When it comes to personal finance, one of the best ways to achieve financial freedom is by building passive income streams. Warren Buffett famously said, “If you don't find a way to make money while you sleep, you will work until you die.”
Of course, you don't need to quit your job to create passive income. It's an excellent way to generate extra cash flow, whether you're trying to build it as a significant hustle or want to stay in your primary job.
If you're thinking about earning passive income, you might find it helpful to consider various passive income ideas. This post will cover 21 of the best passive income strato help to help you make
Most of these passive income ideas will require an upfront investment but, if managed well, will pay you dividends for a long time. Use this list wisely, and you can start building passive income streams today.
What Is Passive Income?
Before getting into various passive income ideas, it's essential to understand what passive income is. The IRS defines passive income as money earned from a rental property, limited partnership, or any other trade in which the person is not actively involved.
In recent years, though, the term has grown to represent any form of income generated consistently, with little to no effort being put in by the recipient of the money.
Though to many, passive income may sound like a “get-rich-quick” type of deal, building up the streams of cash flow still requires a lot of work. Compared with active income, though, most of the work is done upfront.
If you're considering establishing passive income for your future, don't expect it to be easy. Due to how sought-after passive income is, you'll need to work extra hard to acquire and maintain suitable passive income investments.
That being said, if you're committed to making passive income, it can be a great way to give you some extra cash and provide you with another layer of financial security.
21 Best Passive Income Ideas
If you're considering creating a passive income stream, check out these 21 ideas below for starters. Each one will have its unique advantages and disadvantages, but they can all work to generate great passive income.
Invest in Dividend Stocks
One way to build passive income quickly is by investing in dividend-yielding stocks. Certain companies on the public market offer dividends, a type of periodic payment, to reward stock investors. All you need to do to participate is own the stock (the more you own, the more you'll get in dividends). A great way to build wealth over time is to slowly start buying dividend stocks and reinvest the dividends, compounding your cash flow.
- Investing in dividend stocks doesn't require work other than the upfront financial investment, making it an extremely passive asset.
- Dividends don't take away from the principal of the investment, meaning you can use the dividends to reinvest into the same stock (or other stocks), giving you more chances at growth.
- Investing in stocks inherently has risks, and using dividend-bearing ones as a passive income idea is no different. When you buy a dividend stock, there is still the chance that the price tumbles to zero and you lose all your money.
- Building real, usable cash flow with dividend stocks requires an immense amount of time and/or capital, to begin with. Because dividends pay so little, dividend stock investing is a long-term strategy (not a “get rich quick” deal).
Own Rental Properties
Robert Kiyosaki's favorite passive income stream, real estate investing, is a popular way to build long-term wealth while also providing you with cash flow. As one of the best forms of passive income, rental income offers you the ability to take advantage of appreciation and cash flow. If you can find an excellent rental property to buy, it could start paying for your bills on day one and continue to benefit your family for generations to come.
- Because of leverage (taking out a mortgage for the property), the returns on the appreciation of the rental property are amplified.
- Depending on how good of a deal you get, you can buy rental property and earn significant cash flow right from the get-go.
- Due to the leveraged nature of real estate, when an investment goes wrong, it can seriously damage your financial health (potentially even bankrupt you).
- Though real estate seems passive on the surface, much work actually goes into managing rental properties.
Buy Certificates of Deposit (Cds)
Investing in certificates of deposit (CDs) offers you an easy and low-stress way to generate passive income. A certificate of deposit is simply an asset offered by banks and credit unions that provide you with an interest payment as long as you agree to make a lump-sum deposit that you won't touch for some time.
When looking for CDs, make sure to shop around as (unlike other asset classes) returns can vary significantly from vendor to vendor. An online bank may offer up to three times higher rates than a traditional brick-and-mortar bank.
- Because of their official nature, CDs are highly secure, and you're unlikely to lose any money by investing in them.
- Sometimes, online banks make certain offers that can boost your returns drastically with CDs.
- The interest rates offered on CDs are usually relatively low, meaning it's hard to create usable cash flow without already having a solid chunk of capital.
- In some years, the interest rates don't beat inflation, meaning CDs can sometimes have a negative “real return.”
Open a High Yield Savings Account
If you're not so fond of the lack of liquidity in CDs, consider opening up a high-yield savings account instead. You can do so at one of the central banks or through an online bank. With a high-yield savings account, you can leave your money in the bank and earn interest without locking up your capital.
- You can take your money out of the account whenever possible, ensuring liquidity.
- A savings account is highly secure as the bank's resources usually back it.
- The interest rates on savings accounts are usually very low. A savings account probably won't cut it if you're trying to earn the passive income you can live off.
Start a Blog
One trendy passive income idea is to start and run a blog.
Do you have a passion for a subject? Perhaps you have a specific niche that you're an expert in? If so, starting a blog could be a great way to build an online asset while providing you with cash flow.
In the beginning, you'll need to devote lots of time and energy to it to build up a sizable audience, but once you have many readers, you can monetize and start earning all those costs back.
- A blog is low cost and affords you many work-from-home opportunities that a 9-5 job otherwise doesn't.
- The growth of online entities is usually exponential, so you can expect to see an explosion of growth if you're successful.
- A blog takes lots of time and effort to succeed. In the first few years, expect not to make any money (or even be out of pocket a couple of hundred dollars) before you start generating some cash flow.
Invest in Reits
If you're too scared to invest in real estate directly, an excellent alternative to consider is a REIT. REITs are Real Estate Investment Trusts, basically, companies that own and manage real estate. By buying shares of the Real Estate Investment Trust, you are providing your money for them to use to purchase public and private real estate, and you'll be compensated in the form of high dividends.
- REITs are easy to buy on the public market and offer an easy way to get started in the real estate world.
- Some REITs offer consistently high dividends, meaning you'll have lots of room to compound your growth and earn passive income immediately.
- Just like regular stocks, how much money you make from a REIT depends on the direction of its stock price. If it tumbles, then so too will your earnings.
Invest in Private Equity Funds
Investing in private equity could be lucrative if you have tons of money and are looking for a way to deploy your capital. Private equity firms buy businesses, make them better, and sell them later.
You can partake by signing up as a Limited Partner and letting the private equity firm use your money (in exchange, you get a piece of the return).
- Successful PE firms can earn you up to 20% or even 30% on your investment.
- PE firms are highly passive, and you don't have to do much to partake (other than make an upfront investment and attend annual meetings).
- It would be best if you were an accredited investor to invest in asset classes like private equity. This means you already need a ton of money to your name. If you're starting your wealth journey, private equity is not available, but it could prove a valuable asset later on.
Write a Book
One of the most passive forms of income is money from writing a book. All you need to do is write the book, and if successful, you'll earn a few cents on every single copy sold from the day it's published to the day you die.
Nowadays, there's an audience for almost any topic, so if you have something you desperately want to write about, there are sure to be buyers for it.
- Writing a book is both a wealth-building and a knowledge-building activity. As you write, you'll learn more about specific topics of interest.
- Having a book to show for your efforts can be highly gratifying and provide you with a sense of accomplishment that's hard to replicate elsewhere.
- Writing a good book takes time, and if you're looking for a way to make passive income instantly, you'll be highly disappointed.
License Royalties Through Music
Like the income from book writing, you work hard to earn royalties, but once you have it, it will provide you with cash flow forever.
If you're musically inclined, you can create music and license it to YouTube channels, Twitch streamers, or TV commercials.
- Music creation for royalties has a low barrier to entry, and almost anybody can partake. If you can create music, you can start earning money right away.
- For many people, music is a passion, and licensing royalties can be a way to enjoy their passion while making money off it.
- The competition for music creation is steep, and there are some big fish out there that you need to beat to earn consistent and sustainable passive income.
Start up a Podcast
If you love talking and have irresistible charisma, consider starting a podcast to earn passive income! Like a blog, you can earn money via affiliates, advertisements, or selling your products. Who knows, maybe you'll get as big as Joe Rogan or Bigger Pockets one day.
- Podcasting is easier to get started now than ever before. You can quickly search online for the best microphones and start your podcast immediately.
- You'll get to meet many incredible people on your podcasting journey who can provide you with even more opportunities.
- Similar to a blog, a podcast takes time to grow. There will be frustration along the way, and the first few years will likely have little/nothing to show for them.
Create and Sell a Course Online
Do you have a specific skill that's highly sought after? Are you comfortable sharing this skill with the world? If so, you might consider creating a course and using it to make money online.
You can do this through sites like Coursera, Udemy, Skillshare, or your blog/podcast. Another alternative is to run a freemium model, making specific lessons/content accessible but then charging for more advanced topics.
- With an online course, you put in all the work upfront, then (ideally) sit back and reap the rewards of your labor.
- The best side hustles are borne out of passion. Creating courses for them can feel gratifying and fun if you're genuinely interested in specific topics.
- There's a lot of competition out there for online courses. Your course must be excellent for you to have a shot at generating usable passive income from it.
Sell Stock Photos
Do you have a knack for photography? Are people always impressed by the pictures that you take? If so, you could potentially make a killing selling stock photos.
You can either go through organizations like Shutterstock, Alamy, and Getty Images or decide to sell your photos online (through your social media or your blog). You get to keep all the profits when you sell your photos. With more prominent organizations, you get some money every time someone purchases your photo, and the organization gets a cut too.
You can take photos of almost anything: newsworthy events, landscape photos, or even your feet.
- If you're good at marketing, you could scale your work over time and earn exponentially more as you grow. You can even take the same photograph and sell it thousands of times.
- If photography is your passion, you can have fun while building your portfolio and your passive income over time.
- Photography is a highly hit-or-miss industry. In other words, you can produce hundreds of photos and have only one or two generate meaningful sales. Maintaining motivation with this kind of business model can sometimes be challenging.
Sublease to Your Roommates
One of the simplest ways you can begin earning some passive income immediately is by renting out a portion of your house to roommates.
For many people, the rent can cover substantial mortgage payments, and some housemates even offer to pay for utilities. Renting out a part of your house is a great start, especially if you're looking to buy actual rental properties eventually.
- Subleasing a portion of your house to roommates is extremely easy to start, and (with the housing market so hot), you'll have no lack of tenant supply.
- Because of appreciation in real estate, every dollar you earn that you put towards your mortgage is earning much more down the line.
- Renting out rooms can be challenging, and if things go sour between you and your tenants, it can be hard to get rid of them.
Buy a Pre-existing Business
If you have the capital to do so, buying an existing business could give you all of the benefits of being a company owner without the hassle of having to start a business.
You'll need to do a ton of research into which industry you want to own a business in. Then, you'll also want to research which business to buy. Not all businesses are passive, and if you choose the wrong one, you could be buying yourself a very stressful job. Some popular business types to get started are car washes, laundromats, and storage facilities.
- Starting a business from the ground up is hard. By buying an existing one, you don't need to go through all the stress, trouble, and late nights you would otherwise have if you started your own company.
- There are tons of businesses in every single industry available for buying. You have many options to browse to find the right business that suits you best.
- Businesses are expensive, to say the least, so you need a fair bit of capital to take advantage of this passive income stream.
- Some businesses are more passive than others. It would be best if you did lots of research to ensure the business you're buying is passive and can sustain itself far into the future.
Do you have a technical inclination toward coding? Or maybe you see a need in the market that a program could fulfill? If so, you can write software (or hire someone to write software) and earn passive income.
“Software” can include mobile apps, online applications, WordPress plugins, and many other digital properties. After coding the software, you can offer it via a freemium or subscription model to earn consistent cash flow.
- With the digital world growing exponentially, there are more and more opportunities for helpful software to be written.
- Writing software can be done anywhere, as long as you have a computer. You could be traveling the world or sitting on a beach and still manage to build this stream of passive income.
- The downside of the growing digital world is that things are constantly changing. Your software may be super successful in its first few years, then completely lose traction as the world shifts in a different direction.
Rent Out Rooms With Airbnb
If you want to generate some income via real estate, but don't feel comfortable renting to a full-time tenant, consider renting out rooms for a limited period with Airbnb.
The great thing about Airbnb is you can choose how long you want to rent for and how much of your house you want to use. You can offer month-long basement rentals when you're not too busy or rent the whole house out for two weeks while on vacation. The opportunities are endless.
- You have lots of control over various factors when you rent with Airbnb.
- If you have a house (or space to rent out), you can earn a decent income immediately.
- It can take some time and energy to get your living space “rent-ready.”
- Though you don't need to suffer the hassle of long-term tenants, that means constantly trying to rent out your space (adding an active element to the investment).
Rent Out Personal Stuff
Did you know that nowadays, you can rent out almost anything? If you have idle household items sitting around your home collecting dust, consider renting them out!
These items include lawnmowers, power tools, tents, large coolers, or even your car. Try to identify high-value items that people would only need for a short period but wouldn't necessarily consider buying outright.
- You can start small and slowly work your way up once you get the hang of it.
- With renting out items for one-time use, you'll quickly recoup the total cost after just a few rentals.
- There's the possibility that the item you're renting gets damaged or stolen. This could be a massive issue if you plan on doing this on the side (and don't want to set up an entire corporation for it).
Start an Etsy Shop
Etsy offers one of the easiest ways to start an online business. You can start selling your items immediately without the hassle of setting up a website and doing all the marketing yourself.
This idea could be incredibly passive if you're not making crafts but selling online digital prints or pdfs.
- Etsy is a legitimate company, and it's growing. There's no better place to be if you want to take advantage of the rise of e-commerce.
- This income stream could be highly passive if you sell digital products. You only need to create the product once, and you can sell it infinite times.
- Due to Etsy's success, the competition is exceptionally steep, and you'll need to make sure your products stand out if you want to make some money.
Start an E-commerce Store
Nowadays, you can sell anything as long as you have the internet and a determination to succeed. Find your area of expertise and connect with suppliers to sell your products.
The best part? You never need to see the products or ship them yourself. You can hire a drop shipping company to handle all the logistics for you (and make your venture even more passive).
- There is an extremely low barrier of entry for selling things online. Many producers take an existing product, jazz it up, and resell it for a profit. You don't need to become a social media influencer to sell stuff online profitably.
- There are tons of suppliers out there to fulfill your needs. If you have an idea, you don't need to worry about not having the resources to see it through.
- With so many vendors on the internet, it can sometimes be hard to differentiate yourself. You must ensure your product brings actual value to your customers if you want a consistent income.
Lend on Peer-to-Peer Platforms
Unlike a bank loan, a peer-to-peer loan (p2p) is made directly between you and the borrower. These loans are usually facilitated through third-party intermediaries like Funding Circle, Prosper, and LendingClub. Because the bank doesn't secure these, you can earn a decent interest rate on your money without having to do much at all.
- You can lend on various platforms and slowly narrow down which works best for you over time.
- The interest rates you can earn on peer-to-peer lending are comparable to the stock market's returns (way higher than the interest rates on CDs).
- There is the risk that the borrower you lend to defaults on loan, and you get nothing.
- Since you need to screen new loan opportunities constantly, the income stream still requires some work to maintain and isn't entirely passive.
Write an Ebook
Writing an ebook is one of the best ways to generate passive income. An ebook can be short (30-50 pages), extremely cheap to create, and about something in which you have genuine expertise. Every time a person downloads your ebook, you earn some money, meaning you can make passive income for years.
The cost of publishing is lower than ever, and with an ebook, you can even leverage platforms like Amazon to get your book seen by potentially millions of people.
- Not only can you earn money through your ebook offering, but you can also drive traffic to other endeavors (like your blog or other products).
- Since ebooks are so easy to write, you can figure out what works quickly and build your library of ebooks over time.
- There is a ton of competition in the book-writing world, so you'll need to ensure that your ebook is the absolute best work for it to get noticed and for you to build a following.
Other (Less Passive) Ways To Make Money
Here are some ways to make and save semi-passive money:
- Use cash-back rewards credit cards (and pay it off on time every time).
- Invest in crowdfunded real estate.
- Start a YouTube channel.
- Sell designs online / sell digital files.
- Download and use cash-back apps.
Recap: Passive Income Ideas
One of the most critical aspects of achieving financial freedom is figuring out how to generate cash flow while sleeping. Passive income is one popular way to do so. Though it's true that to earn passive income, you need to commit an upfront financial investment and sometimes even an upfront time investment, a solid passive income idea can help you minimize these resource spends.
This post has given you 21 of the best passive income streams. Though it might seem overwhelming to have so many options, the great news is that you don't have to stick to just one source to generate passive income. Millionaires reportedly have seven different streams of income.
Ensure that your new efforts at generating passive income don't impede your current income streams. A balanced effort and keen awareness of your abilities will give you the best chance of succeeding at building profitable passive income streams.
This post originally appeared on Wealth of Geeks.
Jeff is a current Harvard student and author of the blog Financial Pupil who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.