December 9, 2022
Passive Income

Passive Income

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Introduction 

If you’re running a side business or just wanting to make a little extra cash each month, passive income can be a terrific strategy to help you generate extra cash flow, especially when inflation rates across the economy rise. When times are good, passive income can help you grow your income. Additionally, it might help you if you decide to take a leave of absence, are unexpectedly laid off from your job, or if inflation keeps eroding your purchasing power.

With passive income, you can have money pouring in even as you work at your primary job; alternatively, if you can establish a reliable passive income stream, you might want to take it easy for a while. You have more security either way if you have a passive income.

The idea of creating wealth through passive income may also appeal to you if you’re concerned about being able to save enough of your salary to achieve your retirement objectives.

We’ll delve into the definition of passive income in this article and provide several strategies you can use to start making money.

Passive Income
What is Passive Income?

What is Passive Income?

Regular revenue that does not come from an employer or contractor is known as passive income. The Internal Revenue Service (IRS) explains that passive income can come from either rental property or a business that a person is not actively involved in, like earning stock dividends or book royalties.

Many people believe that passive income is about receiving something for free, says former hedge fund manager and financial counsellor Todd Tresidder. Although it offers the possibility of “becoming rich quick,” in the end, it necessitates labour. You merely assign the work ahead of time.

In reality, you may perform all or part of the work up front, but passive income frequently necessitates more labour along the way. In order to sustain the flow of passive income, you might need to keep your product updated or your rental property well-maintained. However, if you stick with the plan, it may be a terrific method to make money and you’ll also increase your own level of financial stability.

Passive Income
Passive Income

Passive Income is Not –

Your employment – In general, passive income is not revenue derived from activities in which you have had a material interest, such as earnings from a job.

A second job – Taking on a second job won’t count as a passive income source because you’ll still have to put in the time and effort to be rewarded for it. Creating a steady stream of money without putting in a lot of effort is what passive income is all about.

Non-income producing assets – If you own assets that produce dividends or interest, investing might be a terrific way to create passive income. Even while dividend-free stocks or exciting investments like cryptocurrencies may be, they won’t offer passive income for you.

10 Passive Income Ideas – 

Check out these 20 ideas if you’re considering developing a passive income stream, and discover what it takes to be successful with each one while also being aware of the hazards involved.

1. Create a course – Making an audio or video course, then sitting back and watching the money stream in from the sale of your product, is a common method for generating passive income. Sites like Udemy, SkillShare, and Coursera enable the sale and distribution of courses.

As an alternative, you may think about using the “freemium model” to gain a following by providing free content and then charging for in-depth information or for people who want to know more. This paradigm may be used, for instance, to stock-picking advice and language instructors. The free material serves as an example of your skill and could draw people who want to advance.

Opportunity: A course can generate a fantastic income stream because, after the initial time investment, earning money is simple.

Risk: According to Tresidder, “The product requires a tremendous amount of effort to manufacture.” And it needs to be excellent in order to generate good revenue. There is no place for trash outside.

2. Write an ebook – Writing an ebook can be a clever way to take advantage of the affordable publication costs and even use Amazon’s global distribution to get your work in front of potentially millions of potential readers. E-books can be produced for relatively little money and for lengths of 30 to 50 pages because they depend on your own abilities. 

You’ll need to be an authority on a particular subject, although it’s possible that the subject is niche and calls for specialized knowledge or talents that few possess but that many people desire. The book may be designed rapidly, and you can test-market a variety of titles and price points online.

However, most of the value comes when you add more ebooks to the mix, bringing in more clients to your material, just like when developing a course.

Opportunity: An e-book can serve as a vehicle for directing readers to your other products, such as audio or video courses, other e-books, a website, or perhaps more valuable seminars, in addition to providing them with useful information and value.

Risk: Your e-book must be outstanding to attract readers, and it also helps if you have a marketing plan in place, such as a website that already exists, advertising on other websites that are relevant to your book, media appearances, podcasts, or something else. Therefore, you can put in a lot of work up front and receive little in return, especially at first.

While having an e-book is good, it will be beneficial if you write more and even create a business that is centred around the book or makes the book simply one component of your overall business that improves the others. Therefore, the biggest risk you run is generally wasting time for little gain.

3. Rental income – Renting out real estate is a good strategy to generate passive income. But oftentimes more effort is needed than people think.

According to John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles region and author of “The 7% Solution: You Can Afford a Comfortable Retirement,” if you don’t invest the time to understand how to make it lucrative, you risk losing your entire investment.

Opportunity: According to Graves, in order to get passive income from rental homes, you must decide on three factors:

  • Your desired rate of return on investment
  • The overall costs and expenses for the property
  • The costs associated with owning the property

For example, if your goal is to earn $10,000 a year in rental cash flow and the home has a $2,000 monthly mortgage and an additional $300 a month in taxes and other expenses, you would need to charge $3,133 in rent to reach your objective.

Risk: Take into consideration the following: Has a market emerged for your house? What happens if the tenant mistreats the property or pays late? What happens if you are unable to lease out your property? Any one of these factors has the potential to drastically lower your passive income.

Additionally, economic turbulence can present difficulties. While you still have your own mortgage to pay, you can find yourself with tenants who are unexpectedly unable to make their rent payments. Or, if revenues fall, you might not be able to rent the house out for as much as you once could. Additionally, rents might not be sufficient to cover your costs given that property prices have been rising swiftly, partly as a result of the historically low mortgage rates. To protect yourself, you should consider these dangers and have backup strategies in place.

4. Affiliate marketing –  Through the use of a link on their website or social media account, bloggers, social media “influencers,” or proprietors of websites can promote a third party’s product. Although Amazon is perhaps the most well-known affiliate partner, other well-known companies also include eBay, Awin, and ShareASale. Additionally, Instagram and TikTok have grown into significant venues for companies trying to expand their clientele and advertise their products. To draw attention to your blog or otherwise point people toward goods and services they might need, you might also think about building an email list.

Possibility: When a visitor clicks on the link and makes a purchase from the third-party affiliate, the website owner receives a commission. Since the commission could range from 3 to 7 percent, it will probably take a lot of people visiting your website for you to generate any significant revenue. However, you could be able to make a substantial chunk of money if you can grow your following or identify a lucrative expertise (such software, financial services, or fitness).

Affiliate marketing is viewed as passive since, in theory, you might earn money by just putting a link to your website or social media account. In fact, you won’t make any money if you can’t get website visitors who will click the link and finish the transaction.

Risk: If you’re just getting started, it will take some time to develop your audience and provide content. It can take a long time to gain a following, and you’ll need to figure out the best recipe for drawing that audience, which could also take some time. Even worse, after expending all that effort, your audience can decide to switch to the newest trend, influencer, or social networking site.

5. Flip retail products – Use internet marketplaces like eBay or Amazon to your advantage and resell items you find elsewhere for a discount. Arbitraging the price difference between your buy and selling prices can help you generate money, and it may also help you draw in clients who are looking for deals.

Opportunity: You’ll be able to take advantage of price differences between what you can find and what the average consumer may be able to find. This could work especially well if you have a contact who can help you access discounted merchandise that few other people can find. Or you may be able to find valuable merchandise that others have simply overlooked.

Risk: While sales can happen at any time online, helping make this strategy passive, you’ll definitely have to hustle to find a reliable source of products. Plus, you’ll have to invest money in all of your products until they do sell, so you need a robust source of cash. You’ll have to really know the market so that you’re not buying at a price that’s too high. Otherwise, you may end up with products that no one wants or whose price you have to drastically cut in order to sell.

6. Sell photography online – Selling photography online might not be the most obvious place to set up a passive business, but it could allow you to scale your efforts, especially if you can sell the same photos over and over again. To do that, you might work with an organisation such as Getty Images, Shutterstock or Alamy.

To get started, you’ll have to be approved by the platform, and then you licence your photos to be used by whomever downloads them. The platform then pays you every time someone uses your photo.

You’ll need photos that appeal to a specific audience or that represent a certain scene, and you’ll need to tease out where the demand is. Photos could be shots with models, landscapes, creative scenarios and more, or they could capture real events that might make the news.

Opportunity: Part of the value of selling or licensing your photos through a platform is that you have the potential to scale your efforts, especially if you can provide pictures that will be in demand. That means you could potentially sell the same image hundreds or thousands of times or more.

Risk: You could add hundreds of photos to a platform such as Getty Images and not have any of them really generate meaningful sales. Only a few photos may drive all of your revenue, so you have to keep adding photos as you search for that needle in the haystack.

It may require substantial effort to go out and shoot photos, then process them and keep up with the events that may ultimately drive your revenue. And motivation could be hard to maintain: Every next photo might be your lottery ticket, though it almost certainly won’t be.

7. Buy crowdfunded real estate – If you’re interested in investing in real estate but don’t want to do a lot of the heavy lifting (management, repairs, handling tenants and more), then another option is using a crowdfunding platform to invest in property. An experienced investing team picks out the real estate, and then you can decide to invest in it and how much you’re comfortable with.

You’ll pay an annual management fee to the real estate platform and have minimum investment amounts that could range from ten dollars to tens of thousands of dollars.

Opportunity: You can get access to private real estate deals that may be attractive, and they’ve been preselected by knowledgeable investors. You can check out the returns on the platforms, so you’ll have some idea of what level of returns you can expect and over what time frame. Real estate investments can also help diversify your portfolio, helping to smooth your returns.

Some platforms invest in equity (stock), while others invest in debt. Generally, stock offers high returns in exchange for more risk, while debt offers lower returns in exchange for less risk. Some platforms require you to be an accredited investor, with a certain minimum income or assets. Popular platforms include Fundrise, Yieldstreet and DiversyFund.

Risk: You’re on the hook to make your own investments on many crowdfunding platforms. So while past returns may look good, they’re no predictor of future success. And you’ll have to make the judgement call about what to buy. That means you’ll need to read the prospectus for every deal you’re interested in and understand the pros and cons.

In addition, real estate is typically funded with high levels of debt financing, making it more susceptible to any economic downturn. You’ll also want to understand how long your money will be locked up in the investment and when you can access it, especially in an emergency.

8. Peer-to-peer lending – A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Prosper or LendingClub. Other players include Funding Circle, which targets businesses and has higher borrowing limits, and Payoff, which targets better credit risks.

Opportunity: As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you could end up with nothing in the event of a default.

To cut that risk, you need to do two things:

Diversify your lending portfolio by investing small amounts over multiple loans. At Prosper.com and LendingClub, the minimum investment per loan is $25.

Analyse historical data on the prospective borrowers to make informed picks.

Risk: It takes time to master the metrics of P2P lending, so it’s not entirely passive, and you’ll want to carefully vet your prospective borrowers. Since you’re investing in multiple loans, you must pay close attention to payments received. Whatever you make in interest should be reinvested if you want to build income.

Economic recessions can also make high-yielding personal loans a more likely candidate for default, too, so these loans may go bad at higher than historical rates when the economy worsens.

9. Creating an app – Creating an app could be a way to make that upfront investment of time and then reap the reward over the long haul. Your app might be a game or one that helps mobile users perform some hard-to-do function. Once your app is public, users download it, and you can generate income.

Opportunity: An app has huge upside, if you can design something that catches the fancy of your audience. You’ll have to consider how best to generate sales from your app. For example, you might run in-app ads or otherwise have users pay a nominal fee for downloading the app.

If your app gains popularity or you receive feedback, you’ll likely need to add incremental features to keep the app relevant and popular.

Risk: The biggest risk here is probably that you use your time unprofitably. If you commit little or no money to the project (or money that you would have spent anyway, for example, on hardware), you have little financial downside here. However, it’s a crowded market and truly successful apps must offer a compelling value or experience to users.

You’ll also want to make sure that if your app collects any data that it’s in compliance with privacy laws, which differ across the globe. The popularity of apps can be short-lived, too, meaning your cash flow could dry up a lot faster than you expect.

10. Rent out a parking space – Do you have a parking space that you’re not using or that could be used by someone else? You could trade that spot for some cash. It could be an even better set-up if you have a larger area that could fit several cars or that would be useful for multiple events or venues.

Opportunity: In particularly high-demand areas or during high-demand times (for example, during a concert or sporting event), your parking spot could be worth real money. For example, if you live near a place that has frequent commuters but that is strapped for parking spots, you might have a money-maker on your hands. You might have the best chance of turning a profit by renting to someone who needs the spot on a daily basis, rather than for one-off events.

Risk: This idea might not be particularly risky, but you do want to make sure you aren’t violating any restrictions from your place of residence or other entity by renting out a parking space. It’s probably worthwhile having a disclaimer of liability as a condition of parking in your spot, too.

Passive Income
10 Passive Income Ideas
Which Passive Income Source is Best?

The question of which passive income source is best depends on several factors, but some of the most important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you need to invest and the potential to succeed. Typically, the lower the barriers to entry, the more crowded the field of competitors and the lower likelihood of success.

So you’ll need to weigh the opportunity against these factors and see which passive income strategy works best for you. But it can be helpful to have natural ability and an interest in your target area, because these can help motivate you in the early days when things are likely to be tougher.

There are passive income opportunities for people who are starting out with some money and even those who have no money to start.

How can I Make Income With No Money?

If you have little or no money to start, you’ll have to rely mostly on your own time investment to power you through, at least until you build up a little money. That means focusing on passive income sources that take advantage of the following traits:

An area where you’re an expert. Here you can build your expertise out into a useful product or service for consumers, e.g. design, software coding and others.

An upfront work-heavy opportunity. You’ll need an opportunity that requires a time or work investment, such as creating a course, building out an influencer profile or other options.

In effect, you’re substituting your time for your lack of capital, until you can get enough capital to expand your set of opportunities.

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