Passive income is income that is earned with little or no effort on the part of the person receiving the income. Examples of passive income include rental income from property, interest, dividends from investments, and income from a business in which the person is not actively involved. The goal of many people is to create multiple streams of passive income in order to achieve financial independence.
Passive income is widely desired but often misinterpreted. Developing passive income streams necessitates an initial investment and significant effort during the initial stages. However, with time and dedication, these streams begin to generate consistent revenue without requiring much maintenance. From personal experience, incorporating passive income into your financial strategy can significantly boost your earnings and accelerate the achievement of your financial objectives. For instance, investing just $500 in real estate through Fundrise can lead to a significant increase in income and faster attainment of your other goals.
1. Dividend Stocks
Dividend stocks are stocks of companies that pay out a portion of their profits to shareholders in the form of dividends. Dividends can be paid out on a regular schedule, such as quarterly or annually, and can provide a steady stream of passive income for investors. Dividend stocks are often considered to be a lower-risk investment than non-dividend-paying stocks, as they provide a level of income even if the stock price remains stagnant or decreases. Additionally, dividends can be reinvested to purchase additional shares, which can lead to compound growth over time. However, it’s important to note that dividends are not guaranteed and a company may decide to discontinue or reduce dividends at any time.
To maximize returns on any investment opportunity, it is crucial to open an account with a reputable online brokerage and take advantage of any rewards offered. Our top recommendation for investing is M1 Finance, a user-friendly and cost-effective platform. M1 Finance may not be as well-known as other options, but it offers a range of benefits. For example, it allows you to create a diversified portfolio of dividend stocks and invest in it without incurring any fees. Additionally, deposits are automatically allocated to your entire portfolio, and the platform even offers automatic rebalancing. Furthermore, dividends can be automatically reinvested, making it an ideal platform for dividend stock investing.
2. Single-Family Rental Properties
Single-family rental properties, also known as single-family homes or SFRs, are properties that are used as rental properties for one family at a time. These properties are typically owned by individual landlords or small investment groups and can be found in both urban and suburban areas. Single-family rental properties can provide a steady stream of passive income for landlords, as they typically have long-term tenants and generate rental income on a monthly basis. They also have the potential for appreciation of the property value over time. However, owning rental properties also come with responsibilities, such as maintaining the property, finding and vetting tenants, and dealing with any issues that arise. It also requires a significant amount of money to invest upfront and a lot of research on the location and the condition of the property. It’s also important to consider the legal and financial obligations that come with owning a rental property and to have a plan in case of vacancies or unexpected expenses.
If you’re interested in a more conventional approach to real estate investing, consider Roofstock. This platform allows you to purchase single-family rental properties that generate positive cash flow entirely online. By signing up, you can begin browsing available properties and make a purchase immediately.
3. Larger Real Estate Developments
Larger real estate developments refer to large-scale commercial or residential projects, such as apartment complexes, shopping centers, and mixed-use developments. These projects are typically developed by experienced real estate developers, who raise capital from a group of investors to fund the development. The investors in these projects are typically high-net-worth individuals, family offices, or institutional investors. They typically receive returns on their investment through a share of the rental income or profits generated by the development and also benefit from the appreciation of the property value over time. However, investing in larger real estate developments is generally considered to be a high-risk, high-reward proposition and it requires a significant amount of money to invest. It also requires a thorough understanding of the real estate market, the construction and development process, and the legal and financial aspects of the investment. It’s also important to research the experience of the developer and to have a clear exit strategy in case of unexpected outcomes.
Our preferred option for larger real estate developments is RealtyMogul, which offers a range of investment options. The platform allows for investments as low as $1,000, and also provides access to REITs and private placements, which are not commonly available to the general public. With RealtyMogul, investors have the flexibility to fund real estate loans for passive income or acquire equity shares in a property for potential appreciation. The platform is open to both accredited and non-accredited investors, making it accessible to a wide range of investors.
4. Invest In Farmland
Investing in farmland refers to buying and owning land used for farming and agricultural purposes. This can include land used for growing crops, raising livestock, or even aquaculture. Investing in farmland can provide a steady stream of passive income through rent payments from farmers who use the land, and also has the potential for appreciation of the land value over time. Additionally, investing in farmland can also provide a hedge against inflation and can be considered as a low-correlated asset class. However, investing in farmland also has its risks, such as weather conditions, changes in government policies, and market fluctuations in agricultural commodities. It also requires a significant amount of money to invest upfront, and a lot of research on the location, the type of land, and the condition of the land. It also requires knowledge of the laws and regulations that govern the ownership and use of farmland, as well as a clear exit strategy in case of unexpected outcomes.
If you’re interested in investing in farmland, there are two main companies that offer this opportunity: FarmTogether and AcreTrader. Both companies provide platforms for investors to purchase shares of farmland and receive a share of the income generated from the land.
5. High Yield Savings Accounts And Money Market Funds
High-yield savings accounts and money market funds are both types of financial products that offer relatively high-interest rates compared to traditional savings accounts.
A high-yield savings account is a type of savings account offered by banks and other financial institutions that typically offers a higher interest rate than a traditional savings account. These accounts typically require a minimum deposit and may come with certain restrictions such as a limited number of withdrawals per month. However, they are FDIC insured, which means that your money is safe even if the bank goes out of business.
A money market fund is a type of mutual fund that invests in short-term debt securities such as Treasury bills and commercial paper. They aim to provide a higher return than traditional savings accounts and are considered to be low-risk investments. Money market funds are also considered to be liquid, meaning that you can easily convert your investment into cash. However, it’s important to note that money market funds are not FDIC-insured and the value of the fund may fluctuate.
Both high-yield savings accounts and money market funds can provide a relatively safe and stable stream of passive income, but it’s important to compare the interest rates and fees of different options and to consider your own risk tolerance and financial goals before making a decision.
As interest rates rise, investing more money in a savings account can provide a secure source of passive income. One option worth considering is CIT Bank, which currently offers a competitive interest rate of 4.05% APY and requires a low minimum deposit of $100 to open an account.
6. Passive Income Opportunities through CRYPTO
In recent years, crypto savings accounts have gained popularity as they offer the potential for higher returns on investment. It’s important to note that these are not traditional savings accounts, but rather investment and lending accounts that allow you to earn high yields on your crypto with ease. However, it’s important to remember that these types of accounts come with risks. Some well-known options include Uphold and Nexo, where investors can earn up to 25% APY on their crypto, but it’s important to be aware of the potential risks involved.
There are several ways to generate passive income through crypto, including:
- Staking: This involves holding a certain amount of a specific cryptocurrency in a wallet and participating in the validation of transactions on that blockchain. This can earn a staker a share of the rewards for validating transactions.
- Lending: Platforms like Nexo and Celsius allow users to lend out their crypto assets to borrowers, who pay interest on the loan. This can generate a steady stream of passive income for the lender.
- Yield farming: This involves lending or staking crypto assets on decentralized finance (DeFi) platforms in order to earn interest or rewards. This can be a higher risk and higher reward than traditional lending or staking, as the value of the assets can fluctuate.
- Masternodes: Some cryptocurrencies, like Dash and PIVX, offer the option to run a masternode, which involves holding a certain amount of the cryptocurrency and providing services to the network. Masternode operators can earn a share of the rewards for providing these services.
It’s important to note that these opportunities are not without risk and it’s important to conduct thorough research and understand the risks involved before investing. Additionally, it’s also important to diversify your portfolio and not to put all your eggs in one basket.
7. CD Ladder
A CD ladder is a strategy for investing in certificates of deposit (CDs) that involves spreading the investment across CDs with different maturity dates. This allows the investor to take advantage of higher interest rates offered on longer-term CDs while still maintaining liquidity.
For example, an investor might invest $10,000 in five $2,000 CDs with maturity dates of 1 year, 2 years, 3 years, 4 years, and 5 years. As each CD matures, the investor can choose to renew it for another term at the current interest rate, or withdraw the money and invest it in a new CD with a longer term and a higher interest rate.
CD ladders can be a good way to earn a relatively stable and predictable stream of passive income, as the interest rate on CDs is typically higher than traditional savings accounts and the principal is FDIC-insured. They also provide a way to maintain liquidity and access to funds, as some of the CDs will mature each year, giving the investor the option to withdraw some of the money and reinvest it in a higher rate. However, it’s important to note that the interest rate of CDs is fixed, so if the interest rates are rising, you might not be able to take advantage of that. Additionally, early withdrawal of a CD may result in a penalty fee.
For instance, to create a five-year CD ladder, an investor could take the following approach: Observe the interest rates for CDs over different time periods (these are hypothetical examples):
1 Year CD – 4.00%
2-Year CD – 4.250%
3-Year CD – 4.50%
4-Year CD – 5.00%
5-Year CD – 5.25%
Annuities are a type of financial product that can provide a stream of passive income for the investor. They are typically sold by insurance companies and are designed to help people save for retirement.
There are two main types of annuities:
- Immediate annuities: An immediate annuity allows the investor to exchange a lump sum of money for a guaranteed stream of income that begins immediately. This type of annuity is often used as a source of retirement income.
- Deferred annuities: A deferred annuity allows the investor to make periodic contributions to the annuity, and the income is paid out at a later date. This type of annuity is often used as a long-term savings vehicle.
The income received from an annuity is based on the amount of the investment, the interest rate, and the investor’s life expectancy. Annuities can provide a stable and predictable stream of passive income, but they also have certain drawbacks. They are generally considered to be a long-term investment and have penalties for early withdrawal and they also have high fees associated with them. Additionally, it’s also important to understand the terms and conditions, and any guarantees and tax implications of the product before making a decision.
9. Invest Automatically In The Stock Market
Investing automatically in the stock market refers to using a program or service that automatically invests your money into a portfolio of stocks, bonds, or other securities on a regular basis. This can be done through investment apps, robo-advisors, or through a process known as dollar-cost averaging.
One popular way to automatically invest in the stock market is through a robo-advisor. A robo-advisor is an online investment management service that uses algorithms to create and manage a portfolio of investments. They typically require little to no human intervention and are a relatively low-cost way to invest in the stock market. Examples of popular Robo-advisors include Vanguard Personal Advisor Services, Schwab Intelligent Portfolios and Betterment.
Another way to automatically invest in the stock market is through dollar-cost averaging. This is a strategy that involves investing a fixed amount of money at regular intervals, regardless of the price of the investment. This can help to reduce the impact of market volatility on the value of the investment, as the investor is buying more shares when the price is low and fewer shares when the price is high.
It’s important to remember that investing in the stock market carries risk and it’s important to diversify your portfolio and to have a long-term investment horizon. Additionally, you should also consider the costs and fees associated with the service or strategy you choose, and make sure it aligns with your investment goals and risk tolerance.
One of the most well-known Robo-advisors is Wealthfront, which enables investors to set up automatic investments with minimal effort. Wealthfront is known for its low fees, making it an attractive option for investors looking to invest automatically. The platform is user-friendly, making it easy for investors to start building a diversified portfolio with minimal effort.
10. Invest In A REIT (Real Estate Investment Trust)
A Real Estate Investment Trust (REIT) is a type of investment vehicle that allows individual investors to invest in a diversified portfolio of real estate assets, such as commercial properties, apartments, hotels, and more. REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, which can provide a steady stream of passive income for investors.
REITs can be publicly traded on stock exchanges, similar to stocks, or can be privately held. Publicly traded REITs can be bought and sold like any other stock, and their prices fluctuate based on market conditions. Private REITs can be more difficult to buy and sell, but they also provide the opportunity to invest in specific real estate projects.
Investing in REITs can be a good way to gain exposure to the real estate market without the hassle of owning and managing properties. However, it’s important to note that REITs can be affected by the same risks as direct real estate investing, such as changes in interest rates and the overall economy. Additionally, REITs also come with their own set of risks such as lack of liquidity, high volatility, and the fact that their dividends are not guaranteed. Therefore, it’s important to conduct thorough research and to diversify your portfolio before investing in REITs.
If you’re hesitant to invest directly in real estate or do not meet the requirements to be an accredited investor, you can still benefit from real estate investments through Real Estate Investment Trusts (REITs). These are investment vehicles that own and operate a variety of properties, and as a shareholder, you can share in the gains, refinancing, sale, income, or loss of the property.
One popular platform for investing in REITs is Fundrise, which requires a low minimum investment of $500 and offers a range of options for investors.
11. Invest In A Business
Another method to generate passive income is by investing as a silent partner in a business. This type of investment carries a high level of risk, but also has the potential for high returns. For example, in the past, companies like Lyft and Uber sought private investors to invest in their companies, and today they are worth billions. However, as an investor, you would only benefit from this if the company goes public through an IPO or is acquired.
To reduce the risk, one can consider diversifying their investments by investing small amounts in various companies through lending them money in small bonds. There are now platforms that provide the opportunity to loan money to businesses and earn a steady return on investment.
Small Business Loan:
Small business loans are a form of financing that allows businesses to borrow money to fund various expenses such as expansion, inventory, equipment, and more. As an investor, you can provide small business loans to business owners and earn a return on your investment in the form of interest payments.
There are a few ways to invest in small business loans:
- P2P lending platforms: Peer-to-peer (P2P) lending platforms like Lending Club and Prosper allow individual investors to lend money directly to small businesses and earn a return on their investment.
- Crowdfunding platforms: Crowdfunding platforms such as Kickstarter and Indiegogo allow businesses to raise money from a large number of small investors, in exchange for rewards or equity in the company.
- Banks and alternative lenders: Banks and alternative lenders such as OnDeck and Kabbage also offer small business loans to investors who want to fund them.
Investing in small business loans can offer a relatively stable and predictable stream of passive income, but it’s important to note that small business loans are unsecured and there is a risk of default. Additionally, it’s important to conduct thorough research and due diligence before investing, and to diversify your portfolio to mitigate the risk.
Percent is a company that enables investors to lend money to businesses through various lending options such as commercial loans and receivable loans. As a marketplace for lending, it provides an opportunity for accredited investors to seek higher-risk and reward investments. However, it’s important to note that to be able to invest via Percent, you must be an accredited investor.
Revenue Sharing Notes:
MainVest is a platform that enables investors to invest in businesses by providing them with funding in exchange for a percentage of their future revenue. With as little as $100, you can start investing in various businesses, and in turn, receive a return on investment through repayment of your principal and interest over time. It’s a way to get involved in the business world, and potentially reap the rewards of the company’s success.
12. Invest In Student Income-Share Agreements
A Student Income-Share Agreement (ISA) is a type of investment vehicle that allows investors to fund a student’s education in exchange for a percentage of their future income. Under an ISA, the student pays back a fixed percentage of their income over a specific period of time, usually after graduation and finding a job.
The ISA can help make education more accessible for students who cannot afford to pay high tuition costs upfront. Additionally, it also provides an opportunity for investors to earn a return on their investment, but it is also important to note that the student’s success, and therefore the investor’s return, is tied to the student’s ability to find a well-paying job after graduation.
The ISA market is still in its early stages, and there are a limited number of platforms and programs that are offering ISA’s. Some examples include Pave, Lumni, and Vemo Education. It’s important to thoroughly research and understand the terms and conditions of the ISA before investing, and also to diversify your investments.
Edly is a platform that offers investment opportunities in Student Income-Share Agreements (ISAs). They provide two options for investors, the first being the ability to invest directly in a specific ISA note, and the second option is to invest in a fund that is used for future ISA notes. It’s worth noting that depending on the time, there may not be any open notes available for investment.
13.Refinance Your Mortgage
Refinancing a mortgage involves obtaining a new loan to pay off an existing mortgage. The goal of refinancing is typically to obtain a lower interest rate, which can lead to lower monthly payments and/or a shorter loan term. However, it’s important to consider the costs associated with refinancing, such as closing costs, and to determine if the potential savings justify those costs. Additionally, it’s important to consider the current market conditions and your personal financial situation before deciding to refinance. It’s also a good idea to consult with a financial advisor or mortgage professional before making a decision.
Refinancing your mortgage may seem unorthodox in the context of generating passive income, but it can be a powerful tool for freeing up significant amounts of money and saving you hundreds of thousands of dollars over the life of your loan. Given the current low interest rate environment, now is an opportune time to review your mortgage and compare rates. By securing a rate that is 0.50% or more lower than your current rate, you can potentially recoup tens of thousands of dollars. Such returns are hard to come by through other investment opportunities.
We find that utilizing platforms such as LendingTree is useful for identifying the most competitive rates.
14.Pay Off Or Reduce Debt
Paying off or reducing debt can have a significant impact on your financial well-being. By paying off high-interest debt, such as credit card debt, you can lower your monthly payments and free up more money in your budget. Additionally, by paying off debt, you can improve your credit score and increase your chances of being approved for loans and credit in the future. To pay off or reduce debt, you can start by creating a budget and identifying areas where you can cut back on spending. You can also try to increase your income, such as by taking on a part-time job or starting a side business. Additionally, you may consider consolidating your debt, which can make it easier to manage and pay off. It’s important to understand the terms of the consolidation loan, and if it’s a good fit for you, it’s a good idea to consult with a financial advisor.
One of the major benefits of paying off debt is that it provides a guaranteed return on investment. For example, if you are paying interest on a credit card at a rate of 10%, paying off that debt would result in a return of 10%. This is a substantial return that should not be overlooked.
If you are carrying student loan debt, refinancing may be a viable option to consider. By refinancing, you can potentially secure a lower interest rate and lower monthly payments, which can save you thousands of dollars in the long run. You can easily explore this option by visiting Credible, where you can quickly and easily check your eligibility for refinancing without a hard credit check.
Credible: Credible is a financial technology company that specializes in helping consumers compare and find the best rates on loans, including student loan refinancing, personal loans, and mortgages. They partner with multiple lenders to give consumers a wide range of options to compare. It is also a free service, and you can check your rate and compare loans with no impact to your credit score. Credible makes it easy to find the best loan for your needs and compare the offers from multiple lenders, which can help you save money and improve your financial situation.
15.Peer to Peer Lending
Peer-to-peer (P2P) lending is a form of lending that connects borrowers and lenders directly, without the need for a traditional financial institution as an intermediary. P2P lending platforms, such as Lending Club and Prosper, match borrowers with individual or institutional investors who are willing to lend money.
Borrowers can use P2P loans for a variety of purposes, such as consolidating debt, funding a home renovation, or starting a small business. P2P loans usually have lower interest rates than traditional loans, and the process is usually faster and more convenient. However, keep in mind that interest rates can vary depending on your credit score, and the loan terms may not be as favorable as those offered by traditional lenders.
Investors can use P2P lending as a way to earn a higher return on their investments, as the interest rates on P2P loans are generally higher than traditional fixed-income investments such as bonds. However, it’s important to note that P2P lending is not without risk and investors should diversify their investments and also consider the creditworthiness of the borrowers before lending.
It’s important to consider the fees and risks associated with P2P lending, as well as regulatory requirements, before deciding to invest or borrow through a P2P platform. And it’s also a good idea to consult with a financial advisor or professional before making a decision.
PeerStreet is one of the best lending platforms.The average rate of return for cash flow is 4.1%, which surpasses the returns currently offered by traditional money market funds.
PeerStreet is an online platform that connects investors with borrowers seeking short-term, high-yield real estate loans. It offers investment opportunities in real estate-backed loans, which are typically short-term (6-24 months), high-yield and secured by real estate assets. PeerStreet’s platform is designed to make it easy for accredited investors to access high-yield real estate-backed loans and diversify their investment portfolio. The platform allows investors to browse and invest in pre-vetted loan opportunities and receive detailed information about the property and borrower. PeerStreet also does due diligence on the loan and originator to ensure that the investment is low risk. However, it’s important to note that investing in real estate-backed loans through PeerStreet or any other platforms can be risky, and it’s important to consider the risks and diversify your investments.
16.Hard Money Loans
Hard money loans are short-term loans that are secured by real estate. They are typically used by real estate investors to purchase and renovate properties, and then resell them for a profit. Hard money loans are generally considered to be more expensive than traditional mortgages, as the interest rates are higher and the terms are shorter.
Hard money loans are typically provided by private investors or small lending companies, rather than traditional financial institutions. They are typically used as a last resort option, when a borrower is unable to qualify for a traditional loan. Hard money loans are often used by real estate investors to purchase distressed properties, as the loan can be approved and funded quickly, which can be critical in time-sensitive real estate transactions.
Hard money loans are also used by developers to finance real estate projects that are in the early stages of development. They are also used by entrepreneurs who need capital to start or expand a business.
It’s important to note that Hard money loans are considered to be high-risk investments, and they come with high interest rates and short loan terms. They also usually require a higher down payment. It’s also important to be aware that hard money loans are not regulated like traditional mortgages, so it’s important to do your due diligence and make sure that the lender is reputable and licensed. Before taking out a hard money loan, it’s a good idea to consult with a financial advisor or professional to see if it’s a good fit for you.
Groundfloor is one of the pioneering platforms in the realm of hard money loans, having established a marketplace for such loans.
Groundfloor is a real estate lending platform that specializes in providing short-term, high-yield loans for real estate projects, known as hard money loans. They offer both residential and commercial loans, with loan amounts ranging from $75,000 to $2,000,000 and terms of 6 to 24 months. Groundfloor’s platform is designed to provide borrowers with fast and easy access to capital and investors with the opportunity to earn high returns on short-term real estate-backed loans. Borrowers can apply for a loan on Groundfloor’s website, and once the loan is approved, it is listed on the platform for investors to fund.
Groundfloor’s platform is open to accredited and non-accredited investors, and it offers the opportunity to invest in real estate-backed loans with a low minimum investment of $10. Groundfloor also does due diligence on the loan and the borrower to ensure that the investment is low risk. However, it’s important to note that investing in real estate-backed loans through Groundfloor or any other platforms can be risky, and it’s important to consider the risks and diversify your investments.
17.Become An Angel Investor
Becoming an angel investor involves investing money in early-stage companies in exchange for an ownership stake in the business. Angel investors typically provide capital to startups that are not yet ready to access traditional forms of funding, such as bank loans or venture capital. The goal of angel investing is to earn a high return on investment, but it also carries a high level of risk as the majority of startups fail.
To become an angel investor, you typically need to have a significant amount of disposable income and a high risk tolerance. It’s also important to have a good understanding of the industry and the market in which the startup operates. Before investing, it’s important to thoroughly research the company and its management team, as well as its financials and potential for growth.
It’s also important to understand the legal and tax implications of angel investing, such as SEC regulations and tax laws related to capital gains. It’s a good idea to consult with a financial advisor, accountant, or attorney before making any investment.
Joining an angel investment group or accelerator can also be a good way to become an angel investor, as they often provide resources and support to help identify and evaluate potential investments.
18.Lend Against NFTs
Lending against non-fungible tokens (NFTs) is a relatively new and emerging concept in the world of finance. NFTs are unique digital assets that are stored on a blockchain and can represent ownership of a wide range of digital assets, such as artwork, videos, music, and more.
Lending against NFTs is similar to traditional collateral-based lending, where a borrower pledges an asset as collateral for a loan. In this case, the NFT is the collateral for the loan. The lender may then sell or use the NFT in the event that the borrower defaults on the loan.
This type of lending is still in the early stages and there are currently a limited number of platforms that offer it. However, as the value of NFTs continues to grow, it’s likely that more platforms will emerge to offer this type of lending.
It’s important to note that lending against NFTs can be a high-risk investment, as the value of NFTs is highly speculative and can be affected by market conditions. Additionally, NFTs are not regulated as securities, and the ownership and authenticity of an NFT may be difficult to verify. It’s important to thoroughly research any platform that offers lending against NFTs, and to consult with a financial advisor before making any investment.
19.Matching Contributions for your 401k or HSA
Matching contributions for a 401(k) or Health Savings Account (HSA) refer to the additional funds that an employer may contribute to an employee’s retirement or health savings account. Matching contributions are typically a form of employer-provided benefit, and are intended to encourage employees to save for retirement or healthcare expenses.
In a 401(k) plan, an employer may match a percentage of an employee’s contributions, up to a certain limit. For example, an employer may match 100% of an employee’s contributions, up to 3% of their salary. This means that if an employee contributes 3% of their salary to their 401(k) plan, their employer will also contribute 3%.
In the case of an HSA, an employer may contribute a certain amount of money to an employee’s HSA account, and this contribution is also matched by the employee.
It’s important to understand the terms of your employer’s matching contributions, and to make sure that you are contributing enough to take full advantage of the match. Not taking advantage of your employer’s matching contributions is like leaving free money on the table.
It’s also important to consider the tax benefits of 401(k) and HSA contributions, as both accounts offer tax-advantaged ways to save for retirement and healthcare expenses. It’s a good idea to consult with a financial advisor to determine if it’s the right fit for your financial goals.