Passive income is the reason why many of us invest in the first place. To earn without working! Any income you earn that you did not directly work for is considered passive. This includes most investments in stocks or bonds but also includes a wide array of other investments. I’ll be going through some types of passive income so you can learn how to start your own passive income flows. Some types will require more work and others won’t yield much. However, everyone starts somewhere, and the earlier you start the better!
Passive Income From Stocks & Bonds
This type of passive income is the easiest to start and simple to get into. Bonds are fairly simple passive income mechanisms. Most have a face value of $1000 per bond and you would receive a percent of that face value each year. This percent is known as the coupon rate. Moving to stocks, you will receive dividends depending on the stock you choose. In addition, your shares will be worth more if the value of the company increases. Some companies offer higher dividends like Verizon (4.38% yield per share) and AT&T (7.11% yield per share).
This means that if you had one share of Verizon worth $60, then you would receive 4.38% of that in dividends per year. That equates to about $2.63 per year for holding one share. For AT&T, holding one share at $30 would yield you $2.13 per year per share. So if you were to invest $450,000 into AT&T at $30, you would receive nearly $32,000 in dividends each year. Not the best return but this type of passive income is the easiest way to start earning without working.
Here’s an article on how to evaluate stocks more effectively:
Real Estate is the next type of passive income I’ll be reviewing. Real estate is a form of passive income that is fairly independent from the stock market. This type of investment receives income from tenants that rent out your property. Whether your property is a home or warehouse, if someone is paying you to use then that is passive income. Real estate is a powerful way to leverage your money. Often, a loan requires you to put down 15-20% as a down payment. This means with $30,000 you could get a mortgage for a $150,000 house. You leveraged 30k into 150k, a 5x increase of your down payment.
Once you have purchased the property, you can start renting it out. A multi room/apartment property is best as you can rent out to more people. Generally, your first tenant’s rent will cover most of the mortgage. So when you rent to multiple tenants you can start earning much more!
Of course this type of investment requires you to put in more work. Getting the loan, choosing the tenants, and maintaining the property are all important factors to consider. The last two factors will require constant attention but nothing close to a full time job. Thus although this option requires more work and capital to start, it is still a good passive income option.
Starting a Business
This option by far requires the most work upfront. This type of passive income yields the greatest return but also requires a lot of time and effort on your part. In addition, this avenue is the most risky and could even be active income forever if you so choose. Anyways, let’s get into the details.
Starting a business doesn’t seem like it can be a passive income method but overtime it can be. By putting up infrastructure for the business to run itself without you will eventually provide income without any input from yourself. For example, if you were to set up an online store with a product such as a course. Then you would have a business that runs itself entirely without any humans. That being said, it takes a lot of effort to do this. Of the top of my head you would need to: build a website, set up payment options, make a course that gives value to others, market your product, gain trust with an audience, etc… But once your business is all set up then you’ll be earning in no time!
Businesses are risky and hard to start and continue. Nothing is guaranteed in business so there will always be some active role you will have to play in order for things to go according to plan. Business is also the most lucrative. Depending on your type of business, customers, and countless other factors you could rake in anywhere from $100/month to $10,000/month or more!
Overall, passive income requires a little bit of assistance from yourself to get started. Once you get rolling you will soon notice that passive income is hard to stop. Everyone starts somewhere and the earlier the better. So make a plan and get investing!