Passive income is a trending topic these days. And for good reason. After all, the idea of having income that is passive – that is, money that comes in without you having to actively do any work – is very tempting.
Here I share with you some online and offline passive income ideas. But before we get into that, I’d like to point out something important for anyone beginning in this journey:
Passive income is not free.
Basically, there are two ways to generate passive income:
- Investing money
- Investing time
Passive income is not free because you are going to have to invest either your money or your time, or most likely you will need to invest both. While you can create passive income investing your time only, you will likely need to spend a little bit of money on your way there. And while you can do it by investing your money only, you will still need some time to research your investments and educate yourself on whatever you decide to invest in.
I would also like to point out something else that is really important:
It takes time to build passive income.
One of the things that I criticise these days is this internet culture of wanting everything to happen fast. And this is something that I even catch myself doing from time to time. There are so many videos and articles teaching you how to become a millionaire in a month, how to shortcut your way into owning a successful business, and all sorts of different ways to hack the system. This is not the sort of advice that I’m going to give you.
While it is possible that some people were fortunate enough to build great businesses in a short period of time, the reality of building a solid financial foundation is not so glamourous. It takes time, persistence and discipline. Even if you invest in stocks that will pay you a dividend straight away, it is still likely to take time to build a portfolio that generates the amount of income that you want. And the results pay off in the long term.
Passive income generated by investing money
Here are some ideas of passive income that you can create by investing your money. As I mentioned before, you’re still likely to have to invest some of your time researching your investments and educating yourself. Some investments will be more passive than others, so it is up to you to decide how much time you are willing to put in as well as your money.
Dividend-paying stocks
I love getting dividends from time to time straight into my bank account. This is definitely one of my favourite types of passive income. It is easy to get started, you can simply sign up for a brokerage account and choose which stocks to invest in. I personally like to buy and hold individual stocks myself for the long term and have the dividend paid to me personally. Things to watch for: Make sure you do your research before investing in individual stocks and also watch out for those brokerage fees.
Index funds
Index funds are an easy and passive way to start building passive income. With index funds you will not have as much control of what individual stocks you are investing in, but you can choose which index you want to invest in. They generally have low fees and are truly passive (once you buy into them).
Peer to peer lending
Peer to peer lending can be more active or passive, depending on which platform you choose to use. Some platforms will require you to manually go through all the loans available and make the decision of who you would like to lend money to yourself. Other platforms will be more hands-off. Things to watch for: Make sure you know how much you are paying in fees, and if the platform offers protection to investors in case someone defaults on their payments.
Fixed interest assets
This is a bread category and can include CD’s, corporate bonds, government bonds, debentures, etc. When you invest in these assets you loan your money in exchange for a set interest rate that is paid to you at set intervals, and often a specific payback date. They usually don’t offer the best returns, but can be a safe and passive way to generate income.
Rental properties
Rental properties can be a nice source of passive income once you have done all the work upfront. This one is not usually a type of passive income that requires money only. You will need to put in a lot of work to find a property that will cashflow after all costs are accounted for. You will need to visit open homes, talk to real estate agents, do your maths and due diligence. More often than not you will also have to do some work on the property to make sure the property is up to standard and you can charge a fair price for rent. You will also have to do put in some work if you choose to rent the property yourself and ongoing work if you do not hire a property manager.
However, once you have done all this work, it can definitely make a nice “passive” income. Things to watch for: Make sure you take into account ALL COSTS when deciding if a property is likely to cashflow. This is because we are talking about cautiously investing for passive income, not about investing in the hope that house prices will rise.
Storage units
Investing in storage units are not as easily available as other types of investments, but depending on your area this can be a great option for passive income. The concept is similar to investing in rental property, but some of the aspects that make this type of investment attractive are that it requires low overheads, fewer construction/renovation costs and relatively low ongoing management. You can choose to build a storage unit yourself, purchase an existing one, or even invest in storage units REITs (Real Estate Investment Trusts, or Listed Property Trusts in NZ). This type of investment will likely require both money and time upfront.
Vending machines
Vending machines can be a good source of passive income once you do the upfront work required. You will need to invest both money and time buying the vending machines and placing them in strategic spots. However, once that work is done, they require little maintenance (not 100% passive) and can provide a nice passive income for a long time.
Passive income generated by investing time
Here are some ideas of passive income that you can create by investing your time. And again, as I mentioned before, you are still likely to have to invest some money as well. It is up to you to decide on a good balance of money/ time investment that works for you.
Royalties
Products that generate royalties can be a great source of passive income. They include songs, books, patented products, etc. The amount of income that you earn from royalties can vary greatly depending on the type of product you create and how it is sold. Creating products that generate royalties require a lot of work upfront but can provide a nice income stream in the long term.
Your own website
Websites can be a source of good source of passive income. There are many ways you can monetise a website, some more passive than others. The most passive ways are through advertising or affiliate links. In order to generate income through advertising or affiliate links, you will need to put a significant amount of work upfront. You will need to create good content and generate traffic. The good news is that you can do this with very little money, you just need a website and web hosting. Of course you can choose to invest more in paid traffic, but it’s possible to build a stream of income without investing in paid traffic, it’s just going to take time and effort.
You can also sell digital products on your website. Running an ecommerce store is not a source of passive income, but I don’t usually put selling digital products in the same category, unless the sole purpose of your website is selling products and not provide content. If you can generate traffic through good content and SEO your digital products can indeed be a source of passive income.
Youtube
Similar to blogging, creating Youtube videos can generate good passive income once you do all the work upfront. It takes A LOT of time to film and edit videos, and it takes time to build an audience. However, once you do have an established audience and a number of videos that generate value, they can provide you with passive income for a long time.
Just keep in mind that you will want to maintain your audience engaged so they keep coming back to your channel, and the work needed will most likely be ongoing.
Digital products – Etsy
Having an Etsy store is really having an ecommerce store, but on Etsy instead of your own website. The reason it made it to this list is because you can choose to sell digital or physical products. If you choose physical products, your source of income will most likely not be passive as you will have to constantly manage order fulfilment, but it can be if you choose to sell digital products (or if you have set up a print on demand service). Some ideas of digital products to sell on Etsy include planners, logo and branding, templates, pictures, etc.
As Etsy already has good traffic and people are actively searching for things, if your Etsy shop is SEO optimised and offering good products, this can really become a source of passive income – after the work required upfront.
Digital products – Amazon
Similar to having an Etsy shop, people are already searching for products on Amazon, so if choose this platform you won’t need to worry as much about driving traffic to your own website (although you will probably need to do at least some marketing). Some of the digital products you can sell on Amazon include books, music and art, including art which you can set up to be printed on demand.
Once you have good products, optimised product pages and some marketing strategies in place, you can create a nice stream of mostly passive income.
Digital products – TeachersPayTeachers
This one is not for everyone, but if you have a teaching background (like me) and enjoy creating worksheets and educational resources, it can be a nice source of passive income.
Just like with the other types of passive income listed here, it will require A LOT of work upfront, but once it is set up you can reduce your workload and still see those dollars coming in.
Just like with Etsy and Amazon, teachers are already actively looking for resources on TPT so you don’t need to work as hard as you would to drive traffic to your own website. It is up to you to decide how much marketing you want to do. Some teachers have blogs, other focus on social media, other do paid advertising on TPT. This can definitely be a source of “active” income, but it can definitely be passive as well.
Personally, I have had a TPT shop for about 5 years. In the past 1-2 years I have been busy with other projects and have not put in any work at all, but still make between $50 and $100 each month.
Not truly passive
I tried to keep this list as “passive” as possible. However, most types of passive income will still require maintenance after the upfront work. You will still need to check on your sources of income and adjust your strategy from time to time.
I would also like to add that there is so much on the internet about building passive income with an online businesses, either dropshipping or not, and I just want to say that online ecommerce is NOT PASSIVE income.
Even if you put a ton of work upfront, have your systems in place and are mostly cruising, if you have an online store you are going to have to constantly optimise, analyse data, advertise, analyse your ads, change strategies and add new products. And that is not even considering managing order fulfilment.
I’m not against having an online business, I actually think they can be quite fun. I’m just pointing out the fact that they are not passive – they are businesses and should be treated as such.
Another type of “passive” income that is NOT PASSIVE is renting out places on Airbnb. There is a lot of ongoing work required with cleaning and maintenance with Airbnb. They can be a good side hustle, but again, not passive income.
What is your favourite type of passive income? Let me know in the comments below!