Those who choose to focus on passive income will need either family money, funds from investors, or the nerve to borrow large sums by taking on debt to fund the purchase of assets. Consider someone who takes out substantial bank loans to build an apartment building or buy rental houses. Although this can turn a very small amount of equity into a large cash flow stream, it is not without risk. When using borrowed money, the margin of safety is much smaller because you can’t absorb the same degree of setback before defaulting and finding your balance sheet obliterated.
We’ve discussed how to get started building passive income for financial freedom in a previous post. Now I’d like to rank the various passive income streams based on risk, return, and feasibility. The rankings are somewhat subjective, but they are born from my own real life experiences attempting to generate multiple types of passive income sources over the past 16 years.
After these tenants move out, I'm thinking of just keeping the rental empty with furniture. It sounds stupid to give up $4,200 a month, but I really hate dealing with the homeowner association, move-in/move-out rules, and maintenance issues. Given that the condo doesn't have a mortgage and I have to pay taxes on some of the rental income, I'm not giving up that much. The condo can be a place for my sister, parents, or in-laws to crash when they want to stay in SF for longer than a week or two.
Finally, we will be investing in stocks for dividend income. Dividend income is the distribution of earnings from companies’ stock that is paid out quarterly and sometimes monthly. We will be investing in around 10-15 stocks that have a high dividend yield. For more information on what stocks we are picking and how dividend income works, check out this (link).
Leveraging the internet to create, connect, and sell is something every creative person should attempt to do. The only risk is lost time and a wounded ego. You can start a site like mine for as little as $2.95 a month with Bluehost and go from there. They give you a free domain name for a year. Forget all the add-ons. Not a day goes by that I’m not grateful for my site.
Those who can reap the benefits of residual income have typically put in an immense amount of effort and time in the beginning to be able to enjoy the rewards later on. Residual income, therefore, does not result in instant gratification. Those interested in earning residual income must have a lot of patience and determination to work as hard as necessary to achieve their ultimate goals of a long-standing income stream.
Ebooks, which can be published through sites like Amazon Kindle Direct Publishing, are an increasingly popular option. Because these books are self-published, the process is quicker, allowing you to build residual income faster than the traditional publishing route. Whether it’s a romance novel or a how-to book on fly fishing, you can create a book and have it available for purchase in a matter of weeks.
On August 4, 2003, Brad and Karen Murray’s marriage ended. They continued arguing over their assets for another four years. Brad worked as an independent broker for Ameriplan – a marketing company specializing in providing discounted rates on services related to healthcare. As part of his job, Brad sold monthly memberships to Ameriplan’s discounted health plans. He also recruited other brokers to do the same.
Given the growth in the sharing economy, your junk can start to pay for itself. For example, if you have some awesome vintage furniture inherited from your grandmother sitting in a storage unit, you can rent this out to photographers for their “styled shoots” which are becoming all the rage. If your furniture is more modern but you still can’t bear to get rid of it – perhaps a home stager will be interested.
Let’s say you just decided to sign up for the Chase Sapphire Preferred® card. Once you had the card in hand, you could begin using it for purchases and earning cash back for every swipe. For every dollar you spend on regular purchases, you’ll get 1 percent back in the form of rewards. For dining and travel purchases, on the other hand, you’ll score a smooth 2 percent back.
Successful YouTubers choose a theme for their channel—ranging from humorous commentary to gardening. As you acquire subscribers to your channel, your number of views becomes more consistent, which in turn grows your residual income. While you’ll need to produce regular videos to maintain your following, a couple hours of filming and editing pales in comparison to the revenue you can generate with minimum effort.
If you have a spare bedroom, you can find a roommate or list the space on AirBnB for travelers. Having a roommate is the more passive of the two, as being an Airbnb host will require more work in the form of turning over the room between stays. This is a super painless way to earn $500 to $1,000 a month without much effort – you may even be able to cover your mortgage payment with this extra income!
Working as a nurse or a computer engineer for a salary are two examples of active income. In contrast, residual income is income from an investment that earns over the minimum rate of return. You get paid for work you completed once or are periodically overseeing. With residual income, you don’t have to be present or intricately involved to get paid.
When a taxpayer records a loss on a passive activity, only passive activity profits can have their deductions offset instead of the income as a whole. It would be considered prudent for a person to ensure all the passive activities were classified that way so they can make the most of the tax deduction. These deductions are allocated for the next tax year and are applied in a reasonable manner that takes into account the next year's earnings or losses.
My esteemed marketing colleagues initially balked at the idea of creating products that generate royalties, so I can understand how creating something from nothing might be daunting for those who aren’t even in creative roles. However, realize there is this enormous world out there of photographers, bloggers, artists, and podcasters who are making a passive income thanks to the Internet.
5. Make sure you are properly diversified. Capital preservation is underrated. We saw a lost decade for tech stocks between 2000 and 2010 after the first dot-com bubble burst. It actually took 13 years for Nasdaq investors to get back to even. Investors in the Borsa Istanbul stock market index just gave up 10 years' worth of gains after they saw a plunge in their currency, partially due to increased tariffs by the US and a lack of confidence in the government. Your passive income needs to be properly diversified in order to take the hits.
Who doesn’t like some down and dirty affiliate fees?! Especially if you realize it can be even easier to make money this way than with an ebook. After all, you simply need to concentrate on pumping out some content for your own site and getting the traffic in, often via Google or social media. Unsurprisingly, most people can enjoy their first affiliate sale within 30 days of starting a blog. Continue reading >
4. Affiliate marketing: Getting paid to tell people what you like and showing them where to get it. As a Dad, I tried 3 high chairs before finding the “Bumbo.” Now if I blog about the Bumbo and link to it to my Amazon account, and someone buys it, I can earn a commission. This is also a great way to build money over time, but it requires new content, staying top of mind and driving lots of traffic.
If you want to add a little excitement to your passive income investing, meet Lending Club, the web-based peer-to-peer lending platform where investors looking for high-interest opportunities provide the funds for loans. You can earn interest rates in excess of 10 percent a year – about 10 times what you will earn on more conventional interest-bearing investments.
First: I understand why you would say that such investments are restricted to only accredited investors, because generally, that’s true. There are means, under federal securities regulations and Blue Sky laws in each state, to sell interests to non-accredited investors – but usually those means are so heavily regulated and involve disclosures so similar to cumbersome registration requirements that it is not worth it for the seller to offer to non-accredited investors.
The more residual income you can build, the better off you’ll be. In fact, it’s said that the average millionaire has 7 different streams of income. By creating passive income streams that generate money while you sleep, you’ll build wealth faster and diversify the ways you’re able to make money – which helps protect you from the loss of any one individual income stream.