What is Passive Income? Passive income is an income received on a regular basis that requires minimal or no work to maintain the source. No work? Sounds great doesn’t it? What do you have to do to get passive income?
A common misconception is that passive income requires no effort whatsoever on the part of the beneficiary and so any income derived in this way should be classified as passive. However, the only true passive income streams come from rental property and limited business partnerships. Some passive income streams require more effort than others.
When earning passive income, it’s crucial to have a thorough understanding of what the tax implications will be. Performing due diligence up front will allow an investor to enjoy great financial benefits and avoid any unnecessary penalties.
Some ways to generate passive income
Make money online. The internet provides an almost infinite number of ways to create passive income. Do you have a product or even just an idea? Why not create an e-book and sell it online? Or perhaps start a blog site and market it well. Do you have a passion? You can make money from it by licensing or syndicating your creative output (e.g. artwork or photos.) You can also make money online via affiliate marketing or linking with more established online businesses (like Amazon). The important thing about making money online is that you should keep abreast of marketing automation tools so you don’t have to spend a lot of time in front of your computer.
Capitalize a business that is already generating income. Is there a business which you have always wanted to be in but never had the time to start? What you can do is infuse capital on an existing business (along your area of interest) which already has an existing (and growing) client base. You don’t have to actively participate in the business – just be a silent partner. You can actually get in touch with “business” brokers to help you select the business that you like. They act pretty much like real estate or stock brokers.
Peer-to-peer lending – A fast-growing medium because it offers less hassles than the bank — peer-to-peer lending simply means you are creating a personal loan between you and a borrower through a third party. Passive income is earned via interest payments made on the loans. It bears the risk of default though as the loan is unsecured. However, there are ways by which you can cut that risk (like through diversification and checking the profile of borrowers).
Dividend-Paying Stocks and Mutual Funds – Go for high-performing stocks that offer regular dividend pay-outs. This way, you earn not only through dividends, but also through capital appreciation. You can also go for preferred stocks which has a bond or debt portion to it. The latter offers less risk and higher dividends. If you do not have the time to closely monitor the stock market, you can opt for mutual funds and trust that your fund manager will grant you above average returns. Just remember to go for the dividend-yielding funds.
Real Estate Investment Trusts (REITs) – If you like the concept of dividend pay-outs but in the context of the real estate market then REITs is for you. Think of this like a mutual fund. You are part owner of several properties (though not directly) so you are instantly diversified. It pays higher dividends too compared to stocks and bonds. The real estate market is also less volatile than the stock market so you are more assured of protection from inflation.
This leads us to the top of our list which is…
Real Estate | Rental Property
Rental Property is a source of passive income that has withstood the test of time, invincible even. Remember that shelter is one of man’s basic needs. And few people can afford to buy property of their own so there will always be a market for renting. The good thing is that there are systems in place now (like specializing in turnkey investments) so you don’t have to get your hands dirty, especially if actually managing real estate properties is not your cup of tea.
Acquiring a rental property remains the traditional method for those wanting to generate a passive income with options as to the return on investment and the level of engagement desired. The landlord can choose to personally manage the leasing, maintenance and administration functions required to generate the rental income or he/she can delegate this responsibility to a managing agent to handle on their behalf.
Multiplying your income streams is a lot like diversifying your portfolio too. You cannot solely depend on one because if that single source of income runs out, what will you do?
If you focus your time today, you can start to create passive income. This way you won’t have to wait until you’re 60 to retire. Now is the time to take that first bold step towards financial freedom.
At GC Realty, we specialize in turn-key real estate investing – the perfect passive income method.