Making money while you sleep with passive income
Hello Beautiful!
What is Passive Income?
According to the IRS passive income is defined as income that requires minimal work to generate and maintain.
There are some forms of passive income that require no work, just your upfront capital, and let the passive income flow.
Contrary to what many people believe most passive income options typically require upfront labor to get started. Once you have put in the work, and “primed the pump” you can reap the benefits in residual income – while you sleep!
Let’s take a look at 10 passive income options:
This first group of passive income options require no labor, and all upfront capital. If I were to say there is any work, it would be in doing your due diligence; please make sure you do your homework before making any investments.
- Dividend Stock – this is a classic. This is a publicly traded company that shares its profits with its shareholders through dividend payments. Dividend payments can be in cash or stock. When the dividends are paid in cash, the money will be automatically deposited into your account. Dividends are usually paid quarterly. A little homework: Dividend Aristocrats – these are a group of stocks represented on the S&P 500 that have increased dividends per share for at least 25 consecutive years. Look into them…
- Annuity – an annuity is a financial vehicle/contract backed by an insurance company that provides guaranteed monthly income payments for the rest of your life. Let me say this, an annuity is a very complex financial product. Again, please do your due diligence, and speak with an insurance representative to help you, if you are interested.
Now back to annuity basics. It is basically a retirement product. I like to call it “the personally funded pension.” Now I’m only hitting the highlights: you can purchase an immediate payment annuity, which means that based on your age and maybe some other factors, you will pay the insurance company a lump sum of money, then they will in turn pay you a monthly income for the rest of your life.
There is also the deferred annuity, you pay the insurance company a premium for a given period of time, typically 10-30 years, then at a set time you will begin to receive payments.
What happens if you pass away before your distribution, or before receiving payment equal to your contribution? In many of the annuity contracts today, you can name a beneficiary, and there are “riders” that you can attach to your contract to minimize risk. Doing your research on annuities is very important, as there are many types, and all annuities are not created equal.
That being said, I actually really do like the annuity product for people who do not have a traditional pension, nor do they have assets that can provide them income. (And that is a general statement). Be mindful to consider your whole financial situation when considering an annuity, and consult your financial provider.
- Peer-to-Peer Lending – the basic concept is that individuals can borrow money from other individuals using social/crowdfunding lending platforms such as Prosper and Lending Club, cutting out the middleman and financial institutions. You can loan someone as little as $100, or more. As the lender/investor, you make your money from the interest you’re charging your borrower. The default interest rates are usually higher than traditional financial institution rates. You are paid more, and there is an element of risk involved.
The next group of passive income options is real estate.
- Rental Property – investing in rental property takes considerable capital, and time, but also can be one of the most lucrative forms of passive income. With rental property there is a learning curve, and a lot of responsibility. This isn’t for everyone, but if you’re interested, learn all you can about real estate investing, the landlord/tenant laws in the area you want to own property, and the tax laws pertaining to rental property. It would be a good practice to have a team for when you need them: contractor, plumber, electrician, painter, and whatever other services you may need for running your rental property.
- Crowdfunded Real Estate – crowdfunding real estate allows individuals to raise capital for developers’ real estate investments. It is a way to invest in real estate without having the physical property. Two crowdfunding platforms are Fundrise and Realty Shares. Fundrise requires a minimum investment of $500, and Realty Shares require a $5000 minimum investment.
- REITs (Real Estate Investment Trust) – this is another way to own real estate without having the physical property. REITs purchase different types of properties, including apartment building, condominium complexes, office space, storage centers, retail outlets, and other commercial real estate. You can invest in REITs using a brokerage account and purchasing them within mutual funds, index funds, and ETFs (exchange traded funds). When rent is collected, the REIT distributes the collected rent to investors by paying out dividends. And the good news is that REITs are required to distribute at least 90% of their profits back to their shareholders/investors. Sounds good to me!
This group of passive income options can be costly upfront, and definitely require work to get started, but once they are set up, they are low maintenance, and they can produce a decent passive income.
- Low Maintenance Businesses – owning a parking lot, laundry mat, or vending machine operation.
With these passive income options it is a low capital outlay, and a little bit of labor. But if you enjoy these activities then this can be a delightful way to earn money.
- Licensing – photos, music, and recording audiobooks. You collect a small fee each time you license your “art” on royalty free websites that specialize in your talent.
This group is a modern passive income favorite. It is possible to get started with a little bit of money, but you will have to do some work. Although there can be a learning curve, it’s something many people can do if they’re willing to put in the effort.
- Digital Products – E-books, printables (artwork, planners, templates, etc), online courses, and APP creations. The last two, have a steeper learning curve and can cost a bit to get started.
Last, is to leverage your expertise and passion. Capitalizing on your knowledge and interest, and sharing with others.
- Content Creation – blogging and/or YouTube. They both can make money by participating in affiliate marketing programs, selling ad space, and brand sponsorships. Both are labor intense and could require your patience; it could take a while before you start to see your income flow. You really have to be willing to be consistent, and put in the work. But when you do, you are rewarded for your hard work. Even though you can generate a decent passive income, I feel that being a content creator is more about one’s passion for the subject (IMHO).
Well that is my list of passive income options for you to look into, see what works for you, and start your journey to making money while you sleep!
Here is a fact, we have two choices, we can work for our money, or put our money to work for us (yes, a third option – do both). The moral of the story is that the more your money works for you, the less you have to work for it – trading time for money.
I’ll leave you with a quote from my favorite investor:
“If you can’t find a way to make money while you sleep, you are going to work your whole life.”
– Warren Buffet
Sweet dreams!
Your sister,