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Passive Income

Passive Income and the Different Ways to Generate It

It’s perhaps every hands-off investors’ dream to earn in their sleep. Luckily for them, excellent passive income sources may have something to make that possible.

Whether you’re operating a side hustle or only want to earn extra every month, passive income can provide additional financial security. It can help you make more money and support you if you suddenly lose your primary job or take time off work voluntarily.

Additionally, if you’re thinking about saving for retirement, you may consider trying wealth building through passive income.

First, Let Us Explain Passive Income

Passive income refers to a slightly automated income stream. You make an initial investment upfront – usually in a stock, mutual fund, or other equity-based vehicles – and then you obtain a stake in that investment, from which you earn through dividends or other types of regular income.

Simply put, passive income allows you to earn without putting in a significant amount of continuous effort. Once you have found and determined a passive income stream, you won’t need to keep an eye on it daily. Although that does not mean there is no need to check it or do some work from time to time.

In practice, many passive income ideas require an investment of money, time, or other resources in the beginning, but they usually involve some extra labor along the way.

You may also need a certain amount of monitoring or ongoing management to ensure that everything is updated, adequately maintained, and headed on the right path. Still, those passive income ideas would not require you to spend long hours per week.

3 Ways to Generate Passive Income

Typically, there are three common ways to generate passive income:


Investing involves using the funds you already have with the goal of multiplying your earnings. This strategy offers the best way to earn passive income. But you may need a huge amount of money if you seek to make excellent returns.

Moreover, while investing presents the largest opportunity to earn passive income, the passive income prospect is only possible with assets that pay dividends or interest. Non-dividend paying stocks or assets such as cryptocurrencies may be appealing. But they don’t have the ability to generate passive income.

Asset Building

In asset building, you own an asset (savings account, business ownership, education, health) that earns money passively over time. While it is not as expensive as investing, it carries the risk that the assets you spend your time and effort making may not sell.

Asset Sharing

Asset sharing involves selling or renting out assets that you already own, often underused or idle. This way, you can turn a profit from assets like your spare rooms or parked vehicles by renting or leasing them to others.

For this one, we will be focusing on the different ways to generate passive income through investing.

Passive Income Through Investing

Passive Income Through Investing

Dividend-Yielding Stocks

Dividend stocks allow investors to receive regular payouts. However, since you need to own some shares of the company to be eligible for dividends, you may be required to invest a considerable amount of money to earn substantial income from these types of stocks.

Therefore, if you aim to earn big from dividend stocks, you should opt for preferred stocks or the so-called dividend aristocrats, as they offer higher dividend yields.

Keep in mind that there is risk associated with dividend investing. For example, if the company is caught in a difficult situation, it will be unable to issue dividends or may need to reduce them.

Real Estate

Buying a house or a piece of property is another way to earn a passive income. However, investing in such is not as simple as it sounds, as you may need to invest hundreds of thousands of dollars upfront.

Moreover, if you own a rental property, you need to take care of the repairs and maintenance, which cost time and money. Of course, you can hire a property manager, but that would only take away more of your income.

To avoid dealing with such issues, you can consider alternative investments, such as real estate investment trusts (REITs) or real estate crowdfunding platforms. In real estate crowdfunding, you just have to ensure that they do not require accredited investors to invest with them.

Domain Investing

Domain investing or domaining is quite similar to regular investing. The main difference is that you’re buying low and selling high cheap domain names.

You would want to select common terms or particular proper nouns in the domain investing, as they are decent options. In the US, .com domains are excellent since they run at a premium over nearly all others.

It is easy to start investing in domain names due to their inexpensive trait. However, this passive investing idea would expose you to the risk of losing your initial investment if you fail to sell the domains you bought.

Peer-to-Peer (P2P) Lending

In P2P lending, you act as the lender to a third party which is usually via a ready-made platform. Such an investing approach allows you to earn interest as the initial amount you loaned is paid back.

Still, with P2P lending, you run the risk that the individual or people you loan to may default on their loans. To curb that risk, allocating your money in different loans is one way to do it. You satisfy the income or net worth requirements for your chosen P2P lending platform.

In addition, note that some platform requires accredited investors.

Vending Machines

Vending machines offer a mostly passive income stream. You only need to find an excellent location and pay a few thousand dollars to own and operate one.

Once you have them, you just need to spend a little bit of time per week to restock, service the machines, and make sure that it is in good working condition and does not require any repairs.

You can also hire other people to take care of those tasks for you, as long as you’re okay with letting go of some of the profits.

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