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You’ve heard it before: Save More and Spend Less. Fantastic advice! But there’s something left out. Earn More! One of the secrets to wealth building is finding ways to make more money. Today, I am excited to share with you seven passive income ideas to build wealth!
What is Passive Income?
Now before I get started, I am going to share something that may disappoint many of you.
There are two ways to build passive income. First, you have to have money to invest in assets that grow and produce income. Second, you can create something of value that provides a steady income.
Buying assets that produce more income is passive income. Creating something of value that turns into an income stream is not passive income. It’s a side hustle.
Of course, a side hustle can eventually turn into passive income. But I am guessing that if you’re here, it’s because you want to build income now and not wait to start seeing returns from something you create.
So, the passive income ideas I’m going to share are just that: passive. I am talking mailbox money. I’ll save side hustles for another day.
And the best part, the ideas I am going to share are things you can start doing today, and a few of them require absolutely no money to get started!
So, let’s get started with the seven passive income ideas to build real wealth.
1. Earn Dividend Income from Stocks
First, there is nothing more passive than investing in stocks that produce dividend income.
Stocks produce income in two ways: appreciation and dividends. Dividends are your slice of the profits of the stock you own. While appreciation takes time, dividends are typically paid quarterly (by some, not all companies).
To get started investing in dividend stocks, check out my favorite brokerage: M1 Finance. M1 is a hybrid robo-advisor and traditional brokerage firm, and it is entirely free. They allow you to invest in pre-built portfolios or build your own by picking stocks.
Now, of course, I am a big proponent of investing in low-cost index funds. While there are index funds that focus on dividend-paying stocks, unless your focus is current income, I recommend you stick to broader indices. The reason for this is that dividend index funds have historically had a lower return than broad-based index funds when tallying up dividends plus appreciation.
2. Receive Interest Income from Bonds
The second way to earn passive income is bonds. Bonds pay steady income in the form of a coupon.
Now, in today’s low rate environments, bonds produce little in the way of income, but they can still have a valuable place in your portfolio to help lower risk.
As with stocks, I seek out diversified bond funds for my bond portfolio. Certain types of bonds do pay more in interest (corporate bonds, junk bonds, etc.), but know that these types of bonds have less of a stabilizing effect on your portfolio.
My view is that you should be using bonds as a stabilizer by investing in a broad bond fund (e.g., a total bond market fund) but seek other sources of passive income that produce a bit more cash flow.
3. Earn Passive Real Estate Income
Real estate is perhaps my favorite form of passive income. Why? Because it is an alternative asset class that provides stability to your portfolio, and it produces consistent cash flow every month.
In its purest form, real estate investments produce income from rental cash flows and appreciation. In a sensible real estate investment, as a tenant pays rent, usually there is some money left over after paying all expenses. These remaining rent proceeds then become a steady source of cash flow for the investor.
Now, investing in real estate doesn’t have to mean buying a rental property. I am a big fan of a passive real estate investing tool called REITs. REITs allow you to invest in a diversified portfolio of income-producing properties with minimal effort.
There are both public REITs and private REITs. Public REITs are traded on the markets just like a stock or bond, and they are subject to the same irrationality as stocks in the near-term. However, over long periods, REITs have performed similarly to stocks.
Private REITs, on the other hand, do not offer daily liquidity, and thus are less subject to emotional pricing. Private REITs are my favorite real estate investment product.
My favorite real estate investing platform is Fundrise . They have historically averaged returns over 9%, and they offer exceptional transparency. If you’re looking to learn more about Fundrise, check out my comprehensive review.
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4. Acquire Rental Properties Directly
If you want to take your passive real estate income to the next level, consider investing in cash-flowing rental properties.
Buying properties directly (rather than through a REIT) can offer additional tax benefits and give you greater control over your real estate portfolio.
Bear in mind that direct real estate investments have an additional level of complexity. You must find the properties, analyze them, and then manage them. Luckily, if you’re new to investing in real estate directly, there are turnkey providers that help you find properties, analyze, and then manage each property. Roofstock is one of the most popular turnkey providers, and they are worth checking out.
While I have yet to make my first direct real estate investment, I hope to do so soon, and Roofstock has been very helpful in giving me a better understanding of how to analyze deals.
One other great resource to check out is BiggerPockets, as they have a wealth of free information about investing in real estate.
5. Invest in Peer-to-Peer Loans
The next passive income idea comes from another alternative asset class that I invest in – crowdfunded loans.
Imagine a borrower needs to borrow $5,000 to refinance credit card debt. The borrower could go to a traditional bank and get a loan, though this may be easier said than done. Alternatively, they could borrow from a crowdfunded loan platform. A crowdfunded loan investment is where investors can fund part of a loan.
Take the $5,000 refinancing example. On a crowdfunding platform, 200 individual investors can lend $25 to the borrower. In total, the borrower can access the total $5,000 they need, and the lender can de-risk by lending only a small fraction of the overall loan.
From the investor’s point of view, if you have $2,500 to invest, it is possible to lend $25 to 100 different borrowers. Investing in a large number of loans boosts diversification.
Historically, my returns on peer-to-peer loans have been in the 4-6% range.
If you’re interested in peer-to-peer lending, check out Lending Club.
6. Get Paid to Have an App on Your Phone
Now, these last two passive income ideas are unique in that they require no money or time upfront to earn passive income.
The first is from the folks at Nielsen. You may have heard of Nielsen as the people that produce TV ratings. They do this, but they also do a whole lot more. In general, they’re a data company, and they make money by tracking consumer behavior.
Nielsen has an app you can install on your phone that tracks your usage data, and in return, they pay you up to $50/year just for using your mobile device like normal. While this isn’t much, it is so little effort, it feels like free money!
Of course, the obvious question here is whether you are comfortable sharing your data. Here’s my view on this.
- Nielsen is one of the most reputable data companies on the planet, and I trust them to keep my data safe.
- Nielsen promises that all data they collect is done so on an anonymous basis.
- Countless apps track you anyways (location data, purchases, etc.) and pay you nothing. Nielsen is upfront about how they’re using your data and what they’re doing to protect your privacy.
Check out the Nielsen app and see if it’s right for you.
7. Enroll in Truebill Bill Negotiation Service
This final passive income idea is the Truebill app. Truebill will negotiate with your cable company, your cell phone company, your home security company, and others to get you the best possible rates on the services you are already purchasing.
Now, I know what you’re thinking. Lowering my expenses through a bill negotiation service isn’t passive income! I disagree – money saved is money earned.
In a nutshell, you give Truebill a copy of your bill, and then they negotiate with the providers on your behalf. If they save you money, they get paid a slice of the savings.
Could you do better by calling your provider on your own? Perhaps. But that requires effort, and if you’re anything like me, it’s easier to let someone just take care of it.
Why do I have such a firm conviction in services like this? Because I saved $885 in the first few weeks after signing up for Truebill, and it took maybe 30 minutes of effort.
I strongly encourage you to check out Truebill to see if you’re paying too much on services you’re already using. If you want to learn more before trying out Truebill, check out my complete Truebill review.
Passive Income Ideas: A Summary
Like I said, passive income ideas should be just that: passive. These are seven ideas to get you started. Let’s quickly recap the seven ideas:
- Earn Dividend Income from Stocks (Check out M1 Finance)
- Receive Interest Income from Bonds
- Earn Passive Real Estate Income (Fundrise is my favorite platform)
- Acquire Rental Properties Directly (Roofstock is an awesome resource)
- Invest in Peer-to-Peer Loans (LendingClub is the one I use)
- Get Paid to Have an App on Your Phone (the Nielsen app)
- Enroll in Truebill Bill Negotiation Service
While ideas 1 through 5 are investments where you must put money in upfront, the last two ideas couldn’t be any easier. They require nothing but a few minutes downloading an app on your phone.
So, go ahead and get started on building passive income for yourself! Looking for more ideas? Check out How to Make Your Money Work for You: 17 Ideas to Make Money While You Sleep!