are purchasing the debt owed by governments or other entities, meaning you have in effect loaned money to the entity in exchange for interest payments and the promise of repayment at a future time–the maturity date.

In general, bonds are more conservative investments than stocks. This means you’ll probably get less of a return from your bond investments, but your money is safer and it’s easier to count on your interest payments from your bond investments.

For easy investment in bonds that you can also feel good about, you can put your capital in either Worthy Bonds or Street Shares. Both of these financial services companies promise a 5% annual return to investors who purchase their bonds.

Your money is then loaned to small business owners at a higher interest rate. You can feel good that you are helping a small business to grow–and Street Shares in particular works to lend to veteran-run small businesses, which makes your financial support especially meaningful.

Your $10,000 investment in a bond that offers a 5% annual return will give you $500 in passive income each year.

Average Yield: Medium

Liquidity: Low

Risk Level: Low

5. Peer-to-Peer Lending

Peer-to-peer lending is one of the big recent innovations that can really help you build passive income. In peer-to-peer lending, borrowers and lenders bypass the banks, and a middle-man company manages loans from people to other people.

Money is lent, money is borrowed, money is paid back. And borrowers are more likely to pay back their loans since they know they are paying back individuals and not some faceless bank.

As a lender, you decide how much money you want to invest, build a portfolio of loans (small amounts spread across many loans), and sit back and rake in the returns.

There is some risk involved though, so be smart about how much money you invest here. As an investor in social lending sites, you should never lose sight of the fact that a lot of borrowers are there because they couldn't get a loan elsewhere.

According to their promotional information, lenders with peer-to-peer models can earn 5% or more in annualized returns–but the average annual return for new investors in Lending Club is 9.65%, which is nothing to sneeze at.

Average Yield: Medium

Liquidity: Low

Risk Level: Medium

Resource: Investing in Lending Club: What You Need to Know

6. Real Estate Crowdfunding

Real estate crowdfunding is where a group of investors can pool their money in a project and share the profits. This is similar to real estate syndication, where groups of investors pool their money to provide the down payment on a property.

Since it’s technically illegal to advertise partnerships and projects, it can be difficult to find partners for syndication.

That’s where real estate crowdfunding has come in. Real estate crowdfunding is basically web-based syndication that allows the crowdfunded deals to be advertised online.

However, investing in crowd-funded real estate is typically limited to only accredited investors–that is, an investor who earns an income that exceeds $200,000 a year or $300,000 if jointly filing with a spouse.

If you don't meet the income requirements you can have a net worth that exceeds $1 million individually, not including any equity in your primary residence.

I do some real estate crowdfunding through PeerStreet and it provides around 5% annual return.

Average Yield: Medium

Liquidity: Low

Risk Level: Medium

Resource: 6 Ways to Invest in Real Estate

7. Equity Crowdfunding

Equity crowdfunding is a relatively new strategy for generating passive income. This kind of crowdfunding allows upstart businesses to fund their business idea with a small, unregistered public offering, using a number of accredited investors.

In addition, certain crowdfunded businesses can take on investors other than the traditionally defined accredited investors, as long as those investors meet these rules:

  • They invest not more than $2,000 or 5% of their net worth or income annually if their net worth or net income is less than $100,000
  • They can only invest $10,000 at a time not to exceed $100,000 annually if their net worth or net income is greater than $100,000.

The potential returns on this kind of passive income stream have a wide range of possibilities, from total losses to eye-popping gains.

After all, 50% of all startups fail in the first year. That’s why it’s important to make sure you choose your investments wisely and only invest in companies you believe will make it for the long haul.

Average Yield: High

Liquidity: Low

Risk Level: High

8. Cash from Credit Card Rewards

Credit card companies offer all kinds of cash back rewards, so why not use them to create a passive income stream for yourself? There are a number of methods for creating income using credit card rewards:

Use gift cards to shift your spending.

Let’s say you have a credit card offering 6% cash back at grocery stores. There, you can purchase a variety of gift cards not just for other merchants, but debit cards from Visa, MasterCard, and American Express that work anywhere.

This can give you the cash back you want without tempting you to spend money unnecessarily. You can just purchase gift cards for the purchases you will already be making and rake in the cash back.

Maximize your bonuses.

Signup bonuses are one of the best ways to earn rewards quickly.

However, to qualify you usually need to spend a certain amount on your card within the first few months. This spending threshold can be a few thousand dollars for larger bonuses. If you can’t reach the threshold, you’ve lost your chance to receive the signup bonus.

Before signing up, review your planned spending during the signup period. Don’t make extra purchases just to get points, especially if you can’t pay off the balance when the bill comes.

Take advantage of business rewards cards.

Can you apply for a business credit card even if you don’t have a business? Sure you can!

Simply enter your Social Security number for the Tax ID number and use your name as the company name, just as any sole proprietor would. There is nothing wrong with doing this for any reason.

For example, I have received the personal and business version of the Southwest Airlines card, which helped me to earn their valuable companion pass.

Credit card rewards require some planning and organization, but once you get into the habit, it can offer you a great opportunity to earn income that you don’t have to work for.

Average Yield: Low

Liquidity: High

Risk Level: None

9. Leasing Your Stuff

Anything you own can become a source of passive income. Have a car, home, desirable parking space, professional-grade digital camera, tuba, weed wacker, or other assets you could lease (i.e. rent out) to someone else? Then don’t let these things just sit. Have them make some money for you!

Platforms like Turo, Airbnb, CurbFlip, and Fat Lama, can help connect you with people who want to rent what you have.

Generally, these kinds of platforms charge a small fee to help get you the renters who will provide you with ongoing passive income.

Average Yield: Low

Liquidity: Low

Risk Level: Low

10. Rental Properties

If you properly factor in the cost of a property management company (and thus, aren't always over at the property dealing with repairs or collecting rent), you can make a rental property portfolio a great passive income stream.

The investment required to get started her is going to be more significant than other areas on this list, but the reward can also be significant. Landlords tout anything above 10% as being a solid return on their investment.

I have a rental property myself that returns over 10% annually if you consider my original 20% downpayment on the home my investment.

Average Yield: High

Liquidity: Low

Risk Level: High

Resource: How to Find Rental Properties

11. Blogging

I’ve been blogging since 2007. I’ll admit there is very little that is “passive” upfront about writing and growing a blog. There is a lot of work that goes into creating a successful and lucrative blog.

However, at some point, the blog will start making money–such that you no longer need to keep working on it. If I stopped all work on ptmoney.com right now it would produce income for several years without me touching it – specifically from display ads and impression or click-based ad tables.

Average Yield: N/A

Liquidity: N/A

Risk Level: N/A

Resource: How to Make Money with a Blog

12. Self-Publishing

This is another passive income stream that needs to start with some good old-fashioned hard work. Writing a book is a pretty big undertaking–and promoting it to make sure that it sells and provides you with the passive income you are looking for can also take quite a bit of hustle.

However, self-publishing can offer you a nice return on your initial investment of time and energy.

Both Amazon and Apple offer 70% of each book’s sale to the author–although Amazon specifies that this rate is only for books priced at $10 or less.

Even if you only enjoy modest sales for your ebook, the immediacy of e-publishing, along with the lack of overhead and the high royalty rate, making this a solid opportunity for creating passive income.

One excellent way to keep your passive income game strong with self-publishing is to write a series of books.

Many indie authors have found that they can hook their readers in with an excellent story that takes several books to complete. Once you have gotten a reader for your first novel, you’ll have one for the rest of the series.

If nonfiction is more your style, consider writing books geared to various levels of expertise in your field. A beginner who reads your introductory book will want to continue on to your mid-level guide as she gains confidence and will eventually turn to your guide for experts.

Average Yield: N/A

Liquidity: N/A

Risk Level: N/A

Resource: How to Self-Publish an Ebook and Creative Passive Income Royalties

Passive Income is Both Real and Magical

Hopefully, reading through this list has inspired you to start a passive income stream in your own life.

No matter what your situation, you can find a passive income strategy that makes you say “Hey! I can do that, too!” No need to chase rainbows when you can start earning passive income all on your own.

What are you doing now, or planning on doing, to earn passive income?

 

Speak Your Mind

*