Earning extra income is becoming the norm. With the cost of living seemingly going up every year, and wages not necessarily equaling those increases, it’s smart to think about earning passive income.
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What is Passive Income?
Passive income is money you can earn on a recurring basis from doing little to no work. Unlike active income, where the more you work, the more you earn (think – your job), passive income has an initial level of work or money up front, then has a flat return after that without the same level of work going into it.
To use a dated reference, think about owning a rental property. You buy the property and fix it up to be rented out. That’s your initial investment in both time and money. After that, assuming there’s a renter, it’s passive income that you collect each month.
Well, it’s 2020 now–so times have changed. Here are some great ideas for earning passive income this year.
1. Invest in (Crowdfunded) Real Estate Properties
The cost to invest in real estate can get high. But there are new options to invest in real estate besides buying physical properties or investing in REITs. Now you can use crowdfunding to become a partial investor in a much larger real estate deal.
Crowdfunding, the process of pooling dollars from a large population of people to fund a larger project, has significantly increased in volume over the past several years. According to Statista, $34.4 billion was raised in the United States through crowdfunding in 2015. In 2012, this number was $2.7 billion. That number continues to trend upward as new crowdfunding options become available.
To invest in crowdfunded real estate, you can look into sites such as Realty Mogul and Fundrise. Using these sites, you can invest with a relatively small amount, and take part in large-scale residential and commercial real estate projects that you otherwise would have no ability to jump in on.
2. Invest in Dividend-Paying Stocks
Most stocks that pay dividends are the sexiest investments, but they generate passive income. In most cases, your broker will encourage you to re-invest your dividends (that’s what my Betterment account does) but you have the option of having your dividends dumped into your account for withdrawal.
So what exactly is a dividend? Basically, as a company makes a profit it has two options:
- It can reinvest those profits back into the company (often done by younger companies looking for growth, i.e., a tech company)
- It can return a portion of those profits back to its investors (often done by more established companies that have low debt and high cash balances)
In fact, finding a stock that pays dividends is one of the key tenants of value investing, a methodology developed by Benjamin Graham and made famous by Warren Buffet.
You can read all about value investing here, but the basics are this: find a solid company that makes a good product or service, delivers a dividend, has no debt and a lot of cash. There are much more facets to this philosophy, as Graham wrote a massive book on it, but those are some of the basics.
This is to say that guys like Warren Buffet value companies that pay dividends. Maybe you should, too. If you follow this philosophy, you can find excellent investment opportunities for long-term growth, while generating passive income for the short-term via dividends.
You can speed up this process in a very easy and affordable way by opening an account with any of the brokers listed below. Most brokers nowadays no longer charge trade fees which is a huge savings for you!
- Ally Invest: Best for new investors
- TD Ameritrade: Ideal for more experienced traders
- E*TRADE: Great for any investment style
If you don’t already have a portfolio and you’re ready to begin investing, here is our list of best online discount brokers
3. Loan Money via Peer-to-Peer Lending
Peer-to-peer (or P2P) lending became popular about 14 years ago when Prosper first came onto the scene. It marketed itself as a way to borrow money without having to go to a bank. Instead, you can borrow money from someone else–who will loan it to you at a competitive rate.
Since then, P2P lending has exploded onto the scene. More companies like Prosper and Lending Club have jumped on the P2P bandwagon, and investors are beginning to realize it’s an excellent source of passive income. As an investor, you fund an account and loan small amounts (like $25) to a variety of borrowers across a broad set of risk levels, creating a diverse portfolio.
As little as a few years ago, people were averaging around 10% as an annual return, which is a fantastic ROI for passive income. Rates of return are still very competitive, and if you have enough to invest, as well as a diversification strategy, P2P lending can be a great source of passive income for you.
4. Sell Your Photography as Stock Photos
If you’re one of the millions of people who love photography as a hobby, you can quickly turn it into passive income by selling your photos as stock photos. Instead of setting up a tent at a local art fair, hoping someone will buy one of your glorious photos of Ireland, you can turn it into a profit with sites like iStock Photo and Getty Images.
The blog Shaw Academy says that “some stock photography websites allow anyone to join,” while “others are a bit more choosey, but offer a better royalty rate,” and that “many agencies pay photographers a percentage of the profit from their images.” The site offers up these ten places as options for selling your stock photos.
Why are photos so important?
For starters, many websites are using them–so there’s a big market for stock photography. It’s no shocker either, as one study found, that 65% of people are visual learners. In fact, when people hear information, they remember about 10% of that information three days later, but if a relevant image is paired with that same information, Brain Rules found that people retained 65% of the information three days later–a 55% increase.
If you’re serious about taking awesome photos and selling them, Tom Ewer of Graph Paper Press put together an excellent guide that walks you through the process.
5. Write and Self-Publish a Book
Many people recommend starting a blog as a way to earn passive income. I don’t agree with that approach, as it can take a long time (and a lot of money) to build and grow a blog from the ground up (more on this below if you have an established blog). Instead, you might consider writing and self-publishing your own book.
Where blogging requires frequent, less-lengthy content, a book can be something you work on for months at a time and publish it for sale. And it can become more than just passive income. In fact, UK author Mark Dawson makes close to half a million dollars a year from self-publishing his books. On a smaller scale, Joseph Hogue makes about $2,000 per month writing and self-publishing financial books. If these guys can do it, anyone can.
6. Rent Your Home (or a Room) Out with Airbnb
Whether you have a rental home on the beach, a home that you aren’t at all the time, or just a vacant room in your home, you can rent it out on sites like Airbnb and VRBO. Now, this comes with a little more work and isn’t entirely “passive” all the time, but it can be if you set yourself up correctly.
The best way to take advantage of something like Airbnb is to have a separate property that sits vacant all the time. This way, you can just worry about keeping it clean and never have to worry about making sure you’re out of there when guests want to show up. While that’s not always the most cost-effective way (owning another property can be pricey), it’s the best.
Read More: 13 Ways to Earn More Money with Airbnb
If you don’t own another property, though, you can rent out the place you live when you’re not there. For example, many people do this when they live near big events–like conferences or major sports games. They will stay at a friend’s house or even a hotel and rent their place out at a huge markup for the event. Or if you travel routinely for work, you can rent your place out while you’re gone. If you want to learn more, Thrifty Nomads walks you through the entire process of listing and renting your home on Airbnb in this guide.
7. Sell Products on Etsy
There are now two ways to sell on Etsy–physical and digital products. With physical products, you can either create something unique such as jewelry or buy and resell something–for example, vintage clothing. Etsy has been a great marketplace for a long time, helping creative people sell their goods. The problem is, selling physical products isn’t exactly passive income.
That’s where digital products come in.
Etsy now allows you to sell digital products in your store. This can be anything from a picture that someone can download and frame to a guide on how to create a budget in PDF form. The possibilities for you to be creative are endless. The nice thing is, once you create a digital product for Etsy, you upload it and you can sit back and watch the sales come in (assuming your digital product is awesome).
Unlike having to either create something or store a physical inventory of something, selling digital products requires no overhead and no active work to earn money. The blog Paper & Oats put together a great guide on how to get started selling on Etsy. In this guide, they share a few ideas on digital products you can put together and sell in your Etsy store. If you’re someone who’s creative and knows how to design great-looking digital files, this might be a perfect option for you.
There is a multitude of ways you can start earning more passive income in 2020–these are just a few. If you have any type of creative ability, it can probably be turned into a side hustle that can earn passive income. You just have to be business-minded and avoid buying into the myths about passive income from the start.
Your turn: what types of gigs do you do for passive income?