Making money while you sleep.
Has a nice ring to it, doesn’t it?
After reading books like Rich Dad Poor Dad and 4 Hour Work Week, I became
interested obsessed with making passive income.
Top Passive Income Ideas
What is Passive Income?
When you’re short on cash, a typical solution is to work more hours, right? Or to ask for a raise so you can turn your work hours into more money.
There’s nothing wrong with either of those actions, but there’s also another way.
Lots of other ways, actually.
They aren’t ways to turn your time directly into money. Instead, they are ways to plant seeds so your money will grow, even when you’re sleeping or at the park walking your dog.
In other words, even when you’re not out actively trying to make money.
It’s all about the concept of passive income. Just like a farmer who plants a crop, tends the fields, and harvests the produce, you can plant financial seeds that will produce income.
It takes some work up front, and some maintenance along the way, but if you plant passive income seeds that suit your climate (aka your personal preferences and skills), you can bring in a nice harvest.
Below you’ll find quite a few passive income ideas, so it’s likely that you’ll be able to find at least a few that cater to your situation and skills.
For the purpose of this article, we are lumping passive income and portfolio income into the passive category, and active income into the non-passive category – although the IRS categorizes and treats each type of income differently.
You can also check out some of my latest YouTube videos on passive income.
1. Invest in Lending Club
Earning interest on safe investments, such as U.S. Treasury securities and bank certificates of deposit, is safe and simple — the very definition of passive income.
The problem, of course, is that those instruments pay paltry returns – generally less than 1 percent. It may be passive income at its finest, but you’ll never be able to relax or retire on returns that low.
But now we have Lending Club. It is a web-based peer-to-peer lending platform where people come to get loans, and investors – looking for high interest opportunities – provide the funds for those loans.
Lending Club provides an opportunity to earn interest rates in excess of 10 percent a year – which is about 10 times what you will earn on more conventional interest-bearing investments.
Now let’s be clear on one point: those high rates do come at a cost.
Unlike bank investments, Lending Club loans can go bad, in which case you will lose principal. However, there are ways to minimize those potential losses.
I talked to a Lending Club advisor who recommended starting out with an initial deposit of $2,500. Since you can invest as little as $25 in a single loan, you could buy into 100 different loans with a deposit of that level. So you don’t have to worry about a single loan going bad and ruining your investment.
Despite the risk of default, you’ll likely earn far more on your investments at Lending Club than you would at a bank. I have averages just under 9 percent during the eight years I have been investing with them.
That is a nice residual income stream. Investing larger sums of money in different ways can be beneficial. Whether it be where to invest 10K or where to invest 100K, we can help you get a better understanding of how to invest your money.
Want to try out Lending Club? You can open a free account here.
2. Passive Real Estate Investing with Fundrise
Real estate can result in a great source of passive income. But what if you don’t have the time, the skill, or the upfront money to flip a house? Or what if you’d just rather not be a landlord?
Enter Fundrise. Fundrise is a real estate investment trust, or REIT. You buy shares in the trust, and it uses your money to develop a variety of real estate projects. If the project turn a profit, so do you.
With a REIT, all of the money is going to be invested in real estate. The REIT owns the property, and you don’t have to worry about handling the landlord duties.
With Fundrise you can start investing with as little as $500. With other real estate investments, you’ll have to have a lot of money saved up to start, but Fundrise lets you get into the real estate business with just your Christmas bonus money.
While Fundrise can’t predict the future, and you never know how well the investments are going to perform, they do have some great returns in the past. In 2017, they posted returns of 11.44 percent.
Obviously, these are much higher than you’re going to get with most other investments.
What’s more is that you can choose a plan that matches your investment strategy:
- Supplemental Income: This plan puts your money into projects that should start earning you some passive income as quickly as possible.
- Balanced Investing: This plan leans more toward projects that will increase in value over time and puts less emphasis on getting returns now.
- Long-term growth: As the name implies, this plan buys you into projects that are expected to increase in value over time. Your immediate profits may not be as high as possible, but the value of your portfolio should be more likely to grow over time.
You can also look at different real estate projects and choose for yourself which ones to invest in.
3. Go Safe With High Yield Savings Accounts
Savings accounts might be the most boring investment ever invented, but they are also the safest.
If you are accustomed to your neighborhood bank, where you can walk in and talk to someone, then you probably think the interest earned hardly qualifies as income.
And you’d be right. At 0.15 percent interest or lower, you’d need to exceed the FDIC-insured $250,000 account limit to see any real action.
Online banks, which hit the scene in the late 1990s, have been able to provide much better interest rates to their clients than their traditional cousins.
Now, you can get savings account rates that are as good as a CD without locking in your money for several years.
Some of the leading online banks average about 1.5 percent interest, which is about 10 times what you’d get at the bank around the corner. Sure, it won’t make you rich, but it’s safe and easy.
Online banks that offer high-yield savings accounts include:
- Barclays which offers only savings and CDs in the U.S.
- Synchrony, which also has limited account options
- Ally, where you can also get a checking account.
This is also a great option to stow away your cash and create a little passive income while you are looking for a more lucrative investment option.
4. Invest with a robo-advisor
Putting money into an account and letting an algorithm manage your investments is about as passive as you can get.
Robo-advisors like Betterment allow you to set your willingness for risk in the market and then sit back and let the computer think for you.
The computer algorithm will keep your portfolio balanced. The fees are much lower than what you’d pay a human account manager. There are currently two main players in the robo-advisor game:
I have been a long-time supporter of Betterment and even did an interview with their CEO in my Betterment investing review.
Betterment is great at reducing any taxes you have to pay on your investments, and they work with you to give you the best financial advice through their algorithms.
Unlike other robo-advisors, with Betterment you can actually talk to a human being if you want to. Betterment charges the same fees as Wealthfront, but does not waive the fee on the first $10,000 you invest.
My personal experience with Betterment is that their platform is really slick and the investments are very sound. I don’t think you can go wrong with either service, but if I am investing a large sum to create a passive income investment, then I would go with Betterment.
Blooom works very differently from many of the other robo-advisors. It helps specifically with your employer sponsored accounts (401k, 403b, 401a, and 457 accounts).
Instead of you having to search for the best investment choices for your accounts, Blooom will go through all the investment choices and make adjustments for you.
The service will also automatically rebalance the account as it grows. Blooom is very inexpensive when compared to a traditional advisor at only $10 per month no matter how large your 401k grows.
5. Try out index funds.
Index funds give you a passive way to invest in the stock market.
For example, if you invest money in an index fund that is based on the S&P 500 Index, you will be invested in the general market.
This means you won’t have to worry about details like:
- choosing specific investments
- rebalancing your portfolio
- knowing when to sell or buy individual companies.
The fund takes care of those things, basing the fund portfolio on the makeup of the underlying index.
E*Trade is our recommended online broker for buying index funds. They make the research and process of investing into different funds very easy.
We recommend them over other options because if you ever start to look at other kinds of stock or mutual fund investments, you already have the account set up and it is easy to move your money over.
On top of that the cost to get your account going is super cheap, and the cost per trade very affordable.
If you are not familiar with E*Trade, check out more details in our Trade King review. They have become one of my best accounts for investing.
With any broker you are free to choose a fund that is based on any index that you want. For example, there are index funds set up for just about every market sector out there:
- precious metals
- emerging markets.
You name it. All you have to do is decide that you want to participate, then contribute money, then sit back and relax. Your stock portfolio will be on autopilot.
If you are looking toward retirement with your money then we would look at opening a Roth IRA. It will shield your savings from any future taxes and you can withdraw all earning tax-free once you hit 59 1/2. It is one of the best ways to save money for retirement.
6. Make money for tasks you’d do anyway
Yes, you can make some money doing some of the things you’re already doing.
It’s amazing. Take advantage of the compensation plan on each of these websites and make some extra money!
You can also make your own schedule with Uber and pick up extra income by driving others around when you are already out and about anyway!
7. Get cash-back rewards on credit cards
If you’re already using credit for some of your purchases, pursuing credit card rewards is an absolute no-brainer.
Most top rewards cards let you earn anywhere from 1 to 5 percent back on your money, and that’s with almost no effort on your part!
If you’re already using credit for convenience, you can also earn a huge sum of cash in the form of a signup bonus.
The Chase Sapphire Preferred®card offers one of the best opportunities out there. After spending just $4,000 on the card in 90 days, you’ll earn 50,000 points worth $500.
On top of that, if you add your spouse as an approved user, you score an extra 5,000 points. That works out to 59,000 points for just $4,000 of spending you were going to do anyway.
Even people who don’t spend a lot can normally put that much on credit if they charge regular bills, groceries, gas, insurance, and all of their other expenses on a regular basis.
Of course, you’ll want to pay down the balance of the card each month to avoid interest charges.
Our post on the top six cash back credit cards for 2017 offers an array of additional options to consider as well. With the right card, you could earn anywhere from 1 to 5 percent back on your money with almost no effort on your part.
If travel is your thing, we have seen people who are using bonus offers on travel rewards credit cards to save thousands of dollars on travel each year. You can really score big with these deals.
8. Put your photography to work on the web
Do you like photography? If you do, you may be able to convert it into a passive income source.
Photography websites such as Shutterstock and iStockphoto can provide you with platforms to sell your photos. They may offer either a percentage or a flat fee of each photo that is sold to a site client.
In this way, a single photo could represent a residual income opportunity, since it can be sold again and again. You simply need to create your photo portfolio, put it on one or more photo platforms, and then the activity becomes completely passive. All the technicalities of photo sales are handled through the web platform.
And yes, that’s me in a stock photo you can purchase from iStockPhoto.com. My wife is a good photographer and has uploaded a few hundred photos to their platform and makes a good monthly residual income from it.
9. Write an ebook
This can be a lot of work upfront, but once the ebook is created and marketed it can provide you with a passive revenue stream for years.
You can either sell the ebook on your own website or offer it as an affiliate arrangement with other websites that provide content related to your ebook.
After speaking to several ebook authors, many of the tell me that the time spent putting these books together feels like finding free money by the passive stream of income they have today.
10. Sell your own products on the internet
The possibilities here are endless – you can sell just about any product or service that you like.
It could be a product you have created and can manufacture on your own or it could be digital in nature (such as software, DVDs, or even instructional videos).
You can set up a dedicated website for this product or service, unless of course, you have a website or blog already in place.
Alternatively, you can also sell it on an affiliate basis, either by offering it direct to websites and blogs related to your product or service, or through a platform such as ClickBank.
If you make a lot of money in your current job and you’re not sure that you can make a similar amount by selling products online, think again.
Now, being a stay-at-home mom is a full-time job, but Steve Chou’s wife also started an online business that replaced her former salary and started bringing in a six-figure income! Wow, right?
You can learn to sell products online too and make quite a bit of money. While it’s not entirely passive, it’s certainly more passive than getting up and heading out the door to work every morning!
11. Invest in real estate
This probably falls more in the category of semi-passive income, since an investment in real estate is always at least a little bit of an active venture.
Still, once you have an investment property that is established and fully rented, it’s mostly a matter of managing the property and keeping it performing well.
Additionally, there are professional property managers who can manage your property for you, usually for around 10 percent of the monthly rent. This professional management can make the investment much more passive, but will take a bite out of your cash flow.
According to Brandon Turner, an active real estate investor and co-host on the popular BiggerPockets Podcast,
“The key to success with rental properties is buying smart. Not every investment property is going to provide a good return or prove to be passive. Understanding how to analyze potential real estate opportunities is incredibly important. As the old adage goes – you make your money when you buy!”
Another benefit of investing in rental properties is the loan pay down. If you obtain a loan to buy the property, each month your tenants are paying off part of the loan.
Once the mortgage on the property has been paid off, your cash flow will increase dramatically, allowing your mediocre investment to skyrocket into a full-fledged retirement program.
It wouldn’t take many paid-off properties to provide a pretty great, and mostly-passive, future for you and your family.
(If you’d like to invest in real estate without doing all the managerial work, see #2.)
12. Make YouTube videos
You can create videos in just about any area that you like – music, tutorials, opinions, comedy, movie reviews – anything you want . . . then put them on YouTube.
You can then attach Google AdSense to the videos, which will overlay your videos with automatic ads. When viewers click on those ads, you will earn money from AdSense.
You have to create compelling videos, to promote those videos on social media websites, and to create enough of them that your income will be coming from multiple sources.
You may need to learn something about video editing, but there are apps that can make that much easier and affordable these days.
Still, there’s a good bit of work that goes into creating videos. But once a video is done it can become a completely passive cash flow source for a very long time.
Don’t think you can find success with YouTube? Emily Eddington used her love for makeup and YouTube to quit her full-time job. She has received over 169 million views on YouTube and she has nearly 1 million subscribers.
This former morning news anchor took her passion – makeup – and turned it into a phenomenal success.
13. Buy a blog
Thousands of blogs are created every year, and thousands are either completely abandoned by their owners sometime afterward.
If you can buy blogs with a reasonable amount of web traffic – as well as a demonstrated cash flow – it could be a perfect passive income source.
Most blogs employ Google AdSense, which provides a monthly revenue stream based on ads that Google places on the site. There may also be affiliate programs generating additional revenue.
Both income sources will be yours once you purchase the blog.
From a financial perspective, blogs usually sell for 24 times their monthly income. So if the site generates $250 a month in income, you can likely buy it for no more than $6,000.
Translation: a $6,000 investment will buy you $1,500 per year in cash flow.
You may even be able to purchase the site for less than 24 months of earnings if the site owner is particularly anxious to get out. Some sites have good “evergreen” content that will continue generating revenue even years after the site has gone silent.
So a simple $5,000 investment can net you ongoing passive income.
Bonus tip: If you were to buy such a site and then to reinvigorate it with fresh content, you may be able to increase the monthly revenue, enabling yourself to sell the site at a later date for substantially more than what you paid for it.
Finally, instead of buying a blog, you might want to create your own blog. My blog currently generates a nice passive income stream from content that I published years ago. It’s by far one of the best business moves I’ve made.