If you have been searching for ways to make some extra money or a new business idea, you will most likely have heard of the term ‘passive income.’
This is the art of having an income generating stream that requires minimal to no effort. It is a sharp contrast of active income, often your regular job or part-time tasks, where you get to work and earn salaries, wages, or business income.
There are varied forms of passive income today spread across virtually every industry in the economy. And the most intriguing thing about the passive income ideas is that they generate money for you literally while you sleep.
They also free up your time, allowing you to pursue your goals and more important aspects of life like chasing your hobbies and spending quality time with your family.
Your office job needs direct effort in order to produce an income in terms of their salary. A passive income stream is however different as it runs on independently. You don’t need to keep watching over it consistently and generating funds doesn’t require your active involvement.
But what makes passive income so popular and what are some of the most popular passive income ideas worth trying in 2021?
Why Passive Income Is Essential
- Passive income gives you the freedom of time:
Of all commodities, time is the most valuable as there are only 24 hours in a day. Time cannot be re-spent or recreated – it exists only once, then it is gone. Passive income is a way to detach earning ability from the limited amount of time available to work each day. It is automatic and keeps coming in as long as you have carried out the initial work required.
- Helps secure your financial future:
Nothing is worse than living under the pressure of being unable to pay your bills. It results in anxiety, desperation, and hopelessness for your future. However, earning a passive income goes a long way to alleviating these concerns. You no longer need to worry about being the victim of corporate downsizing or losing your job.
- Sets you free to pursue the things you are passionate about:
What are your interests? Is it traveling, music or art? A high-return passive income doesn’t just help sort the monthly bills, the supplemental income derived from these savings can be used to save towards your holiday vacation. When you raise your passive income to a level that is higher than your debts and monthly obligations, you have the freedom to pursue projects that you are passionate about.
- Supplemental income for your household
- Wholly hands-free income generating ideas
- It has an unlimited growth potential
- It helps you achieve financial freedom
- Great retirement plan
- Requires significant investment or man-hours to set it up
- Most passive income ventures take time to earn you meaningful returns
Criteria used to create the passive income stream list
- Capital required to start
- The autonomy with which the income idea operates
- The annualized rate of return
- The amount of time it takes to pick
- Scalability: Opportunity for growth
- Safety of the income generating stream
- Investment diversification
- Tax consequences of incomes earned
Best Passive Income Ideas 2021
1. Peer-To-Peer Lending – Over 10% returns pa
Peer-to-peer lending or Crowd Lending involves offering loans to individuals or small businesses through an online platform that links borrowers and lenders. In this case, the borrower that is often an individual or small to medium enterprise receives money from another individual directly without going through the complicated bank loan application processes.
If you are interested in making passive income from P2P lending, you may lend a small portion of the total loan requested by the borrower. When you act as a peer lender, you receive returns that are higher than an average savings account with your bank. There are several peer lending platforms available today, but two of the most popular are Prosper and Lending Club whose annualized interest rates stand well above 10%.
- Requires minimum investment amounts, as low as $25
- There is no cooling time and you start earning interests immediately
- SEC-regulated passive income generating streams
- The investment process can be automated
- Interests derived here are subject to income gains tax
2. Mobile investment Apps – 3% to 5% pa
For many people, the word investment seems like a term reserved for people looking to put tens of thousands, or even millions of dollars into a business. This is not necessarily true. Today, there are numerous ways in which the average non-accredited investor can stash as little as $5 in a passive investment idea online.
Often, we have to operate on tight budgets due to a large number of expenses, leaving very little money for savings. If that describes you, then you need such investment apps as Acorns or Stash Invest that helps you boost your passive income by investing your loose change.
All you have to do is sign up to Acorns and then connect it to your bank account. The next time you use your card to buy your morning coffee or a burger, the Acorns app will round up your change to the nearest dollar and then automatically invest the difference for you.
- Requires little initial investment while promising relatively high returns
- Easily accessible
- Offers a wide array of investment options
- Unlimited scalability
- Invests in the highly volatile shares and equity markets
3. Real estate investments – 10% to 15% pa
There are two ways in which you can create a passive income stream in the real estate industry. If you have a large capital backing, you may consider investing in a rental property by way of building them from ground up or through the purchase of commercial or residential property and then renting them out. Don’t have enough cash to purchase an entire property, you can also buy an apartment and rent it out.
Alternatively, you can invest in the less capital intensive crowdfunded real estate companies like Fundrise and PropertyCrowd. These ventures work by way of pooling in investor funds and advancing it as a loan to small and medium-sized investment real estate companies. Some companies go ahead and build or purchase residential or commercial properties. In this case, you get to earn dividends from the rental income as well as the appreciation of invested property.
- Minimal investment risks in the case of rental property
- Crowdfunded properties require relatively low initial deposit amounts
- Both passive investment options offer higher than average returns on investments
- Real estate investments rarely lose value
- Capital required for building and buying rental properties is prohibitive
- No guarantee of full occupancy leads to income fluctuations
4. Automated forex and crypto investments – 5% to 20% pa
The $5 trillion market, forex trading industry, and the relatively new crypto investments are virtually the biggest, most vibrant, and the highest rewarding passive investment opportunities. In more instances than one, you will read and hear experts bash either industry for its considerably high volatilities and massive exposure to risks. Some statistics have even placed the level of success in either field at less than 5%. But the automated forex and cryptocurrency investors like Cryptohopper are, however, well on their way towards levelling the playing field.
Through the use of award-winning trading and investment algorithms, these automated investors conduct and decide on the best trade entry and exit points. You might, however, have to spend as much as $1,000 on an effective auto-trading algorithm through a one-time payment or monthly subscription.
- Their low minimum deposits and operating balance are all welcoming
- The absence of high overheads increases your passive income
- Most are set and forget as their software updates are also automatic
- The highest rate of returns once you land an effective auto trading tool
- Most automated forex and crypto traders and are not regulated and thus uninsured
- Reports highest volatilities and risk exposure
5. Invest in shares and stocks automatically via a robo-advisor – 3% to 6% pa
Shares, stocks, commodities, and equity markets are probably the oldest form of money market investments. Yet it still remains one of the most complicated trades markets to penetrate, especially for beginners given the several barriers to entry contained herein. For the longest time, you either had to use the expensive stock brokers or dedicated a significant portion of your day to analyzing the markets and companies in which you are interested in.
The advent of Robo-advisors like M1 Finance and Betterment has however sought to automate the process and turn it into a profitable income stream. Here, you don’t need previous stock or commodity trading experience. If you have little to no experience in trading shares, stocks, and equities investment portfolio, they will guide you through the process of creating a highly diversified and low-risk portfolio. They will proceed to manage the portfolios, effectively earning you supplemental passive incomes.
- Relatively low transaction and management fees, starting from 0.25% annually
- Diversified portfolios and such features as automated rebalancing help tame possible risks
- Full investment process automation makes it beginner friendly
- Exposure to stock market volatilities makes it hard to plan for the gains
6. Invest in online discount brokers
You might also consider depositing your funds with such automated online stock brokers as Ally Invest. Registering with most of these funds is mostly free but they charge a per trade charge that averages $4.95 for most of the online stock traders. One of the most interesting aspects of these online stock brokers is their adoption of high tech investment analyses and trade execution tools. Plus some like Ally Invest don’t have minimum account investments or operating balances.
- Low trading fees, attracting discounts for high volume traders
- Automation makes them beginner friendly
- Have one of the widest investment options ranging from ETFs, Bonds, and Shares
- Embraces such trading investment options like copy trading
- Lacks the personal touch and advice offered by full-service brokers
- Most don’t offer trading or investment advice
7. Write An eBook- unlimited returns
Today, there are numerous self-published authors who are earning decent incomes annually from eBooks that they sell online. The journey to a self-published author is quite straightforward. You only have to figure out a topic or niche that you are an expert in, or come up with a fascinating fictional story, write it up, format it as an eBook and upload it to an online ecommerce platform like Amazon Kindle or sell it via social media.
You only have to commit a few weeks of preparing the eBook for the market after which you get to earn passive income into the foreseeable future. The most interesting part of self-publishing an eBook is that you are selling digital copies and therefore don’t have to worry about packaging, postage or deliveries.
There are many places where you can promote and sell your eBook. For instance, you can create a website or set up a blog which has links to your book. You could set up the download link to be accessible via a payment gateway so you receive money for your publication before allowing access to it.
One of the most promising automated eBook distributors of digital content that is popular with eBook writers is Sendowl. For a low monthly fee, you can sign up, upload your book as a pdf file, set your price and enter your details, leaving Sendowl to handle all the transactions. Whenever someone purchases your eBook, you receive your money directly to your account.
- No overheads
- There is no time limit on which the book can remain available online
- Unlimited chances of success
- Requires active promotion without a guaranteed chance of success
8. Sell Stock Photos – unlimited returns
Do you know that you can also make passive income generating stream through the sale of your images and photos on several photo sharing sites? Numerous magazines, editorials, blogs, and business owners require stock photos for use in publicity materials, reports, publications, and websites. If you love snapping high-resolution photos, then you can sell them online per image or offer them as a photo bundle – for instance, 15 photos for $20.
There are many sites which offer you the opportunity to sell your photos, with two of the most popular being Shutterstock and iStock. You could also choose to build your own site and sell your pictures there while promoting them via social media. After creating a following on social media, popular photo selling sites or own website, these photos continue bringing in passive incomes for years on.
- No limit to the type or number of images you can put up for sale
- No management and other overhead costs
- No limit to the number of times you can license the use of your image
- You can automate the sell and cash processing making it a perfect passive income stream
- Compiling an image database and turning it into a profitable passive income earner takes time
- There is no guarantee your stock image will ever sell
9. Rent your guest room or backyard on Airbnb – Depends on the space available
Do you want to make passive income through something that takes none of your time and requires no additional investment? Well, consider renting out a spare room in your home to your city tourists or even the backyard to backpackers through such online platforms as Airbnb. The most interesting about this passive investment is that it requires no additional investments or overheads as tourists carry with them their food and essentials. You can also rent out the entire house when going on business trips or vacations.
- Minimal to no overhead costs
- Airbnb insures your house against damages by renters
- You have the final word on the house price
- Earnings are subject to income tax
- It is illegal in some states
10. Drop shipping website – Unlimited returns
This refers to a form of e-commerce where you don’t get to retain any goods in stock. On the contrary, you act as an intermediary between a customer and the wholesaler, another retailer or even the manufacturer of the item who ships items directly to the customer.
The best part is that you can launch your drop shipping business with little to no investment, without any inventory and without footing the shipping costs. All you have to do is set up a simple website, and add links to suppliers and wholesalers products and every time customer clicks through and makes a purchase, you get to earn a commission passively.
- Super scalable
- Little to no risk as you hold no investment or commodity
- Minimal to no overhead costs
- They pay relatively low profit margins
11. Get Refunds on Your Purchases
The Paribus app from Capital One is a really innovative app that helps you earn passive income from your purchases. All you have to do is install the app on your Apple device. When you shop online, the application will read through your confirmation email messages to track if there is a price drop. If the price of any of the products you have purchased drops, you get a refund credited to your bank account.
This is one of the easiest ways to earn passive income from your shopping since you do not need to get in touch with anyone to receive your refund. The Paribus app takes care of everything for you. Besides giving you refunds for your online shopping, this application compensates you for late deliveries. You should note that Paribus requires access to your emails to offer you refunds, so if you are uncomfortable with this, you will have to set up a separate email address for this purpose.
- Requires no start-up capital or manpower investment
- No management fees or overhead costs
- No risks involved
- Negligible price drop refunds
- Cannot be relied upon to supplement your incomes
Passive income opportunities bring you closer to financial freedom by earning you a supplemental income. Most are however preceded by significant capital investments, dedication and man-hours contributions. Others like crypto and forex engagements expose your initial investments to huge risks. It is therefore imperative that you take these factors into consideration before deciding on the best passive income generation idea you want to pursue.
What is passive income?
Passive income is a payment you receive on a regular basis from sources other than employment or contracting. The income source usually requires little or no continuous input after the initial work is done.
What is the difference between active and passive income?
With active income, how much you earn depends on how much you work. For instance, if you work for an hour, you get a single payment for that hour. However, with passive income, you keep earning money from work you have done once.
What is the main advantage of passive income over active income?
Passive income is attractive to many people as it detaches your earning potential from the time spent working. For a minimum time investment, you get a lifetime of earnings.
Do I continue to earn a passive income when I move cities or go on vacation?
Yes. Almost all the passive income ideas we have provided above let you earn money no matter where you are, day or night. Earning a passive income is, in most cases, independent of your location, and your earnings keep accumulating even while you sleep.
Is it easy to get started with passive income?
Building up a source of passive income that guarantees a long lasting income stream requires plenty of research and sometimes lot of work to get started. Even something that seems as simple as setting up a blog needs planning and extensive research. You should be willing to take time to find out the details of the specific opportunity and the challenges that are related to your passive income idea. After this, put in the effort needed to get it right.