Last Updated on 7th October 2020
Everyone wants to talk about passive income. It’s a sexy idea with lots of promise, but most of the ideas that people push are impractical and/or inaccessible to the masses. The good news is that passive income streams do exist – you just need the right expectations and approach.
6 Real Options for Passive Income
Let’s start by explaining what passive income is.
According to the IRS definition, it’s money that’s earned from one of two sources: investments or businesses that do not require active and ongoing participation.
But that’s only half of the story. Passive income isn’t totally hands-off. While it tends to be sensationalized as a “get-rich-quick” scheme that requires no time or effort, nothing could be further from the truth. Passive income still requires work – often considerable work – you just do it on the front end.
With all of that being said, here are some of the more realistic options for generating passive income – today, tomorrow, and indefinitely.
Dividend Stock Investing
Investing in dividend stocks is a truly passive stream (in the sense that you don’t have to lift a finger after you make the initial investment). However, it requires a couple of things: (1) considerable money, and (2) savvy investment know-how.
If you only have a few hundred or thousand dollars to your name, you won’t generate more than a couple of bucks every year. You need at least $10,000 (and ideally 10-times that number) to produce any significant stream of income. You’ll also need someone to tell you which stocks to invest in and how/when to rebalance your portfolio.
This is another pay-to-play scenario. With peer-to-peer lending, you put up money to front investments from borrowers who don’t qualify for traditional loans from banks. There are numerous websites that help connect borrowers and lenders. Most report average earnings in the four percent range (which is much better than a CD or money market fund).
Real Estate Investing
Real estate investing is one of the key driving factors in building long-term, sustainable wealth. It’s also one of the best options for generating passive income over time.
Contrary to popular belief, you don’t need a ton of cash to invest in real estate (at least not initially). You can leverage other people’s money and slowly build up your net worth. And with property management services that handle all of the day-to-day tasks, you don’t have to spend a ton of time working on your investments.
If you have an insurance person or financial advisor, you should speak with them about annuities. While they can come with high fees and strict terms, they can provide significant value in certain situations.
As investor Robert Farrington explains, “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.”
As long as you’re willing to put in some work up front, developing and selling information products can provide a very lucrative and sustainable stream of passive income.
Information products include things like books, courses, and other knowledge-based products. You develop them and then set up sales funnels with ads and landing pages to consistently sell products on autopilot. All it takes is a $20 product selling five times per day to generate $36,500 per year! Get the right system down and the sky’s the limit.
Another good business-related passive income stream is affiliate marketing. This is where you market other people’s products and get a cut of the transaction when they buy. There are a ton of companies – including Amazon – that have large affiliate programs. If you have a knack for marketing and advertising, this could work for you.
Adding it All Up
It’s time to get over the idea that passive income is effortless and embrace the fact that it requires upfront work. But if you’re willing to put in this work on the front end, you can generate steady and predictable income for months and years to come. Zero in on one or two of the options highlighted in this article and see which one works for you.