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5 Strategies For Earning Passive Income

By Mark Riddix

I recently wrote a post on the importance of adding passive income to your income stream. Passive income can make your life a whole lot easier by increasing the amount of money that you earn and decreasing your dependency on your work income. A passive income stream can even shave years off your active working years until retirement. Today, I would like to take a look at a couple of strategies for generating passive income. Remember, passive income is money you make even when you’re sleeping and not doing anything. Some people like to think of freelance work as “passive income.” That’s not true, it would be considered an alternative stream of income, not passive income. These ideas are ones that will be making you money even when you’re not doing anything:

1. Dividend Investing

One of the easiest ways to generate passive income is by investing in high yielding dividend paying stocks. You can buy high yielding stocks like Verizon or AT&T which are currently paying almost 7% in dividends. Real estate investment trusts (REIT) are also great income producing investments. REIT’s are required by law to pay out 90% of their earnings back to shareholders. REIT’s like Hatteras Financial are yielding nearly 15%.

2. Rental Properties

It was quite popular to buy a property and rent one out during the early 2000s. Many property speculators left the market after the real estate market tanked in 2007. Now is a great time to invest in a rental property. With federal regulators tightening up lending regulations, it will be difficult for potential homebuyers to obtain financing for a home. The real estate market will be overrun with individuals looking to rent a house in the future. The rental payments will be a nice income stream for the shrewd investor.

3. Royalties

You can earn royalties for life off of any creative work that you develop. If you are a skilled writer, write a book or a play. Submit your finished work to a publisher or sell it independently. If you are a great singer then you can record a CD. You can market it to a major label or sell it yourself online. Once you have finished your masterpiece, you can collect your royalties. Royalty payments are typically based on sales volume. Remember to obtain a copyright or patent on your work. This entitles you to receive residual income for years into the future.

4. Website

Using the internet as a means for making money has grown dramatically since the 90s. Starting an ecommerce business is not the only way to make online anymore. You can create a website and get paid by ad companies. Advertisers are always looking for new sites to market their products and are willing to pay large sums to do it. You can register with Google Adsense, Yahoo Publisher, Commission Junction, and WidgetBucks. You can either go the route of selling a product on a website or creating an information-based website. This could be considered not passive if you’re actively running the website, maintaining it, and writing content. But, if you hire someone else to manage it, then it could be something that you benefit from in a passive way.

5. Limited Partnerships

A limited partnership is a partnership in which one or more of the partners is a limited partner. Limited partners have limited liability and no input in the day to day operations of the partnership. All income is deemed as passive since limited partners are not actively involved in the management of the partnership. Limited partnerships often require an initial investment in order to participate in the partnership’s profit sharing structure. One of the most popular limited partnerships is a master limited partnership (MLP). MLP’s are publicly traded limited partnerships that pay out quarterly distributions to investors.

Which of these five forms of passive income do you think is the right one for you? Do you have any other good ideas when it comes to ways to generate passive income streams?

(Photo credit: Seth1492)

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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Comments

  • http://www.budgetpulse.com Craig

    Rental properties would be the way, but does cost a lot of money to get started.

    • Little Old Me

      If you are single (especially if you are young) and have an extra bedroom, you could get a roommate. Then you wouldn’t have to shell out money for a mortgage on a second property.

      • Mark Riddix

        Home sharing is another good passive income strategy.

  • http://www.organizingthedetails.wordpress.com Gil

    I choked when I read that you put Rental Property as a “Passive income”. Either you have never owned rental property (and subsequently had to manage it) or you have some magic rental property secret that other landowners don’t know. It’s definitely work and sometimes can be A LOT of work. So yes, you might make some money, but it’s definitely not for the faint of heart or what I would consider a “passive income” stream like stock dividends or monetized blogs on the internet.

    • Chris

      Need to have a property manager, otherwise you bought yourself a job..

  • http://barbarafriedbergpersonalfinance.com Barb Friedberg

    Hi-I love posts about ways to earn extra cash. You are going in my link round up tomorrow! thanks

    • Mark Riddix

      Thanks Barb!

  • http://easyextramoneyonline.com/blog/ Sunil from The Extra Money Blog

    Gil – Yes, rental properties is a bit more work, but the rewards are equally as good. Many also like the tangible factor, something you can see, touch, feel etc. It’s a great hedge against inflation, and has been a necessity over the years. From a financial perspective, you have appreciation potential, cash flow and tax advantages in the short term. If highly leveraged you can end up owning it over time with very little out of pocket even if it does not appreciate. To make it more passive than it is for many, I factor in a 10% management fee in my calc when making offers. This ensures I have professionals managing it, making it mostly passive for me.

    • Chris

      Depreciation is your friend (27.5 years!) and can significantly mitigate your tax liability.

  • http://www.gayward-concepts.com/ Green Stickman

    This is great article! I am also writing article about active and passive income. I may say that this is an interesting post as well. Thanks for the info!

    More power to your site! :)

  • BigDave

    Using the internet to create niche websites and generate a passive income has proved to be a viable business with being an affiliate with Amazon. Great tips here!

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