“Income” generally refers to funds paid to a business or a person providing a service, manufacturing or selling a good, or received through ownership of an investment. When people think about generating income, they mostly consider active ways of doing so through a job or self-employment. But is there another technique that would allow you to generate an income passively?
What Does Passive Income Mean?
Passive income is, as its name suggests, income that is received from ‘passive activities’ – like rents, partnership interests, or even royalties. Most people building retirement portfolios include passive income streams in their strategy.
How do you find passive income opportunities and ideas? With a little research, information on ways to generate passive income is readily available. Let us help you get started:
- What are some passive income ideas for 2021?
- Where are the best passive income ideas online, and what are the best passive income ideas for students?
- Are there passive income ideas for beginners. or passive income ideas you can pursue with no money?
- Are there step-by-step instructions detailing how can I make passive income with no money?
- Which passive income ideas with little to no money offer the best opportunities?
Investors looking for passive income opportunities should also be aware of how the IRS (Internal Revenue Service) distinguishes passive income from earned income.
Being able to generate a steady passive stream of income increases your financial security, and since it does not involve much by way of active management, it frees you to pursue other interests and gives you more time with family.
What are Some Passive Income Ideas?
The year 2020 made one thing abundantly clear to most American consumers: economic upheavals can impact anyone, even families who are managing their finances, insurance, and employment in reasonable and responsible ways. Passive income can be a life-saver in such circumstances. Here are some ideas:
1. Generate Rental Income
Rental property ownership can be a lucrative and effective passive income source, but it’s not without work – more often, more work than people expect.
Successful rental property investors have to do a cost-benefit analysis to ensure they can generate a reasonable profit. This analysis includes:
- The Return on Investment (ROI) – a ratio that compares an investor’s benefit to their investment cost.
- The property’s costs & expenses – helps understand the bottom-line profits.
- The financial risks of owning the property.
To consider a simple example, suppose you can own an investment unit for $10,000 down payment, including the closing costs. Furthermore, suppose you can rent the unit for $1,500 per month, with carrying costs of $1,400, producing a net monthly income of $100, or $1,200 annually. In this case, the annual ROI would be:
ROI = $1,200/$10,000 = 12%.
These aren’t your only considerations, however. Owning a rental property is not without risks. Here are some more things you should think about:
- Is there a viable market for the unit?
- Are you prepared for late or non-paying tenants?
- How are property damages insured?
If the rental market is slow, you may have to reduce the rent to fill the unit. This will reduce your profit margin. You’ll also have insure the unit, which will reduce your profit. Finally, there’s the hassle of finding and keeping tenants, keeping track of their payment, and keeping up with unit repairs (another drain on profit). All these things affect the viability of your rental income strategy and your assessment of whether it’s worth the time and effort. Evaluate the situation carefully before you commit.
How Can I Make Passive Income with No Money?
The simplest way to general passive income without funds or capital investment is to use items that you already own that have value to someone else. Here are some ideas:
2. Advertise on Your Car
If your driving habits have you on the road a lot, your vehicle might be able to be used as a passive source of income. Through a specialized advertising agency, assuming a safe driving record and an active driving routine, you may be a good candidate for having your car wrapped with an advertisement. If so, you’ll generally get paid for every mile you drive with the ad on your car. While it does cost money to maintain a car, if you’re already out there running errands or carpooling, wrapping your car with an advertisement can be a great way to generate additional funds each month. Just make sure you’re working with a legitimate advertising company.
3. Rent Out Useful Household Items
Here’s an innovative extension of the rental strategy – consider renting out items that may be collecting dust around your home. For instance:
- Lawnmowers and yard equipment
- Power tools
- Specialized mechanic’s tools
- Camping equipment
- Oversized coolers
The key to success is finding high-value items that people only typically use for short time periods. Start small and determine the demand in your location.
Property for lease may be damaged or stolen, so depending on its value, you may want to have it insured. Also, if you’re renting out power tools, there may be liability considerations. Speak with your insurance company if you plan to rent out equipment that may cause damage.
4. Rent Out Your Home Short-Term
If you leave your home during the summer or at Christmas or some other time of the year, it is an asset that can be rented out while it’s not being used by your family. There are multiple websites dedicated to connecting renters and property owners.
Short-term tenants may damage property and create additional hassles. With appropriate insurance in place, however, there is little in the way of downside financial risk.
How to Get Started with Investing
Is Buying Land a Good Investment?