Passive income is money earned with little ongoing effort or involvement after an upfront investment of time, funds, or resources. Unlike traditional income, which is earned through direct labor or services, passive income streams allow for ongoing earnings with little ongoing work. There are various ways to make passive income, from investing in real estate and dividend stocks to renting out personal items and licensing intellectual property. Building a passive income stream can offer financial flexibility, supplement existing income and provide opportunities for long-term wealth generation.
A financial advisor can help you build and manage streams of passive income. Find a financial advisor today.
Invest in Rental Properties
Owning rental properties is one of the most traditional and reliable ways to generate passive income. By purchasing a property and renting it out to tenants, you can create a steady stream of income from rent payments. Rental properties can include single-family homes, duplexes, apartment buildings or even vacation rentals.
While managing a property may require some initial effort, such as finding tenants and performing occasional maintenance, it can become largely passive once established. Many property owners also opt to hire a property management company to handle day-to-day tasks, further reducing the need for active involvement.
Buy Dividend Stocks
Adding dividend-paying stocks and funds to your investment portfolio is another reliable way to create passive income. These stocks provide regular payouts to shareholders from the company's profits. By holding shares in well-established companies known for paying dividends, investors can receive a consistent income stream. Over time, reinvesting these dividends can lead to compound growth, further increasing earnings potential.
Buy Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) offer another way to invest in real estate passively. A REIT is a company that owns, operates or finances income-producing real estate, like shopping centers, office buildings, apartments or hospitals. By investing in a REIT, you are essentially buying shares in a company that manages real estate, and you earn a portion of the income generated by the properties, typically through dividends.
REITs are typically publicly traded on stock exchanges, making them a highly liquid and accessible investment option. Since REITs are required to pay out at least 90% of their taxable income to shareholders as dividends, they can provide a reliable source of passive income.
Try Peer-to-Peer Lending
Peer-to-peer (P2P) lending offers a unique opportunity for passive income by allowing individuals to lend money directly to borrowers through online platforms.
As a lender, you provide loans to individuals or small businesses, earning interest on the loan as it’s repaid. These platforms make it easy for lenders to diversify their portfolios by spreading their investments across multiple borrowers, reducing the risk of loss if a borrower defaults.
Start a YouTube Channel
Starting a YouTube channel or blog can lead to passive income through ad revenue, sponsorships and affiliate marketing opportunities. Although building an audience takes time, once you have a consistent stream of traffic, these platforms can generate revenue with little ongoing work. For example, ad revenue from Google AdSense can become a passive source of income once videos are uploaded to YouTube.
Rent Out Your Car or Parking Spot
If you own a car or parking space that you seldom use, renting it out could be a simple way to earn passive income. Services like Turo let you offer your vehicle for rent when it’s idle. As a car owner, you can determine the rental price and schedule, while Turo takes care of the insurance and manages the transactions.
For those who live in urban areas or near event venues, renting out a parking spot through apps like JustPark or SpotHero can also be a simple way to earn extra money.
Invest in Crowdfunded Real Estate
Crowdfunded real estate is an innovative approach to earning passive income by investing in real estate without the need to purchase and manage properties directly. Through crowdfunding platforms like Fundrise, RealtyMogul or CrowdStreet, investors can pool their money to fund large real estate projects, such as commercial buildings, apartment complexes or mixed-use developments.
In return, investors receive a share of the profits generated by the property, such as rental income or capital gains from a property sale. While returns can vary depending on the project’s success, it’s generally considered a more hands-off way to invest in real estate compared to owning and managing property directly.
Rent Out a Spare Room
Renting out a spare room, often referred to as house hacking, is a practical and accessible way to generate passive income. House hacking involves living in a property, such as a single-family home or duplex, while renting out extra rooms or units to offset your living expenses.
Platforms like Airbnb or traditional long-term leases allow you to rent your space to tenants, travelers or even students. This can significantly reduce your mortgage costs or provide a steady stream of income if your home is fully paid off.
The advantage of house hacking is that it requires minimal upfront investment beyond owning or renting a property with extra space. Whether you’re renting to short-term guests or long-term tenants, house hacking can offer a flexible, low-effort way to turn your home into a source of passive income.
Sell Stock Photos or Videos
For photographers and videographers, selling stock images and videos can be a lucrative way to earn passive income. Websites like Shutterstock, Adobe Stock and iStock allow content creators to upload their work and receive royalties whenever someone purchases their images or videos. Once uploaded, these files can generate income indefinitely, making it a scalable way to earn money from creative content.
Rent Out Personal Items
Renting out personal items you own but rarely use can be an easy way to create passive income. For example, renting out tools or high-end equipment through platforms like Yoodlize or Fat Llama can generate income without much ongoing effort.
This method requires some initial setup and periodic maintenance. But once established, it can become a reliable source of passive income.
License Intellectual Property
If you’ve created a product or piece of intellectual property, licensing it to others can provide a steady flow of passive income. For example, a patent holder can license their invention to a manufacturer in exchange for royalties. Similarly, musicians or writers can license their work to companies or individuals who wish to use it in their own projects.
This strategy allows creators to earn money from their intellectual property without having to actively manage or sell it themselves.
Bottom Line
If you're wondering how to make passive income, you have a number of options at your disposal, from renting out your car, parking space or spare room to owning rental properties and dividend stocks. Different options require varying levels of time and money, but they can provide a way to earn income without continually making an active effort. Having these options built into your income stream can help you boost overall earnings over time without requiring more of your energy and effort.
Income Investing Tips
- When adding income-producing assets to your portfolio, consider investing in companies with a strong history of consistently increasing dividends. Dividend growth stocks not only provide income but also help offset inflation, as increasing payouts protect purchasing power over time.
- A financial advisor can help you assess whether your portfolio would benefit from more income-producing assets. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/designer491, ©iStock.com/Bet_Noire, ©iStock.com/blackCAT
The post How to Make Passive Income: Ideas and Examples appeared first on SmartReads by SmartAsset.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
