We’ve written on several occasions about how important it is to diversify your income. For some people, that diversification may come in the form of a side hustle. For others, it may be a big upfront investment in a score of affordable vacation rental units and the cultivation of a Five-Star Super Host account on Airbnb. For others still, it may be slinging fresh tomatoes and cucumbers at your local weekly farmer’s market.
But here’s the thing about all of those options. They all require a lot of regular work. Even gardening tomatoes worthy of resale can be a serious gardening endeavor. They wouldn’t call it a hustle if it was something you could do while lounging poolside and sipping margaritas…unless that’s somehow your side hustle (in which case, are they hiring?)
Putting aside this less than likely scenario, a lot of regular time and energy must go into a side hustle. And if it’s a side hustle, it means you’re already putting a ton of time and energy into a main hustle. We don’t know if we agree fully with the cynical old proverb that time is money. But surely, both are finite commodities that we must learn to manage and preserve.
So instead of a side hustle, maybe what you’re really looking for is a passive income stream.
Establishing a passive income is, in a sense, a way to make money that won’t cost you time, at least in the long run. Passive income streams are sources of ongoing income generated from previous investments–be they investments of time, money, effort, or all three.
When we think of passive income ideas, things like rental income, mutual funds, and other stock market instruments come to mind. We’ll discuss these. But we’ll also discuss a few more creative ways to generate passive income, those that may allow you to channel some of your own skills and interests into a continuous income stream.
If you’re still interested in starting a side hustle, we have a bunch of cool ideas for you. Otherwise read on for the best passive income ideas.
But first…
What is a Passive Income?
To an extent, the phrase passive income may be a little misleading. Certainly, the goal is to create a stream of income that does not require the continued investment of your time and energy. However, in order to reach this goal, you will usually be required to invest something. That something may be of a financial nature, or it may be your sweat equity.
And it could be a lot of sweat equity.
That’s because, in order to reach the point where your money is working for you, you have to work for your money first. Many of the passive income ideas suggested here below are possible only after you have made a considerable upfront investment. Indeed, you must actively create passive income streams before they can yield the kinds of continuing results that might actually make a positive impact on your bottom line.
According to Nerdwallet, “Passive income is a cash stream that is considered unearned income by the IRS — passive income doesn’t come from formal, active employment, either full-time or as a contractor. As the term implies, passive income requires little or no daily effort to maintain. This is different from active or earned income, which is generally defined as cash from working at a job or as a contractor.”
But as Nerdwallet also confirms, it would be a mistake to simply think of passive income as easy money..at least at first. In the eventuality, it’s true that the best passive income ideas will ultimately repay your investment or effort with a long term stream of income that requires little more than occasional monitoring and upkeep.
Until that time, you should be prepared to truly invest in the things that you ultimately expect to repay you. Simply stated, whether you’re saving money for a savvy investment or you’re steadily building an asset with the power to produce income by itself, it rarely happens overnight. When it comes to creating a sustainable passive income, patience and persistence tend to pay off over time.
13 Ways to Create a Steady Passive Income Stream
These virtues–patience and persistence– are important to keep in mind as you consider some of the options below. Many of the investment based options require you to have and invest money. Quite a few other options here are based on the premise of asset building–putting the effort in today to create something that can ultimately draw a predictable income without the investment of much ongoing time, money, or effort –at least relative to an actual job.
In either instance, there is always an initial cost, and usually a period of incubation, before your idea can hatch a true passive income.
1. Invest in Real Estate
One of the most popular and historically reliable ways to generate passive income is to invest in real estate. Owning rental property that is safe, well-maintained, and geographically desirable can be a great way to create passive income that is steady and predictable. For those who own one or several rental properties with regular, reliable tenants, this can be a great, ongoing income stream.
That said, real estate ownership is not always the most passive of passive income ideas. Rental properties require maintenance and repairs. Homes and apartments can sustain damage from natural (and manmade) disasters. And rental properties may at times be vacant due to unforeseen economic circumstances. In other words, as a property owner, there could be a lot to deal with. If your income from rental ownership is robust enough, you could hire a property manager to handle most of these issues.
However, it’s important to recognize that leveraging real estate for rental income does carry a number of responsibilities with it. And of course, it also requires you to make the initial investment in one or more properties, which may be considerable.
2. Invest in Real Estate Investment Trusts (REITs)
So you like the idea of earning passive income from real estate but you’re not looking for the hassles of maintenance and care? Real Estate Investment Trusts (REITs) offer a unique solution. Here, you can invest in select real estate properties that you think are likely to earn a significant profit through a trust, much as you might invest in select companies on the stock market that you happen to believe in through a brokerage.
This intermediary relieves you of all the responsibilities that accompany property ownership, but gets you a stake in the profits of real estate growth. According to Time, “REITs don’t require you to purchase and manage your own property. Instead you buy shares in companies that own commercial real estate such as apartment complexes, hotels, and office spaces. In return, you’ll receive regular dividends.”
This means you would enjoy regular quarterly payouts on the basis of a property’s profitability. But, Time warns, if you really hope to earn a sizable passive income this way, it will take a pretty big financial investment upfront.
3. Blog with Affiliate Marketing
In the category of asset building, one of the best ways to turn a hobby into a stream of income is to start blogging about it, especially if that hobby fills the kind of niche that might interest others. Whether you collect antiques, take photographs, repair bicycles, or practice advanced yoga poses in your spare time, creating a blog could be a way to share it with a growing audience.
But how will that result in a passive income?
If your content does resonate with readers, find an audience, and generate traffic, you can begin to draw a passive income from what are called affiliate links. The way affiliate marketing works, according to Bankrate, is that “When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission. The commission might range from 3 to 7 percent, so it will likely take significant traffic to your site to generate serious income. But if you can grow your following or have a more lucrative niche (such as software, financial services or fitness), you may be able to make some serious coin.”
Unsurprisingly, Amazon is the most popular third-party affiliate link. But others like eBay and Awin can also provide rewards for linking outward. Here’s the best part–all you really have to do is add the link. If you succeed in creating meaningful traffic and effectively linking to things your readers want, you can create a steady stream of income with growth potential.
In other words, building the asset is the hard part. But if you do that, and do it well, using it to make passive income through affiliate marketing is pretty darn easy.
4. Flip Cool Stuff
In some instances, you may already have a few assets to get started with. Thanks to outlets like Amazon and eBay, anybody can be a retail store-owner, in a sense. Of course, you have to have something worth selling.
Whether you’ve got a great comic book collection, baseball cards, vinyl records, antique jewelry, vintage clothing–collectibles are hot. And if you’re willing to create a well-inventoried Amazon or eBay storefront, you could earn passive income just by posting a bunch of this stuff for sale.
If you do manage to make a bunch of sales, you will have to package and ship items. And you are responsible for the condition of these items until they arrive with their buyer. Provided these don’t sound like major hardships for you, re-selling vintage items and collectibles online could be a great way to both earn money and immerse yourself in your hobbies in constructive new ways.
Indeed, once you start earning passive income this way, you may become more enthusiastic about hunting down new items, restoring them, and listing them for sale.
5. Invest in Dividend Stocks
If there’s a company that you truly believe in, one that you have reason to think will enjoy regular and ongoing growth in profits, that company may be a good target for a dividend investment. The way it works is that you make an initial investment investment in a company with a dividend yielding stock. In exchange for this investment, you’ll receive dividend payments based on the company’s profit margins each quarter.
Investors will receive payments per share owned. Naturally, the more shares you own in a company, the larger your quarterly dividend payouts will be. It can be a great source of income…especially if you choose the right stocks. As Bankrate notes, “Since the income from the stocks isn’t related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money. The money will simply be deposited in your brokerage account.”
Minimal effort. Sounds great, right? Well, if it was that easy, everybody would do it. The challenge, says Bankrate, is choosing the right stocks to invest in. Bankrate suggests really doing your due diligence before making an investment. They advise two to three works of research into a company before targeting it as your ideal dividend stock.
6. Invest in Dividend Exchange Traded Funds (ETFs)
In the section above, Bankrate suggests that you’ll want to take two to three weeks to study the financials surrounding a company before investing in its dividend stocks. Your study, says Bankrate, should include a thorough review of the company’s financial statements.
If you aren’t necessarily prepared to pore over years of financial statements to make your investment, you’re probably a good candidate for a dividend ETF. Here, financial experts have already done all the reading and poring. They make the tough decisions for you and you get a quarterly dividend check for your troubles.
According to Nerdwallet, “Dividend ETFs offer the diversification benefits of index funds while mimicking the ease with which stocks are traded. To invest in dividend stocks, index funds, ETFs or other publicly traded assets, you’ll need to open a brokerage account if you don’t already have one.”
Fortunately, that’s a pretty easy threshold to clear. While you won’t have the same freedom of choice, nor necessarily the same potential for aggressive short-term returns, dividend ETFs certainly represent far less risk to investors.
7. Create Sponsored Content on Social Media
Much like the affiliate marketing approach, this is a strategy that requires you to build an asset first–in this case through popular social media channels like Instagram or Tik Tok. As Bankrate notes, “Leveraging your social media presence is an attractive business model. Draw eyeballs and clicks to your profile with strong content and then monetize that content by setting up sponsored posts from brands that appeal to your followers.”
But of course, this depends heavily on your ability to create original content that appeals to a broad enough audience. If you can leverage popular social media channels in order to become an influencer in a specific area of interest, retailers may pay you for sponsorship placement. For instance, if you are a health nut, use Instagram to post short fitness tips and workout routines. If you get enough followers and watchers, a sports apparel or fitness retail business might be interested in sponsoring your content.
Then, every piece of content in your library becomes a potential channel for continued income. Of course, it’s important to note that social media traffic and influence can sometimes be fickle. Trending is an important objective, and that requires constant posting and presence. So if this is going to be your path to creating a passive income, it’s important that posting and creating new content doesn’t feel like work, or at least that these activities aren’t too time consuming.
But that’s the good news when it comes to social media. It takes ten seconds to create a Reel with viral potential. Keep it focused on a niche area with plenty of opportunities for sponsorship, and you may be on to something.
8. Buy Some Vending Machines
It’s just that easy to break into the candy business. Invest in a small lot of vending machines and pair them with public spaces or retail locations nearby. You could earn a profit from bags of Doritos, cans of Coke, and packs of chewing gum.
Forbes suggests, “Owning and operating vending machines can provide a (mostly) passive income stream. You’ll need to find a location and shell out at least a few thousand dollars to get started. From there, upkeep just requires you spend a little time each week restocking and servicing your machines, though you can outsource these tasks if you’re willing to sacrifice some profits.”
If you can sustain the initial cost, the expenses thereafter will be fairly modest. Once you’ve recouped that first outlay for your machines, a few well placed vendors could bring you a tidy little profit each month.
9. Create Digital Products
Pretty vague, we admit. But that’s because “digital products” can mean a lot of things. Do you have an e-book idea that you think readers might pay to access? Can you produce digital art images that could be licensed out to commercial users for a fee? Perhaps you have both the technological know how and the creative ingenuity to build an affordable mobile app with widespread practical applications.
If you know how to leverage digital technology to produce, share, and charge for access to or use of your intellectual property, this could become an ongoing source of income. Forbes suggests, “Digital products can be anything, from ebooks and lesson plans to mobile apps—even NFTs. What’s key here is that you spend time building them once and then are able to sell the same asset again and again online. You can take a totally passive approach to the digital products you create, or you can devote time and money to marketing them.”
What matters most if you wish for this property to become a source of income is that it satisfies some interest to the extent that users will pay a fee to access it.
10. Invest in Bonds and Bond Index Funds
If you’re looking for an investment based passive income strategy but you are also concerned about the volatility and risk of traditional stock market investments, you may consider bonds as a good passive income stream. According to Nerdwallet, “Rather than buy an ownership stake in a company through stock, bonds are a way for investors to lend money to companies — as well as federal, state and local governments — and collect interest income. Bonds are considered a safer investment than stocks, but also generally earn a lower return on your investment.”
For many investors, it’s not necessarily a debate over stocks versus bonds. A diversified portfolio should include some of both. Nerdwallet suggests that this proportion may lead more heavily toward bonds as you near retirement, because these investments will be less volatile as you exit your full-time earning years
11. Deposit Into High Yield Savings Account
You may also consider placing some portion of your money in a savings account with a high interest rate yield. This is not true of every savings account so it’s possible you will need to seek options outside of your usual personal banking institution.
But there are federally insured savings accounts that are designed to deliver higher returns on the investment. Nerdwallet explains that “High-yield accounts are a type of federally insured savings account that earns an interest rate that’s often much higher than the national average. The APY of these high-yield accounts may vary slightly, and over time, those small differences add up to real cash, so it pays to shop around for where you put your savings.”
12. Get More Mileage From Your Vehicle
Do you have a second car that spends most of its time sitting in a driveway? More Americans than ever before are working from home in the post-pandemic world. This means many former commuters have valuable cars–often with expensive lease and finance terms– that are getting very little exercise.
Did you know that there are actually services that help you rent these cars out to drivers in need of temporary transportation? Forbes points to sites like Turo and Getaround, where you can list your car as a transportation rental. Believe it or not, says Forbes, there are services–like Spinlister–where you can even rent out your bicycle.
According to Forbes, “Many transportation rental companies provide their own insurance policies to protect you and your renters, but you’ll want to make sure you’re aware of any insurance liabilities you might be taking on. Also, consider the wear and tear that your bike or car may experience when deciding to rent it to others.”
And if, with all that said, you aren’t really comfortable having others drive your car, there is another option. You can use your car as a driving billboard. Indeed, there are quite a few companies that will pay to place their ad materials on your vehicle. Usually, this will be for a set duration such as a three to six month campaign, during which a company will compensate you for the placement of branded decals.
In most cases, the only real sticking point is that you may be expected to drive a certain minimum number of miles each month to satisfy your end of the bargain. Forbes even says that some companies prefer to place their ads with delivery drivers. To find out more, check out rolling ad providers like Free Car Media, Wrapify, or Carvertise.
13. Try Peer to Peer Lending
Peer-to-peer (P2P) lending is your chance to earn money the way banks do–off the interest from personal loans. As Bankrate explains, “A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Prosper. Other players include Funding Circle, which targets businesses and has higher borrowing limits, and Payoff, which targets better credit risks.”
Still, there is an inherent risk in becoming a lender. P2P loans are unsecured loans. This means you face the risk that some borrowers may not be able to meet their repayment obligations for one reason or another. Should they default, the loss would be yours.
For this reason, Bankrate advises that it’s best to diversify your P2P loan holdings, staking small sums (as low as $25) in numerous different personal loans, rather than staking one lump sum into a single larger loan. This lowers the odds of a payment default undercutting your passive income stream, or even resulting in a loss.
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Obviously, a lot of the passive income strategies that we’ve discussed here are based on building a sound investment strategy, especially as you prepare for retirement. But what if you’re entirely new to the stock market?
We admit, it can be a bit complicated. If you’re really just at the beginning of this journey, take a look at our tips on how to start investing in stocks, even with a modest budget.