The old saying “work smart, not hard” would suggest that the people who are the happiest or most successful are the ones who know how to maximize the value of their time and make money without having to give up every last bit of their energy. Especially in the age of computers and smartphones, it is absolutely true that earning some money without working too hard is a possibility – countless people are taking advantage of the opportunities provided by “passive income” streams to work less and earn more.
Passive income refers to money that a person or business makes without investing a lot of time in return. Clearly making money without working sounds great, but it is important that the correct passive income funnels are implemented so that the amount of money you make while not working can be as large as possible. While some passive income streams involve putting down money before beginning to earn, others do not require overhead capital. Because both types have their advantages and disadvantages, a business owner needs to consider their options. Here are some of the best ways to earn passive income – with and without the overhead.
How to Earn Passive Income & Make Money While You Sleep
Although passive income inherently does not require a long-term time commitment, some of the most lucrative forms of passive income do necessitate an upfront monetary deposit to get started. These forms of passive income, which require a varying degree of overhead capital, can be seen as investment opportunities as much as business options.
Passive Income Source 1: Interpersonal Business Dealings
– Online Peer to Peer Lending
With the rise of the internet and its ability to connect people all over the world came an unprecedented network of personal loan distributors via a system known as Peer to Peer Lending. Using P2P Lending, individuals who aren’t necessarily associated with a bank can give their own personal money to people or businesses who are looking to borrow.
As is the case with bank loans, the lender nets a profit from the interest that accumulates while they are waiting for the loan to be paid back. As soon as they have issued the loan, the lender has begun to generate passive income as they now must only sit by as the interest makes their money more valuable.
The caveat for P2P Lenders is that the loans aren’t always secured, and there is a possibility that the borrower could default. Nevertheless, assuming that a lender does due diligence to ensure that they are not lending to someone who cannot pay them back, they will most likely be good to lend without too much worry. In addition, because P2P loans are usually quite small (a fraction of the total desired borrowed money), P2P lenders will usually have enough small loans in their portfolio to be safe enough that if one defaults, the rest of them will most likely be fine.
For people who are interested in lending but don’t want to risk losing large sums of money, Peer to Peer Lending is a fantastic way to make passive income.
– Mutual Funds
Although Mutual Funds are historically not a way to amassing massive fortunes quickly, they are perhaps the most reliable of all methods on this list of passive income ideas. Regardless of what happens in the market, after the ebbs and flows are accounted for, stock prices tend to point upwards in the long term, meaning that the owners of shares in an Index Mutual Fund will make money.
Index Mutual Funds are groups of stocks that follow a stock index such as the Dow Jones or S&P. Because stock indexes almost always cover a number of large companies, the likelihood of a long-term plummet is highly unlikely even if a market crash causes a temporary drop in value. As a result, however, growth will usually only be visible over a long period of time, as the world’s largest companies rarely see a fast spike in stock price. In addition, because the profit margin is smaller, one will have to invest a significant amount of money in order to get a significant amount back; it would be essentially impossible for an index to explode in price overnight and bring investors a 10 to 1 profit.
Regardless, for those who have a significant amount of money that they wish to see grow over time without taking on a lot of risks, investing in index mutual funds is a solid option that requires zero effort once the initial trade has been made. As long as the overhead cost of purchasing the initial stock can be covered, Index Mutual Funds are perhaps some of the best sources of passive income.
– Passive Stock Ownership
Another investment strategy that isn’t terribly risky and promises solid passive returns is the purchase of blue chip stocks with the intention of collecting dividends. Although buying shares in a company that isn’t likely to increase its market size provides less of an opportunity for explosive asset growth in the way that real estate investment does, the collection of dividends is a passive income strategy that requires even less work than real estate.
While a real estate investor must oversee his or her assets at least to a small extent, the only thing that the collector of stock dividends must ensure is that they take care of the money that the company is giving them. Much like real estate, however, this form of passive income requires a decent amount of overhead (for purchasing the shares) and may take a long time to deliver a net positive return on investment.
Regardless, a person who is patient and willing to give up some money, in the beginning, will benefit in the long term when creating passive income streams through this road to wealth.
Although purchasing an annuity can be expensive (in order to see any decent-size returns), it is one of the most secure passive income streams in existence. Once someone has purchased an annuity, they can expect to receive a monthly/annual return on this initial purchase until the day they die or decide to sell the annuity.
Annuities, in short, are plans sold by insurance and investment companies that involve a customer placing a large amount of money in the hands of the company in return for a smaller sum of money which adds up over time. So long as the person is most likely not going to pass away within the next twenty years, they will earn a positive profit on their annuity as the annual return rate is usually around 5%. Unfortunately, this means that it will take around twenty years for the annuity to be a net profit and that a person who invests $1,000,000 dollars will only begin to see their money come back two decades later in sums of $50,000.
However, in regards to forms of passive income, almost nothing is as easy or reliable as an annuity. For people who want to see their money grow with minimal risk and have the patience to wait twenty years, purchasing an annuity is perhaps the most solid passive income strategy.
Much like annuities, CDs (or “certificates of deposit”) are low-risk, low-effort and relatively low-payback streams of passive income.
A CD is a long-term purchase in which the bank receives a sum of cash and the buyer earns interest on the money that they are giving the bank, much like how a normal bank account works. The difference is that the money in a CD is static and cannot be removed without a penalty until the agreed upon date. As a result, although CDs have less freedom than savings accounts, they are truly one of the more easy forms of passive income.
As is the case with annuities, owners of CDs are mostly people who do not want to face a ton of risk and are patient enough to wait years to get access to their money again. A key difference is that an annuity will return a variable amount of money as it depends on the lifetime of the owner, whereas the locked-in timeframe of the CD allows its owner to know exactly how much money they are getting when the waiting period is up.
Although it might not be the road to riches, investment in CDs is a quality option when it comes to long-term passive income opportunities.
Passive Income Source 3: Property Ownership
– Storage Space Ownership
As cities become ever more congested and space becomes more scarce, it becomes increasingly important to find places to store belongings for the average consumer. For this reason, owning a building of storage units is a great form of passive income that could become even more valuable as time passes. In addition, because these units are self-managed by the people who rent them, the owners have minimal responsibility and essentially must only worry about the transaction where they are making money.
Although this is obviously a very easy way to make money, the overhead costs of purchasing or creating such a building are very high, and the owner must also pay the costs of insuring the property of their tenant storage users in many cases. Assuming that their prices are high enough to cover these costs and low enough to attract customers, the storage building owner should have no real problem making money via this form of passive income.
– Purchasing Vending Machines
Although this might not be the most obvious way to earn passive income, buying and strategically placing vending machines can be a very profitable long-term venture.
Once the overhead costs are taken care of (usually ranging in the low thousands of dollars per machine), the only thing that the owners must worry about is paying the maintenance and stocking bills to keep the machine up and running. Because people can buy items from a vending machine regardless of whether or not anyone is around to process or oversee the transaction, the owner can only come to the machines when they wish to pick up their profits (or even hire someone to do this and never move an inch) if they please.
Additionally, because of the relatively low cost of installing a new machine, it isn’t difficult for owners to expand this business fairly quickly. There is, of course, the risk that the machines don’t yield any profit, causing the owner to sustain considerable losses, but considering the fact that snack foods and soda are a desired good across the country, it is reasonable to believe that the machines will at least result in some money being made.
Besides, so long as prices are set correctly, machine re-stockings will mean that sales are being made and an overall positive profit is headed the owner’s way. This form of passive income may not be right for everyone, but can definitely be a good money-making strategy for those living in areas with high population density and lots of physical cash flow.
– Real Estate Investment
Real Estate is not only one of the oldest types of investment in the world, but also one of the most popular ways of making passive income over a long period of time. Although buying the property that will then be rented out in a real estate deal might initially be expensive, those who are either patient or looking to take advantage of rising markets will oftentimes see significant profits off of their investments. Unfortunately, real estate values are very dependent on the state of the economy, so an economic downturn will result in great losses sustained by the owners of real estate assets.
Regardless, a real estate business that is run well can bring in almost effortless money to its owners who collect rent money from their tenants. Because of the fact that real estate businesses can be organized so that their owners can remain only tangentially involved, it is not difficult for investors to own a great deal of property assuming that they have the necessary capital available. This has resulted in magnates like President Donald Trump rising to the top of the real estate business and owning an incredible amount of property around the world. Because of the fact that real estate properties can be expensive but can be managed by someone other than the owner, real estate investment is undoubtedly one of the best and most long-term ways of creating passive income.
– Real Estate Investment Trust
A REIT, or Real Estate Investment Trust, is an alternative to traditional real estate ownership that is actually the more passive of the two. REITs are good for people who want to own real estate and to bring in a passive income stream but cannot give up the money or potential time to be the sole owner of properties.
This form of investment involves a group of people coming together to collectively invest in real estate properties that might be too big an investment otherwise. This allows more freedom in buying both higher quantity and quality properties.
The downside of REITs, as opposed to normal real estate investments, is that there are limitations to how much of the total collective a single person can own, limiting the profitability of the members to how much the group or director decides to invest.
With this being said, much of the risk of real estate investment can be taken away by opting for a REIT, as the collective assets can be spread across many properties so that the plummet of one does not ruin members of the trust. Because of the lack of effort and risk that a REIT holds in comparison to normal real estate ownership, it is a great form of passive income for risk-averse investors.
Overhead Not Required
Passive Income Source 4: Digital Content Creation
– Affiliate Marketing
Paying magazines, TV Channels and newspapers for advertisement space is nothing new, but with the development of the internet came brand new opportunities for advertising that were easier and more unlimited than ever.
These advertisements themselves can be a source of passive income. Through a process known as “affiliate marketing,” a company can get their links or product ads on another company/individual’s website in exchange for a commission or an advertisement fee.
This is useful not only to the advertiser because they can make a great deal of money (assuming that they can build up traffic on their site), but also because if their site is automated as is detailed above, they can bring in this cash without having to think about it on a daily basis. This tactic, while useful, is only limited in its passivity, however; if the website that is being used as an advertiser is a blog, it is important to continue updating the site with quality content so that it does not lose the internet traffic that merits it as a good place for ads in the first place (which will take upfront work to draw in at the beginning). In addition, the consumer might not always respond positively to excessive advertising on a website, so those who are utilizing affiliate marketing must be careful in the extent that they do so.
With this in mind, allowing other businesses to advertise or promote their product is and always will be a profitable internet business that does not necessarily have to require a great deal of upkeep. For those who are good at garnering social media support on a large scale, affiliate marketing is one of the best ways to generate passive income
– Creating a Service Website (programmed to do something)
The entire reason computers and programming exist is to automate processes that humans don’t want to have to do over and over again, so it is no surprise that one of the best passive income methods for tech-savvy people is to program a service that will help people out online. This could be anything from a certain kind of calculator to a video game – as long as the website serves a purpose and that purpose is deemed valuable by consumers, it will be considered a good place to continue visiting on the internet. Not only will internet traffic create opportunities for advertisement on the website (which will bring in revenue), but websites that provide a unique service can also require paid subscriptions for use, which is obviously a passive income stream that will not cease until the consumer loses interest.
The downsides of this form of passive income include the need to have adequate programming skills that can be difficult to master, and the potential need for updated content to keep consumers interested depending on what kind of website they are using. Nevertheless, with a relatively small amount of effort, programmers and business people who have a good strategy for their site can take advantage of this limitlessly profitable form of passive income.
– Creating a Mobile Application
The benefits of creating a mobile application are similar to that of designing a website but perhaps amplified even more; mobile apps are taking over the digital industry, leaving individual websites behind. In addition, an app that does well has a chance of being featured on the app store (for Android, iPhone, etc.) where it will appear on the front page and undoubtedly receive more traffic.
Many phone apps have both free and paid versions, which serve much like a demo in drawing in the users so that they want to get the full version and in doing so pay the app developers. Once the application is up on the store, it might receive occasional updates but is otherwise a now entirely passive income stream.
Although developing the app requires personal programming skill (assuming that an outside developer is not being used), mobile applications are already abundant in society and are only becoming more relevant, so learning how to code is a time investment that will undoubtedly be worth it.
Passive Income Source 5: Personal Sales
– Turning Your Home into an Airbnb
Airbnb, a relatively new company that has exploded all over the world into one of the more successful digital businesses of the last ten years, works like a short-term real estate broker for your home.
If there is a room in your house that you don’t use or you are going away for a period of time when the house will be empty, Airbnb’s mobile app can help you make money off of the empty space by allowing people to rent it out at a price that you set. This is a perfect way to make passive money without having to be too concerned with the fluctuations of the market.
The only real effort that needs to be considered is the upkeep of the rental space, which is not a big deal considering the fact that Airbnbs can make hundreds of dollars in a night. Two main downsides to this money-making strategy are that a person could potentially trash your house (which they can actually be held liable to pay for) and that there is the potential for criminals or dangerous people to be inside your home. As long as doors are kept locked and safety measures are taken, though, this most likely will not present any major problems.
For people who don’t want to have to buy more real estate property but like the idea of rental money, Airbnb is a great passive income opportunity.
– Buying/Selling Products Online
Although it may not be the most passive of options on this list, opening and managing an online store on a website like eBay can be a profitable venture for those who wish to be involved in sales but do not want to have to deal with paying for or keeping up a physical store location.
Granted, the owner of such a store will have to deal with the buying and selling transaction of their goods along with shipping them in and out of their possession, but this business model is undoubtedly a far more passive source of income than hiring and managing employees in an actual store that must also be overseen (and has the same aforementioned setbacks anyway). Online retail is becoming more and more prevalent with each passing year, so the benefit of owning an online store could be increased profit along with the convenience of being able to stay at home and work.
Although there is no guarantee that an online store will make a positive profit or even sell its goods, the owner of an eBay store can build a good reputation through customer satisfaction, quick service, and reasonable prices so that more people are drawn into their business.
Online retail is a great passive income option for someone who wants to be involved in business ownership and sales but does not want to deal with employee and property management.
Passive Income Source 6: Research-Based Payments
– Web-Search Payments (InboxDollars/Swagbucks)
One of the easiest ways to earn passive income is signing up for a web-browser application that tracks what you do for the purpose of keeping records of consumer trends. Companies that provide this service, such as InboxDollars and Swagbucks, do so at no cost to the person whose internet use they are tracking.
Because the users of web-tracking businesses have no obligation to use the internet more or differently than they did before signing up, the money that a person makes from registering and sticking with the company comes at literally no cost of time or effort, making it one of the easiest ways to generate passive income. Granted, the amount that a person will make from using these apps is small even for the most avid internet browsers, but the fact that there is no downside to participating means that the individual really is making free money.
A businessperson whose income comes in a significant proportion from passive streams will undoubtedly have other methods of making money aside from this one, but a wise consumer should undoubtedly add one or both of these applications to their browser in order to expand upon their portfolio of passive income opportunities.
– Survey Participation
The internet contains countless websites aimed at collecting consumer information that can then be sold to businesses, and many of these websites are willing to pay consumers for this information. As a result, many people who are the owners of a product or have used a service before can participate in surveys and research projects that involve that product and receive compensation in return.
While the actual survey itself might not be passive, the fact that the entire transaction is based around using a product means that participants can essentially go about their normal lives and use the product as intended before reviewing it online. These surveys and tests often do not pay large sums of money, but can definitely add up to a decent amount of passive income as a side job. In fact, if consumers become credible enough to begin their own review site or blog, businesses will often send their products to the reviewers for free in exchange for a review on the site for publicity.
This passive income opportunity is great for people who need a little money on the side and have the patience to fill out surveys in order to receive cash.
How to Choose the Best Passive Income Stream
In many cases, a company can expand its passive income portfolio only when the funds are available to do so. If you’re looking for passive income streams to help fund a different business venture, there are funding alternatives that don’t require great credit or a long operating history. Consider partnering with a factoring company that will advance cash on your invoices, eliminating the wait to be paid. Factoring is also a great option to fund any small business, including ones built on passive income.
Are you interested in learning more about factoring? Give us a call! We have factoring experts on hand ready to answer your questions.
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