Passive income is income that requires little or no effort to maintain. Basically, you make money without having to do day-to-day work. So how does a person get started making passive income? We’ll cover that and more in this beginner’s guide to understanding and making passive income.
Owning rental properties can be a perfect example of passive income, depending on how you run them.
- First, you’ll need to purchase a property. You can get a rental loan or vacation rental loan to cover the initial buying cost.
- Second, you’ll need to find someone to handle the property for you. For a rental property to be passive income, someone else has to handle finding tenants and running the property. Usually, this person is a property manager.
- Third, once you’ve bought the property and hired the manager, the passive part begins. You just sit back and wait for the manager to collect rent from your tenants every month.
- Special note: If you’re a real estate professional, you may not qualify to list a rental as passive income.
Rental properties are one of the most common ways to make passive income.
Investing In Businesses
Another form of passive income is investing in businesses without playing an active role.
- You offer a certain amount of money to a business so they can open or expand, and they pay you a percentage of their earnings.
- For the income to be passive, you must not be active in the business. The only interaction you should have with them is making the initial offer and collecting your payments.
- Investing in businesses is also a great way to invest in your future and prepare for the unexpected. If you find good, long-lasting businesses you could be getting paid for the rest of your life.
- This arrangement can also be referred to as being a silent investor or silent partner.
Many businesses and individuals benefit from this kind of financial arrangement. It’s a great way to put money back for your retirement or a rainy day.
Bonds and CDs (certificates of deposit) are low-risk ways to gain some interest from the money you already have.
- They’re similar to savings accounts, only there’s a penalty if you withdraw money early.
- You commit a certain amount of money for a certain amount of time and gain interest from it.
- The interest is usually pretty low, but if you have money sitting aside anyway it’s worth taking the time to get one set up.
- This works best if you already have a large amount of money in savings.
Because these are low risk, they’re also low reward. At the moment, you generally only gain about 2% a year in interest.
Activities That Become Passive Over Time
Some forms of passive income require upfront effort before they become passive. Some examples include:
- Selling photos you’ve already taken as stock photos.
- Writing a book and e-publishing it online to sell it.
- Owning a vending machine.
- Creating an app and selling it in the app stores.
- Registering catchy domain names and then selling them to someone else.
- Renting out your car or home when you’re not using them.
These ideas require an initial financial or time investment, but once that’s done you can turn them into steady passive income streams.
This beginner’s guide has given you the basics. Now that you understand what passive income is and how to make it, you can start your journey to financial freedom.