Best Passive Income Ideas

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Who wouldn’t want passive income that flows in with little or no effort on your part?

Of course, we would all like to make money while we’re sleeping, traveling, or just relaxing.

Passive income may seem like an unrealistic dream, but there are actually a number of practical ways to make passive income. The key is finding the right opportunity for you. This article presents a list of the best passive income ideas that you can start using.

At first, you may only be making a small amount of money passively, and you may even want to reinvest that money so it compounds and grows faster. But with some time, it’s possible to create enough passive income that you could quit your job or even retire early and live off dividends.

What is Passive Income?

Passive income can be a bit of a divisive topic. In general, passive income is any money that you make with little-to-no effort. The money will flow in without too much being required of you.

Exactly what qualifies as passive income is up for debate. There are a few different types of passive income, and the options covered in this post will be broken down into the following categories:

  • Passive income from investments. Of course, you’ll need some money to invest in order to put these ideas into practice.
  • Passive income with effort up-front. You’ll need to put in the work up-front, and it may be a lot of work, but eventually, it can lead to an income-generating asset.
  • Passive income with no money and little effort. Believe it or not, there are actually some ways to make money without investing time or money.

Passive Income Ideas from Investments

Probably the best way to make passive income is to let your money do the work. Of course, you’ll need some money to invest in order to take advantage of these opportunities, although some of them can be started with very little money.

1. Invest in Dividend Stocks

Some companies consistently pay dividends to their shareholders. As a shareholder, you can reinvest the dividends to buy more shares of the stock, or take the dividends in cash. Reinvesting will allow you to own more shares, which leads to more dividends in the future (ideally).

The companies that consistently pay dividends tend to be large companies with a long track record of success. Because of this, these investments tend to be considered less risky than the stock market in general.

Dividend stocks can be a great investment regardless of whether you want to reinvest all of the dividends and hold on to the stock for a long time or use the income produced through the dividends.

2. Peer-to-Peer Lending

Peer-to-peer lending (or P2P) has become extremely popular in recent years. Borrowers and lenders can be matched up through a website or marketplace. Instead of going to a bank, the borrower gets a loan from an investor.

In some cases, the borrower might not be able to qualify for a loan through a traditional bank. And in many cases, the borrower gets a better interest rate than they could get from a bank. As an investor, you can earn a good return as well.

Each P2P website operates a little bit differently, but you will be able to see the credit grade or risk of a loan prior to investing. The higher the risk, the more interest you will earn, assuming the borrower makes all of the payments.

P2P lending can be a bit risky, but there is potential for a pretty good return on your investment. If you’re interested you should take the time to educate yourself and make sure that you understand all of the details. 

The most popular P2P websites include:

3. Real Estate Crowdfunding

Real estate crowdfunding websites allow you to invest in real estate without all of the headaches that usually go along with owning real estate. You don’t have any of the work, you simply invest and take on some of the risk.

There are countless real estate crowdfunding websites and there are several different types. Some allow you to invest in commercial properties. Others may specialize in large rental properties and communities. Others may focus on smaller properties that are being flipped. Some allow you to invest in individual properties, while others will allow you to invest in a portfolio of properties.

Many of these require you to be an accredited investor, but there are some good real estate crowdfunding sites for non-accredited investors.

This is a very popular investment because so many people want to invest in real estate but simply don’t have the time or desire to be a landlord. Also, in many cases, you can get started with a relatively small investment.

Some of the best real estate crowdfunding websites are:

  • Fundrise (open to all investors, $500 minimum investment)
  • RealtyMogul (their REIT is open to all investors, $1,000 minimum investment)
  • EquityMultiple (accredited investors only, minimum $5,000 investment)
  • PeerStreet (accredited investors only, minimum $1,000 investment)

4. Invest in REITs

REITs (Real Estate Investment Trust) offer another way to invest in real estate without the hassle of being a landlord. The REIT owns income-producing real estate like office buildings, apartment complexes, shopping malls, or hotels. REITs make it possible to invest in real estate on a small scale, and to earn a share of the income produced.

There are several different types of REITs. Some are publicly traded on a stock exchange, and some are not. REITs may also be in the form of mutual funds or ETFs.

If you’re looking for an easy way to get started with real estate investing, REITs can be an excellent choice.

5. Buy a Rental Property

Of course, another option for investing in real estate is the good old fashioned rental property. You could buy a condo, single-family home, or multi-unit property.

Owning rental properties can be a great source of income, but whether or not it is truly passive will depend on a few factors. The more properties you own and the more tenants you manage, the more time you will need to put into it. If you want it to be a passive investment the best option is to hire a property manager.

→ Related reading: How to Generate Income from Rental Property

6. Robo Advisors

If you want to put your money to work but you’re not comfortable picking and managing the investments yourself, a robo advisor could be a good fit for you. There are a growing number of companies offering these services. You’ll enter some information related to your age, goals, and risk tolerance, and they will handle the rest. Robo advisors are ideal for hands-off investors.

Blooom is a robo advisor that specializes in 401(k) accounts. You can get a free analysis of your 401(k) to see Blooom’s recommendations. If you choose to use their service it will cost you $10 per month, a fixed amount rather than a percentage of your investments.

Betterment is one of the most popular robo advisors. Betterment will lead you through personalized planning based on your personal situation, and then it will create a diversified portfolio and automatically rebalance it. The cost is 0.25% off your balance, annually.

In terms of being passive, it doesn’t get much more passive than allowing technology to do the work for you.

7. High-Yield Savings Account

Your first financial priority should be to build up an emergency fund that will cover all of your living expenses for a few months. But don’t put this money in a checking or savings account at a local bank that pays you a terrible interest rate.

You can open a high yield savings account or money market account with an online bank that will earn a much better return for you. This interest isn’t going to make you rich, but it will outperform (by far) what you are likely getting from a local bank.

My wife and I keep our emergency fund in a savings account with CIT Bank. CIT offers the best rates on savings accounts and money market accounts that you’ll find anywhere (20x the national average!). Opening an account with CIT is quick and easy, and can be done online.

8. CDs

CDs (certificates of deposit) are another very low-risk investment option. Typically, you can earn a h