The Best Ways to Generate Passive Income

To the uninitiated, passive income seems like a pipe dream. The idea of generating revenue without spending any time or effort seems downright mythological.

Of course, people experienced with generating passive income understand that the term is a bit misleading. It’s certainly possible to create a situation that allows you to reap profits or income in exchange for minimal ongoing work—but to get there, you’ll need to put in significant upfront work, significant capital, or both.

These sources of passive income are some of the best—both in terms of long-term potential and in terms of accessibility.

Rental Property

One of the most common methods of wealth generation in the United States is buying, owning, and eventually selling rental property. The idea is to purchase a property, rent it to tenants, and charge them monthly rent in excess of your monthly expenses. This isn’t truly passive, of course, since you’ll be responsible for things like repairs and maintenance. However, if you hire a property management firm to take care of those responsibilities on your behalf, this can get closer to a “truly” passive revenue source.

The biggest downside to the rental property strategy is the amount of money it takes to get started. You might be able to find a low-cost property in your area, but you’ll still need to front tens of thousands of dollars for a down payment.

Dividend-Paying Stocks

Stocks represent fractional shares of ownership in a given company, so purchasing a share of stock is literally staking a claim to a small portion of that company. Some companies choose to distribute some of their profits to shareholders in the form of recurring dividends. For you, the investor, that usually means receiving a quarterly payment proportional to your ownership stake. In some cases, this can amount to making 2 to 4 percent of your investment every year. If you hold $100,000 of stock, that means $2-4,000 per year.

You can also hedge your bets by purchasing ETFs that hold many different types of dividend-paying stocks. Again, the biggest barrier to entry here is capital; for a worthwhile income, you’ll need a significant ownership stake.

Peer Lending

Peer lending, the process of lending money to other people, is growing in popularity thanks to convenient online platforms that allow you to do it. You’ll be able to lend money to people in various risk categories (usually based on their credit score), with higher-risk borrowers associated with higher interest rates (and of course, a higher risk of loss). You won’t see a huge return here, but you also don’t need to spend any real effort to get things moving.

Blogging

Next, you could try blogging, or any content-related strategy; for example, you could make a YouTube channel, start a podcast, or release a series of whitepapers. In any case, your goal is to create an archive of content that people will keep coming back to for years to come.

Once you have a steady stream of traffic, you can monetize it in a number of ways. You can advertise, you can place affiliate links to earn commissions on product sales, or you can sell premium content for a fee. In any case, you’ll be able to collect revenue on an ongoing basis; the only downside is the amount of work you’ll need to put in upfront.

Media Sales

If you’re talented at creating media, you can list and sell it online. For example, you could write a book series and list it on Amazon. You could take stock photos and sell them on Shutterstock. Assuming your content is “evergreen,” or relevant indefinitely, it has the potential to earn you money for the foreseeable future. Your biggest obstacles here are the amount of effort it takes to create a content foundation, and the uncertainty of producing something that other people want to consume.

Reselling

You can also spend effort developing an online resale business. Here, you’ll find an inexpensive supplier of goods, sell those goods on your own website, and charge people a price higher than what you’re paying. If you market your business correctly, you can end up with a stream of recurring traffic (and recurring revenue), with your supplier white labeling and drop shipping on your behalf. After the initial setup, and with minimal ongoing marketing efforts, you can pocket the profits relatively hands-free.

There’s no passive income strategy that will guarantee you a line of revenue for no effort, and there’s certainly no passive income strategy that requires nothing from you upfront. But if you’re willing to put in the effort and you’re willing to experiment (and potentially fail along the way), some combination of passive income strategies will ultimately pay off for you. 

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