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Making money in your sleep is the ultimate dream for hands-off investors. Finding the best sources of passive income may allow you to do just that.
What Is Passive Income?
Passive income is money you can earn without too much ongoing effort. After you identify and establish a stream of passive income, you won’t need to tend to it every day—but that doesn’t mean you won’t have to do some work now and then.
Most passive income ideas require an initial investment of time, money or other resources. They also require a degree of monitoring or regular maintenance to keep things on track, but they won’t require you to commit tens of hours a week or make small talk at the water cooler.
How to Get Passive Income
People typically generate passive income in one of three main ways:
- Investing. When you invest, you use money you already have to make more money.
- Asset building. This means acquiring an asset that earns money passively over time.
- Asset sharing. Sharing in this sense means selling or renting out assets that you already own.
Let’s take a look at different passive investing ideas that leverage investing, asset building and asset sharing.
Passive Income Ideas: Investing
Investing offers the biggest opportunities for generating passive income, but it might require big sums of money to generate meaningful returns.
Dividend stocks reward investors with regular payouts of company profits. Because you have to own the stock to receive dividends, you likely will have to tie up thousands, if not tens or hundreds of thousands, of dollars to earn significant income from dividend stocks. (The S&P 500 provides an average dividend yield of just over 1%, for instance.)
Dividend investing isn’t without its risks. Companies may fall on hard times and be unable to pay out dividends or have to decrease them. Look to preferred stocks or dividend aristocrats for higher dividend yields.
Owning real estate is one of the oldest ways to generate passive income. But it’s not as easy as simply buying a house or land. When you own a rental property, repair and maintenance requirements can become major time and money drains, unless you hire a property manager, which will only cut further into your income. In addition, buying real estate may require an upfront investment of hundreds of thousands of dollars.