Passive income is highly sought after and often misunderstood.
Passive income streams require an upfront investment and a lot of nurturing in the beginning. After some time and hard work these income streams start to build and are able to maintain themselves, bringing you consistent revenue without much effort on your part.
Speaking from personal experience, adding passive income streams to your portfolio can help you increase your earnings and accelerate your financial goals in tremendous ways. For example, getting started with real estate with Fundrise for just $500 can accelerate your income and your other goals.
For example, you can use passive income streams to help you get out of debt or achieve financial independence sooner.
If you want to get started earning passive income here’s what you should know first.
Bonus: Right now, Discover Bank is offering up to a $200 bonus when you open a new account and complete qualifying activities. Plus, Discover Savings earns up to 0.50% APY. See advertiser website for full details. Open an account here >>
If you want to skip straight to the ideas, here you go:
What It Takes To Earn Passive Income
Before we get into the passive income ideas I think it’s a good idea to first clear up a couple of misconceptions. Although the word “passive” makes it sound like you have to do nothing to bring in the income this just isn’t true. All passive income streams will require at least one of the following two elements:
1) An upfront monetary investment, or
2) An upfront time investment
You can’t earn residual income without being willing to provide at least one of these two. Because it’s important to remember what passive income is NOT. Passive income is not your job, it’s not freelancing, or working online. Passive income is doing something once, then earning rewards from it into the future.
Today, I have a big list of passive income ideas you can try regardless of the category you fall in.
Check out the video on passive income ideas here:
Passive Income Ideas Requiring an Upfront Monetary Investment
These types of passive income require you to invest money up front to generate the passive income later. Don’t be alarmed though – you can start with as little as $5 with some of these ideas, so it’s achievable for everyone.
1. Dividend Stocks
Dividend stocks are tried and true way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time.
For any of these investment opportunities, make sure you open an account at the best online brokerage, and get rewards while doing it.
Our favorite place to invest is M1 Finance. You might not have heard of M1 Finance, but it’s a FREE investing platform that allows you to build a portfolio, and invest in it for free.
This is amazing for investing in dividend stocks because you can build your portfolio of, say, 30 stocks. Then, your investments will be auto-allocated to your entire portfolio every deposit – for FREE! You can even auto-rebalance. Then, your dividends can also be reinvested. It’s a fantastic platform, and it was made for this. Plus, M1 Finance was an honorable mention on the best places to invest for 2022!
Read our full M1 Finance review here.
Open an IRA at M1 today >>
2. Rental Properties
A cash flowing rental property is a fantastic way to bring in a monthly income. To make this truly passive you can outsource the running of the properties to a management company.
However, the internet has made investing in rental properties easier than ever before. There are a lot of ways you can invest in rental properties depending on what your goals and interests are. You can be a limited partner in large residential or commercial properties, or you can buy homes and be a landlord – all online!
Invest In Single Family Homes
If you’re looking for a more traditional path to real estate investment, check out Roofstock. This company allows you to buy cash-flow positive single family rentals – online! You can sign up and start searching properties today. Check out Roofstock here.
The great thing about using a platform versus doing it yourself is that the income is even more passive. Check out our full Roofstock review here.
Invest In Larger Developments
Do you not want to be a landlord, but still want real estate exposure and income? Then consider being a limited partner in a large development. With these options, you can invest in multi-family or commercial properties. You get the income and tax treatment just like regular real estate ownership, but you don’t do any of the work!
Our favorite platform for this is RealtyMogul because you get the flexibility to invest as little as $1,000, but can also participate in REITs and private placements – typically not offered to the public. Investors can fund real estate loans to gain passive income or buy an equity share in a property for potential appreciation. Their platform is open to both accredited and non-accredited investors.
Read our full RealtyMogul review here.
Invest In Farmland
Farmland isn’t sexy, but it has a lot going for it when it comes to real estate investing. It’s slow, steady, pays consistent rent, and everyone needs to eat. Plus, compared to other types of real estate its much less volatile. There’s two major companies that allow you to invest in farmland. FarmTogether and AcreTrader.
We recently did a behind the scenes review of our own AcreTrader investment, and you can watch the AcreTrader review video on YouTube.
Check out our reviews and get started:
- FarmTogether Review
- AcreTrader Review
For Accredited Investors
One of my favorite ways to get started with rental properties is through EquityMultiple. Similar to LendingClub, you can start investing in real estate for as little as $5,000 at platforms like EquityMultiple.
This platform has a nice mix of smaller residential to mixed use residential and commercial properties. Read our full EquityMultiple review here.
3. High Yield Savings Accounts And Money Market Funds
If you don’t want to think much about your money, but want it to work for you, a basic place to put it is in a high yield savings account or money market fund.
The difference is in the account type and where it’s located. Typically, high yield savings accounts are located at banks, and are FDIC insured. Money market funds can be located at both banks and investment companies, and are only sometimes FDIC insured.
Interest rates have been rising, so putting more money into a savings account can generate a safe passive income stream.
Discover Savings consistently has a compelling savings account offer, with a 0.50% APY and no fees, and FDIC insurance. Check it out here >>
If you want the most up to date rates on savings accounts and money markets, check out these lists that we update the rates daily on:
- Best High Yield Savings Accounts
- Best Money Market Accounts
- Best Bank Account Bonus Offers
4. Crypto Passive Income Opportunities
Over the last year, crypto savings accounts have become very popular – simply because they provide much higher rates of return on your money. It’s important to note that these aren’t really “savings accounts”. These are investment and lending accounts that allow you to earn a high yield on your crypto “easily”.
Some popular options are Hodlnaut and Celsius. You can earn upwards of 12.5% on your money at these places, but there are risks. Check out our full guide to Crypto Savings Accounts here.
You can also look at staking your crypto, lending your crypto, and even buying NFTs. There are a lot of opportunities to earn passive income with crypto – we put together a full guide here: How To Make Passive Income With Crypto.
5. CD Ladders
Building a CD Ladder requires buying CDs (certificates of deposits) from banks in certain increments so that you can earn a higher return on your money. CDs are offered by banks and since they are a low risk investment they also yield a low return. This is a good option for the risk averse.
For example, what you do if you want a five-year CD ladder is you do the following. Look how the rates rise over different time periods (these are estimated):
- 1 Year CD – 2.50%
- 2 Year CD – 2.90%
- 3 Year CD – 3.05%
- 4 Year CD – 3.10%
- 5 Year CD – 3.15%
If building a CD Ladder sounds complicated, you can also stick to a traditional high yield savings account or money market fund. While the returns aren’t as amazing as other things on this list, it’s better than nothing, and it’s truly passive income!
We recommend building a CD Ladder at CIT Bank because they have one of the best CD products available. High rates and even a penalty-free CD option (which currently earns 0.30% APY). Check out CIT Bank here.
Check out these great deals on the best high yield CDs on our full list of the best CD rates that get updated daily.
Annuities are an insurance product that you pay for but can then provide you passive income for life in the form of monthly payments. The terms with annuities vary and are not always a great deal so it’s best to talk to a trusted financial advisor if you’re interested in purchasing an annuity.
These investments aren’t for everyone – they can come with high fees, and not be worth it. But if you have zero risk tolerance for loss, and are looking for a passive income stream, this could be a good potential idea for you your portfolio.
7. Invest Automatically In The Stock Market
If you’re not interested in picking dividend paying stocks (and I can understand that), there are still ways to invest passively in the stock market. You can automatically invest in various ways through what’s called a robo-advisor.
A robo-advisor is just like what it sounds like – a robotic financial advisor. You spend about 10 minutes answering a few questions and setting up your account, and the system will take it from there.
The most popular robo-advisor is Betterment – which you can setup to automatically invest in and they will handle the rest for you. What’s great about Betterment is that they charge one of the lowest fees in the robo-advisor industry, and they make it really easy to invest automatically.
Plus, Betterment was recently named one of our top picks for the Best Robo-Advisors For 2022. They offer a great service plus you can get advice from a real human, which is awesome.
Plus, Betterment is currently doing a promotion where you can get up to 1 year free! Read our full Betterment review here.
Sign up for Betterment here and get started investing for a passive income!
8. Invest In A REIT (Real Estate Investment Trust)
If you’re concerned about investing directly in real estate, or maybe you’re not yet an accredited investor, that’s okay. You can still take advantage of real estate in your investments through REITs – Real Estate Investment Trusts.
These are investment vehicles that hold property within them – and you as the owner get to benefit from the gains, refinances, sale, income (or loss) on the property.
Our favorite platform to invest in a REIT is Fundrise. They only have a $500 minimum to get started and offer a variety of options we love as well!
Check out our full Fundrise review here.
9. Invest In A Business
Another way to generate passive income is to invest and be a silent partner in a business. This is very risky, but with risk comes the potential for high returns. For example, several years ago both Lyft and Uber were looking for private investors to invest in their companies. Today, they are worth billions – but you as an investor would only reap that benefit if they go public via an IPO, or get acquired. So, it’s risky.
But there are ways to reduce your risk. For example, you can invest small amounts in many companies through lending them money in small bonds.
There are now tools available where you can loan money to a business and get paid a solid return for doing it!
Revenue Sharing Notes
MainVest is a company that allows you to invest in a business who agrees to share a percentage of their future revenue until their investors receive a return on investment. You can start investing in businesses for as little as $100, and you get repaid your principal and interest over time. Read our full MainVest review here.
Lend To Businesses For Inventory
Worthy – Invest in bonds that yield 5% annually. They take your funds and lend it to small businesses. Check out Worthy here and get started for as little as $10. Read our full Worthy review here.
10. Invest In Student Income-Share Agreements
An Income-Share Agreement (ISA) is an alternative to student loans. By using an ISA, a student’s tuition is paid for in exchange for a percentage of their future income.
Who is funding these ISAs? Private investors and universities fund them. Investors basically take a bet on a student’s future.
You see these most commonly at coding academies and trade schools, but they are growing in popularity.
Edly is a company that allows you to invest in ISAs. They have two options – one you can invest directly in a note, and the other in a fund that they use for future notes. Depending on timing, there might not be any open notes available in to invest.
You must be an accredited investor to invest, and there is a $10,000 minimum. However, they are targeting 8-14% returns, which is awesome. Read our full Edly review here.
11. Refinance Your Mortgage
This may sound strange in a passive income article, but refinancing your mortgage can be a great way to free up a lot of income and save you $100,000s over the life of your loan. That’s a pretty good gain in my book.
Right now, interest rates are still near historic lows, and if you haven’t checked out your mortgage lately, now’s a great time to shop around and compare rates. If you can save 0.50% or more on your loan, you’re potentially adding tens of thousands of dollars back into your pocket. Not many investments can beat that.
We like using services like LendingTree to compare the best rates. You can also check out these online mortgage lenders.
12. Pay Off Or Reduce Debt
Along the same lines as refinancing your mortgage, if you can pay off or reduce your debt, you’re making huge progress in building income. But just like other things in this topic – it takes a monetary investment to make that happen.
The great thing about paying off debt is that it’s a straight return. If you have a credit card at 10% interest, paying it off is a 10% return on your money! That’s huge.
There’s two approaches you can take with debt: refinance or consolidate, or balance transfer and pay down.
If you have student loan debt, it could make a lot of sense to refinance the debt. You can see if it makes sense in 2 minutes at Credible
without a hard credit check. If you decide to proceed, College Investor readers get up to a $750 gift card bonus when they refinance through this link.
Read our full Credible review here.
If you have credit cards or other debt, it can make sense to consolidate with a personal loan. This is typically the best option when you can’t see yourself paying off the debt in a year, but want to lower your interest. Credible also allows you to compare personal loan options, so check it out here and see if it makes sense.
Finally, you could get a 0% balance transfer card and use your 0% time to pay off the debt. There are some credit cards right now that offer 15 months at 0% with no fees – that gives you over a year to pay off your debt. Learn more about these cards here.
13. Peer to Peer Lending
P2P lending is the practice of loaning money to borrowers who typically don’t qualify for traditional loans. As the lender you have the ability to choose the borrowers and are able to spread your investment amount out to mitigate your risk.
Right now, PeerStreet is one of the best lending platforms out there. But these loans are going to be used for real estate, so keep that in mind. Check out our full PeerStreet review here.
What’s great about this is that you simply lend your money, and you get paid back principal and interest on that loan.
The median return on cash flow is 4.1% – which is better than any money market fund you’re going to find today. Check out other CD alternatives.
14. Don’t Forget Your Matching Contributions
This is one of my favorite passive income ideas, because it’s so easy, yet so many people fail at it. It’s simple – take advantage of matching contributions for your 401k or HSA.
That’s literally free money for simply contributing to your own retirement accounts. By not taking advantage of the match, you’re leaving free money on the table.
All you have to do is ensure that you’re contributing enough to your 401k or HSA so that you get the full matching contribution. For your HSA, your employer also might require you to take action – like taking a health assessment or getting a physical. But all that free money can add up!
Frequently Asked Questions
How do I generate passive income?
Passive income is the idea that you deploy time and/or money and receive income with no further work. You have to do something to generate passive income up front, but then you can rely on that income into the future.
What are some examples of passive income?
Investing is a great example of passive income. You invest money in a company stock, and you receive a dividend payment and appreciation on the investment. Another popular example is real estate. You buy a property, and you enjoy the rent as passive income.
Does passive income really work?
Yes! Passive income is how the rich continue to build wealth. When you don’t have money, you can leverage your time and effort to create income streams that will grow into the future. As you accumulate money, you can deploy that money (and even combine it with your time) to generate more and more passive income.
Where can I invest to have passive income?
If you want to invest to generate passive income, dividend stocks and mutual funds are great ways to do it. You can also invest in debt instruments, like bonds.
If you want a safer approach, you can invest in a money market account or CD to get a risk-free return on your money.
What are the most popular passive income ideas?
There are lots of popular passive income ideas. The most popular include investing in the stock market, owning real estate, investing in a business, and even simply keeping your money in a high yield savings account. All of these approaches generate passive income, but they do require up front capital.
Does passive income really require “no work”?
This is a myth. Passive income always requires something up front: time or money. However, the idea that it becomes passive after you do the work is what’s alluring about it. For example, you spend 6 months writing a book, and you can enjoy the royalty income from your book for the rest of your life without any further work.
That’s not to say that doing more work won’t boost your income, but there is an element that requires nothing more to earn.
What are some of your favorite passive income ideas?