5 Ways Of Making Passive Income That Are Even Better Than Real Estate
Everyone's heard of it. Passive income is the talk of the town when it comes to long-term financial planning. Adding income streams and building viable, long-lasting wealth is high on the priority list for many people who hope to build a strong retirement savings portfolio or even reduce their current workload in the nearer term. A secondary, passive income stream can help minimize the burden of your own heavy lifting. If you're an hourly wage earner, it means you can commit to fewer working hours, spending the difference engaged in your hobbies or spending time with family. This all sounds like a fabulous idea, right? And a quandary as to why more people don't chase passive income with all their energy.
Most people think this is only attainable through real estate. An investment property is typically one that produces monthly income in the form of rent checks. It also doesn't require constant effort from the owner. The problem with this passive-income model is the cost of real estate. Home prices have skyrocketed, and mortgage products are at some of the highest rates buyers have seen in the last two decades. All this cuts into profits and makes buying an investment property difficult, combined with shrunken profits for those who do actually invest in the housing market. But real estate isn't the only means of creating passive income. Here are five other ways that can be fantastically rewarding with a little skill, research, and legwork.
1. Invest in dividend-producing stocks
Perhaps the easiest way to introduce passive income into your financial math is by investing in dividend-producing stocks. There are quite literally thousands of publicly traded companies that pay out dividends to their shareholders on a regular basis (including 66 that pay out every month, per Simply Safe Dividends). A dividend is a small share of the profits earned by the company over some preceding period of time. Dividends are often paid quarterly, so organizing three separate lists of dividend producers will ensure you earn a steady trickle of payouts each month of the year.
Note that many companies will offer dividends amounting to a few percentage points, so a single share might produce just pennies each time a dividend is paid. Therefore, a dividend yield strategy requires long-term thinking and an understanding that this passive income generator will require a snowballing effect in order to eventually create serious payouts. One strategy that many investors utilize in the early stages of their dividend investment journey is automated reinvestment, meaning every time a stock you own pays a dividend into your account, that cash is reinvested into even more shares of the company. The result is a consistently increasing payout figure that will balloon over time.
Another thing to keep an eye out for is the dividend aristocrats list. Dividend aristocrats are stocks that have continuously increased yearly payouts over the last 25 years and act as a gold standard in compound interest investing.
2. Have a hobby? Write a book!
Moving away from the prospect of leveraging your money to earn additional money, many people seeking to create a passive income stream opt for more of a "plant and harvest" approach. Creating something now that will continue to pay dividends later is a common feature with passive income. Writing a book, for example, is a great way to produce a thing that'll continue to exist in perpetuity, potentially paying you a steady stream of passive income for years to come. It's even a potentially viable avenue for writing off expenses for tax purposes. Of course, to create this particular income stream, you'll need to dedicate a considerable amount of upfront effort. However, once the book is published, all you have to do is sit back and wait to get paid — forever.
But, how do you get published? In the modern literary landscape, Amazon's Kindle interface has almost totally annihilated the gateway to publication that once stood between hordes of eager writers and a completed manuscript that could earn them income. Today, anyone can write about their life experiences or interests and publish it as an e-book or Kindle publication to enter the marketplace of literary content. If you have a passion or experienced something unique and interesting, chronicling your adventures, knowledge, or journey can lead to a tidy profit that continues to pay long into the future. And fictional universes come into creation through this approach, too; it's not just real-life histories that can garner income.
3. Build and maintain a blog
On the same theme as digital publications, avid writers and storytellers might consider creating a blog to document their experiences or augment their book-length thoughts that exist elsewhere in the digital marketplace. Blog writing allows you to share smaller, diary entry-style content with your audience. Instead of having to come up with an entire book to connect with your readers, writing a blog gives you the ability to interact on your own terms. For example, this might take the form of short daily updates, or you might consider a weekly post that may be a bit longer but still not long enough to fill the pages of a completed manuscript.
Blogging takes a bit of consistency, especially in the early days. However, once your library of content is developed, you might take a step back from routine posting or halt adding new content altogether. The choice is yours, but the income-earning potential on your blog creation remains in effect regardless of how you leverage it on a day-to-day basis. Ad revenue is a sizable feature in any digital content, and advertising can be added to your blog to create additional income-generating opportunities. But perhaps more importantly, content you post can be monetized with affiliate marketing strategies. These can be inline links that bring readers to your partners' offerings or mentions of products or brands that draw a commission.
4. Launch a YouTube channel
If writing doesn't fit with your interests or desires, you might instead opt to monetize your passions or hobbies, or even supercharge your earnings from workplace tasks by filming yourself and posting videos to YouTube. A channel on YouTube allows you to monetize your content through sponsored partnerships and ad revenue in the same way that a blog and other digital creations can.
Anything you post to YouTube will live on the video-sharing platform until you take it down in the same way that many other digital creations remain viable for passive income generation long into the future. Seeing a trickle overnight from ads that play at the start of videos or throughout your uploads can create a steady stream that augments your budget, and might perhaps transform it substantially with enough time and creative effort under your belt.
According to HootSuite, the average YouTuber can earn $10 to $30 per 1,000 views, so posting consistently and thinking about catchy headlines and interesting video content will help you grow your audience and rake in the profits. As with other passive-income generators that require upfront or steady effort, the road will be slow at first but with time it's possible to see your earnings grow exponentially as you perfect your craft.
5. Consider a REIT fund
Finally, turns out real estate isn't completely off limits as a passive-income generator for those who can't afford to purchase an investment property themselves. Even though you might not be buying an apartment or home to manage, investing in REIT funds gives you a roughly similar return without the personal effort and risk involved in classical real estate investing. REITs are like ETFs or index funds but focus (almost) exclusively on real estate assets. The acronym REIT stands for real estate investment trust, and a REIT can be purchased through your brokerage account in the same way that stocks trade. You'll see no difference functionally between a REIT and an ETF, but real estate trusts own commercial properties, residential apartment buildings, and mortgage products, in comparison to a company's sales or manufacturing pipeline that creates income.
Perhaps what sets real estate investment trusts apart is the set of rules that govern how these entities operate. To be classified in this way, a REIT must invest at least 75% of its controllable assets in real estate, and pay out at least 90% of profits as dividends to shareholders. The result is a sort of stock- traded fund that pays much larger dividends than the typical stock asset. Through REITs, even if you can't invest in real estate directly, you can still dip your toes into the marketplace — and earn passive income without the same direct risk or large capital requirement.