Become financially independent faster with passive income, the ultimate holy grail to making money.
It’s money that just shows up in your bank account month and after month while you are sleeping.
One of my favorite money quotes is from Warren Buffett, the Oracle of Omaha himself, “If you don’t find a way to make money while you sleep, you will work until you die.”
Ain’t that the truth!
So, how do you make money while you sleep? The good news is that you don’t need to reinvent the wheel with passive income ideas, and you have plenty of free educational resources to help you learn how to create it.
But let’s get something straight – most passive income takes a lot of work to set up. There are very few ways to make serious money with no effort. But there ARE a ton of ways to make A LOT of money over time by putting in the upfront effort.
Yes, it takes initial effort and money to start building passive income. Investment of money, investment of time, and for most passive income streams, both! Over time though, as you stack up multiple passive streams, your income starts snowballing. With each new investment, you’ll see more money coming in every month.
Eventually, your passive income streams bring in enough money to cover your expenses. At that point, you’ve reached financial independence: you are no longer dependent on your 9-5 job to live. You can retire in your 30s or wait until your 80s.
So, how do you get started investing all that money you’re saving? What are your options for passive income investments?
The following passive income ideas run the gamut from easy to difficult, low-return to high, high-risk to low. As you peruse the list, pick two or three that jump out at you. Don’t try to invest in more than that for now – most of these passive income investments have a learning curve, and if you bite off more than two or three, you’ll find yourself with too much to chew.
10 PASSIVE INCOME IDEAS
1. Crowdfunded Rental Properties
Rental properties are near and dear to my heart.
In an extremely long-term study — measuring returns over the last 145 years — guess which investment beat out even stocks, for the best returns? Rental properties.
Best of all, rents and real estate values combine the low volatility of bonds with the high returns of stocks. And like stocks, investors benefit from both ongoing passive income and value appreciation.
Crowdfunding companies like DiversyFund and Fundrise let you invest in rental properties in a completely hands-off process. With a relatively small investment of $500, your return will come out to a truly passive stream of income. I make about $500 a month through my own Fundrise investments. The low minimum makes this accessible to most and provides plenty of options for property investment.
If you’re an accredited investor with a higher net worth, check out CrowdStreet, which requires a $10,000 minimum investment but allows you to invest directly into properties of your choosing (versus the “beginner”, “long term growth” etc. portfolios that Fundrise offers), and better yet, CrowdStreet charges nothing in fees.
Roofstock takes it a step further by giving you the option to buy and sell existing rental properties in whole. You get a complete profile of each house and can see how much they currently earn. They offer crowdfunded portfolio and individual units as well.
2. High-Yield Dividend Stocks & Funds
While most dividend-paying stocks pay only 1.5-3.5% in dividends at best, a minority pay high yields in the 6-8% range. You don’t have to be an expert though, take the opportunity to learn.
Granted, those dividends aren’t written in stone. If the company has a bad quarter, it may not pay a dividend at all. Or the company may go out of business entirely, for that matter. That’s the risk you run with equities.
Instead of trying to pick individual stocks, another option is investing in mutual funds and ETFs that specialize in high dividend yields. Try researching funds on either your investment bank’s stock screener, or you can use a free service like Yahoo’s stock screener if you haven’t opened an account yet with an investment bank.
Watch out for high fund management fees. Actively-managed funds often charge high fees, which can eat up much of the fund’s returns.
When in doubt, invest in a passively-managed, low-cost index fund. According to Matthew Frankel from The Motley Fool, 92% of actively-managed funds have underperformed the market over the last 15 years.
Robo-investing is a method of investing that diversifies your portfolio and uses algorithms to enhance yields.
In other words, robo-advising gives your investment strategies that AI edge that is currently all the rage in trading.
Robo-investing is a fantastic time-saver (no more wasted time in laborious research on which stocks to invest in). Instead, tools like Betterment allow you to opt for flexibility – automagically ride the market while reducing volatile risks that come with traditional investing.
In short: higher returns, passively.
4. Certificates of Deposit (CDs)
Certificates of deposit are about as exciting as late-night poker reruns on ESPN. Still, if you want to park your money somewhere safe and insured by FDIC, CDs can at least help you reduce your losses to inflation.
Just be aware upfront that CDs require a minimum deposit period. For example, you may need to deposit the money for at least a year.
Consider using CDs in conjunction with other investments when you need to set money aside in a 100% secure place, for example, to store a tenant’s security deposit. If the alternative is parking it in a savings account, a CD can present an attractive alternative.
Check out today’s best cd rates.
5. Rent Out Storage Space
Did you know one in 11 Americans pays for extra storage space?
The self-storage industry is booming and has been for years. As passive income ideas go, this business model is a pretty simple one.
While you could buy or build a full-scale commercial self-storage complex, that’s not the only option. My partner Deni used to rent out space in her garage! And no, it wasn’t enough to make her rich, but it covered about half of her mortgage payment and required no work or headaches on her part.
It’s also far less regulated than the residential rental industry, making evictions far cheaper and faster if the worst happens and your renters default.
A company called Neighbor proclaims itself to be the AirBnB of storage.
It’s easy to turn your basement, garage, spare office room, even closet, into passive income and a great side hustle earning up to several hundred dollars a month. In New York City, they estimate a spare basement rental to generate almost $10,000 per year!
6. Refinance Student Loans
Refinancing your student debt, even at half of a percent lower, could save thousands of dollars in interest over the life of your loan. It doesn’t get more passive than that.
It only takes a quick application to check current rates available to you and will not impact your credit score.
On top of that, Millennial Money readers may get additional cash signup bonuses when refinancing with one of these companies.
7. Start a Blog
What are you passionate and knowledgeable about? Share it with the world!
No matter how small the niche, other people in the world share your enthusiasm. Did you know that there are blogs dedicated to sungazing: the practice of staring at the sun, and consuming your energy that way instead of eating?
As you build traffic, you can monetize your blog by mentioning affiliate products or services, publishing ads on the blog, or by selling your own products or services.
Starting a blog might be the perfect side hustle – you can do it on your own time, build multiple passive income streams, meet new people, and unlock tons of new opportunities.
It’s also low risk, but offers tons of income potential.
Just remember, like traditional investing, a blog is a long-term play. You won’t generate income on the first post you publish. But keep sharing good content and solid advice, and the returns will find momentum.
The important part is to just get started
I started blogging simply because I love thinking and writing about money. But along the way, I’ve made over $1 million as a result of launching the Millennial Money blog 3 years ago.
If you’re interested in getting started but want more info, I offer a free 7 Day Blogging Side Hustle Email Course that shares the exact strategy I used.
8. Real Estate Investment Trusts (REITs)
Real estate investment trusts, or REITs, tend to pay generous dividends.
Why? Because REITs typically invest in income-producing properties or high-interest debt service, so they’re inherently more passive income-oriented investments.
REITs tend to do well when real estate markets are performing well, and their dividends and values suffer when real estate markets suffer. But one advantage here is that investors can buy and sell REITs just as quickly and easily as mutual funds, on the same exchanges, yet still benefit from the diversification of entirely different markets.
Just because equity markets may crash doesn’t mean real estate markets will, and vice versa. If you’re looking to diversify your portfolio into real estate – but don’t want to invest directly – REITs can be a high-yield option.
9. Peer to Peer (P2P) Lending
One not-so-dissimilar option is lending money to individuals through peer-to-peer lending websites like LendingClub and Prosper.
You can pick and choose the borrowers and loans that you like, browsing through the loan requests on these websites. If the loans interest you, start with a small amount of money for your first loan. An amount that wouldn’t cripple you financially if you never saw it again.
The returns typically range in the 6-10% spectrum – nothing to scoff at. Of course, at the higher end of that spectrum, expect the risk to be significantly higher too.
As you get more comfortable with evaluating loans on these platforms, you can gradually scale up your investments here. While I have not invested in P2P website loans myself, I’ve known other passive income writers who have seen great success with them.
Note that P2P websites tend to make personal loans, rather than real estate investment loans.
10. Make Money Watching TV
If you have a habit of watching a film, television or playing video games, there are several ways you can turn this activity to a passive income stream.
Participating in official surveys of companies or watching specific programs through a website can earn you some extra cash.
You can also stream your activity on a streaming service or on YouTube. Video game streaming is already a huge business, and if it’s something you enjoy, you can easily capitalize on that activity.
If you take nothing else from this list, consider this: increase your savings rate, automate it, and then put that money to work for you.
Robert Kiyosaki uses the metaphor that every dollar you save can be dressed for work and sent out to earn money for you. Most of the passive income ideas above come with some degree of risk. Many require education on your part if you are to succeed.
Just because passive income doesn’t require work, it doesn’t mean it doesn’t need work and money upfront!
Build passive income streams while you’re young and fit and can harness the power of compounding over time. By doing so, you set the stage for retiring young and wealthy. We feature success stories all the time on our website, of everyday people who retired at 29 or 32 or 36 based on their rental income.
But if you don’t learn how to make passive income while you sleep, prepare to work until you die.