Strategies for creating passive income
Passive income, one that requires minimal effort to generate cash flow, is understandably highly sought after, getting on average 3 million Google searches every month. Whether you have an entrepreneurial flair and are looking for a new venture, or are simply searching for ways to top up your income, there’s value in determining how to generate this form of income.
While the advantages of passive income are obvious, the reality is that it can be more work than initially anticipated. It typically requires a significant up-front investment of time or capital, often with little to no initial returns and sometimes no income for extended periods.
In this article we’ll explore three main ways of generating additional revenue discussing the pros and cons so that you’ll have realistic expectations and can choose what will work for you.
1. Leverage your skills and talents digitally
There are virtually limitless ways to peddle your creative wares online and generate passive income. Here are a few examples.
Start a blog
Successful blogs can generate a significant amount of income, but not quickly. Once your blog becomes popular, it provides you with the platform and audience to generate multiple streams of revenue by marketing relevant products and services to your visitors.
Write and publish an e-book
Non-fiction e-books that help to educate your audience on topics such as marketing, business or other self-development areas, are likely going to sell better than fiction. While fiction can be lucrative, it's highly competitive if you're not an already established writer.
Teach an online course or create an audiobook
This can take a significant amount of effort initially, but if you have a technical skill, you can opt to teach by creating a course using platforms such as Udemy. Other coveted skills include playing an instrument, learning a new language and becoming a photographer. Generate royalties from jingles or audio tracks. If you're musically inclined, you can create jingles or audio tracks that you can then license out through popular websites such as Audio Socket, Sound Cloud or Song Freedom.
Sell photos online
If you’re a talented photographer, you can leverage photo-selling websites and earn money while you sleep. This is another highly competitive area but if you have a unique style or subject matter, you can create your own niche.
2. Generate monthly income with real estate
Real estate has long been a common source of passive income. Renting out homes, apartments, condos and office space can generate a healthy monthly revenue. You can purchase real estate to rent out to long-term tenants or you can try your hand at vacation rentals through sites like AirBnB or VRBO. Because of the costs, however, it can take a few years for a rental property to generate a stable and positive cash flow.
Provided the property is occupied and the rent covers all your expenses, you could earn rental income for a number of years which may be higher than what you’d earn with other investments. Later on, you can potentially sell the property for a profit. Just keep in mind that the sale will be subject to capital gains tax if it’s not your primary residence.
It can be a lot of work to be a landlord or manage a vacation rental; however you can always consider hiring a property manager. Liquidity is also an important consideration. It’s not easy to get a lot of cash out of an investment in property quickly, if you need to. And of course there’s always a potential for a loss. Your property may go months without a tenant meaning you would have to pay the mortgage and maintenance costs yourself.
3. Build an investment portfolio
While fixed income investments aren’t earning a great deal these days and the stock market has its ups and downs, if you’re in it for the long-term and have the right asset mix and some good advice, you can generate a healthy revenue stream. Plus you have access to your capital at any time should you need it.
You can also manage your risk depending on what investments you hold.
Whatever your risk tolerance, it's important to diversify your investment portfolio by spreading your investments among the three main asset classes: equity funds, fixed-income funds, and funds that invest in cash and cash equivalents.
Whether you're just starting out or even if you already have a large and complex portfolio, you may want to consider connecting with a financial or investment advisor with extensive knowledge and expertise to grow your wealth.
Which passive income strategy suits you best? The key is to match the passive income method to the value you provide, not your time. Whether that’s skills you share with others digitally, a rental property or simply savvy investing, there will be varying degrees of effort required. You may be limited on time but the amount of value – and income – you can create is unlimited.