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“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffet
Yes, that’s absolutely true! And that’s why passive income is the money stream that everyone dreams of having!
It helps you to generate income over time without working at a job. Passive income often comes from investments or business interests that require minimal effort. And the best part is, you don’t have to go to work every day!
This is such a life-saver especially after retirement when you want to spend more time with loved ones and on leisure activities rather than burdensome endeavors.
So, let’s look at awesome passive income streams that can work in your favor before you retire.
Best Passive Income Streams to Build Real Wealth
Here we have listed some of the simple yet effective ways to generate passive income and build real wealth before retirement! Let’s start!
1. Go for rental properties
One of the best ways to generate passive income is through rental properties! You can buy a property or rent out space in your home and earn income overtime.
Being a landlord can definitely earn you good passive income! But, you have to keep in mind that finding renters and maintaining a property can take a considerable amount of time.
But, you don’t have to worry.
You can hire a third party to manage the property for you. Yes, they have a couple of fees here and there but the return on investment is still worth the effort.
Roofstock is a great place to start and they can manage your rental property on your behalf.
However, if you are not yet prepared to take on the cost of owning a rental property, you can rent out rooms in your house temporarily to vacationers!
I just found out that I can make up to $750 per month in my area.
2. Invest in crowdfunded Real Estate
If you aren’t interested in dealing with the daily burden of managing a property, investing in REITs (Real Estate Investment Trusts) can be one of the passive income options for you!
But, what is a REIT?
It is a type of company that allows you to pool your money with others to invest in a collection of properties! A report released by Nareit states that approximately 87 million Americans invest in REIT stocks through their 401(k) and other investment funds!
Usually, REITs have got a special tax status! As a result, they need to pay at least 90% of the income as dividends to its investors. But before you invest in a REIT, make sure the company meets the following criteria:
- The concerned company should have a minimum of 100 shareholders!
- A REIT should not have more than 50% of its shares held by five or fewer individuals during the last half of the taxable year.
- At least 75% of assets must be invested in real estate, cash, or Treasuries.
- 75% of gross income must be derived from real estate.
Basically, there are two types of REITs where you can invest:
Equity REITs buy, own, or manage high revenue-generating properties like shopping malls, hotels, apartments, etc. They generate revenue through the rents of the tenants, who take the lease on the space.
Mortgage REITs generate revenue by the interest incurred from buying mortgages or mortgage-backed securities. Opting this helps you to invest in real estate without buying it actually.
But the question still remains, how will you make money through Equity REIT and Mortgage REIT?
In Equity REITs, companies buy and lease properties to the tenants! This creates a chain of income which is passed on to the shareholders as dividends! And as you know, usually a property’s value appreciates with time and eventually, the value of your share also grows!
On the other hand, mortgage REITs borrow money at low short-term interest rates and buy mortgages that pay out higher long-term interest rates! And the difference between the two rates is the profit of the REIT.
If you are looking for a simple, low-cost real estate investment platform to use then Fundrise is your go-to platform
3. Go for peer-to-peer lending
One of the recent ways to invest your money for more immediate passive income is through peer-to-peer lending! Technically speaking, you are becoming a bank for someone who needs money. It comes with a higher risk but it rewards you with lucrative profits too!
Because the interest rate you are gonna charge is likely to be higher than what you can earn from a bond or certificate of deposit!
You can lend to others through lending cooperatives like Prosper, Lending Club or Upstart.
Lending Club is my favorite platform to use when it comes to peer-to-peer lending.
4. Purchase dividend Paying stocks
I would say that dividend investing is the greatest passive income stream!
You just invest once and earn money forever! But you need to be a good dividend investor. You do this by measuring the dividend coverage ratio!
Let’s say, a company earns $200 million and pays out $60 million as dividends. Then, it might be comparatively safer to invest here.
But, if a company earns $200 million and pays out $180 million, it can be a risky investment for you!
And, you have to keep an eye on your portfolio to make sure that it’s performing well. Because the dividend payments can be reduced or even eliminated if the company isn’t performing well.
If you aren’t sure which dividend-paying stocks to choose, you can stick to the ones that fit the dividend aristocrat label! That means the company has offered increasingly higher dividends for at least 25 years!
5. Start your blog
Do you love to write?
If yes, you can start a blog! If you have a niche topic to write about, you can start writing on your blog. Besides, you can write about subjects you are interested in. And you can create a community and build a following that way.
After writing great content and building a community, you can look partner with ad networks and affiliate programs to promote products and services to your readers and earn a commission when they make purchases.
This is how this blog makes most of its money.
Ready to start your blog today?
Apart from affiliate marketing and ad networks, you can also make money with your blog through sponsored posts, setting up a membership or creating your own products like ecourses/ebooks for additional revenue.
The Federal Trade Commission has made a strict guideline about advertising on the web. And you have to disclose if you make money through a link on your blog.
6. Invest in a Bond ladder
A bond ladder is a series of bonds that mature at different times over a given period of time. You have to buy bonds in your account such that the maturity dates of the bonds are laddered across a specific time.
Let’s say, you have $60,000 to invest in bonds. By using the bond ladder technique, you can buy 10 bonds each with a face value of $6,000. Or, you can buy 6 bonds, each with a face value of $10,000. But make sure, each bond has a different maturity year. One bond may mature in one year, another one may mature in 2 years and so on!
But why will you use a bond ladder approach?
- By laddering the bonds over a period, you won’t be locked into a single bond for a long duration.
- You can protect yourself from the bear market. Let’s say you have invested $40,000 in a single bond with a yield of 4% for an 8-year term. In the meantime, if the interest rates hit a bottom, then your investment will be stuck with a low-interest rate. But by using a bond ladder strategy, you have a bond maturing every year or so! And eventually, there are high chances that you can smooth out the fluctuations in the market!
- You can have the ability to adjust cash flows based on your financial situation. You can guarantee a monthly income on the coupon payments (annual interest rate paid on a bond’s face value) from the laddered bonds.
So, in retirement, you can make effective use of bond ladders to provide the funds you need for retirement expenses each year.
7. Put ads on your car
How about earning extra money by driving your car?
No, I am not asking you to be a driver of any cab services! But you can put advertisements on your car and earn money.
You will find companies that are willing to pay you to utilize your cars as a mobile billboard. And then you can drive your car like the way you normally do.
Wrapify is a good place to start, but you need to have a clean driving record and must be on the road for a certain number of miles a day!
Are there Cons to Earning Passive Income?
By the way, are you thinking about Uncle Sam’s deductions?
Well, the Internal Revenue Service (IRS) categorizes passive income as the income from any rental activity or any business in which you don’t materially participate!
The key difference between passive income, investment income, and earned income is, you don’t need to pay FICA taxes (such as Social Security and Medicare)!
Getting Started With Passive Income Streams
But before you think of generating passive income, you should pay off your debts if you have any! Because the monthly payments to repay your debts can be a hindrance to investing for your future.
So, the first thing you need to do is, get some tips to stop your spending on credit cards! Unsecured debts like credit card debts are enough to eat your paycheck and make your passive income take a hit!
So, try to pay off your debts at the earliest and save those dollars to invest for your passive income!
Valentina Wilson is a personal financial blogger. She loves to analyze personal financial matters and help others manage their finances in a better way. Traveling is also her passion. She loves to travel and explore different places all by herself. To connect with her, visit her twitter page or her blog at Bestdebtconsolidation.org