Make money while you nap.
Takes TimeThe main thing for most people is that it takes time and capital to set these “machines” up to provide you with substantial income. But I would simply encourage someone to start small, get a taste for saving/investing, and then explore and learn about passive income machines.
Definition of PassiveIt is important to note that passive does not mean no work. All investments tend to require some attention, research and management. All of life’s activities require some form of attention and management. To me, “passive” means that I do not need to devote 9-5 on the effort. There is no special place I need to sit at each day in a cubicle responding to a boss and hierarchy. Passive to me actually has more of ownership stake involved. I have an equity and ownership interest in the asset.
Some Remarkable Passive Income MachinesHere are seven popular passive income “machines” used to generate extra income, some are quite easy to get started and simply require an initial investment, others would take many years to structure and put in place:
1. Individual Retirement Account (IRA, 401k, etc.)One of the main ways people create passive income for their future self is by each and every month adding to an individual retirement account (IRA) or 410k through their employer. The trifecta of dollar cost averaging, a company match and compounding have a powerful wealth building effect! With these amounts saved, one can generate a certain amount of “passive income” from their investment account. For example, with about $1 million invested, a person can generate about $40k a year in income with a low probability of depleting the account too quickly.
2. Rent Out Extra SpaceI have used Airbnb and had friends that have rented extra rooms to foreign exchange students. Again, this is a straightforward way to turn a liability (housing) into an asset that generates cashflow. With Airbnb you can closely screen prospective guests. This is perhaps a good time to mention that the word “passive” is relative. Passive usually means that a person does not need to work on the effort 9-5, 5 days a week with a boss and hierarchy over them. Passive income machines do take some level of effort, and renting out extra space is a good example of this.
3. Invest In Private Real Estate DealsReal Estate is probably the oldest form of passive income. But it typically takes large amounts of capital to start enjoying the passive income gains. But not anymore with the miracle of technology and crowdfunding. With platforms like Fundraise.com, for as little as $1,000 you can invest in real estate developments all over the country that are professionally constructed and managed. I personally use this platform to earn 8-10% returns and so far it has been great. http://oracle.davidkanter.com/2018/11/11/fundrise-real-estate-investing-review/
4. Dividend Paying StocksHere at The Money Vikings we feature a lot of posts about dividend paying stocks. One reason is that these are a simple and straightforward way to start creating passive income flows. There are many advantages to this approach. For one, it can be done almost instantly. If a person goes onto Robinhood, they can buy a share of a dividend King like Johnson & Johnson or Kraft Heinz and receive passive income almost instantly. SEE RELATED: Dividend Kings List http://oracle.davidkanter.com/2018/09/23/pfizer-dividend-snapshot/
Dividend paying Real Estate Investment Trusts (REITs)REITs are some of my favorite dividend paying passive income machines. REIT’s are required to return 90% of profits back to the shareholders as income. Anyone can own a publicly traded REIT. SEE RELATED: Realty Income Monthly Dividend Payer REIT
5. Traditional Rental PropertyOne of the classic passive income plays is real estate rental property, both residential and commercial. But this can be challenging for the average investor. It typically takes a large amount of initial capital and time to make this machine work properly. One tactic that works is over the years make sure to hold onto properties previously purchased and renting them out. This way you can test the waters and see if you have the patience, skills and resources to rent out property. This takes people skills, business skills and some knowledge of maintaining a property. Remember as the landlord you deal with the late night calls that the pipe burst or water heater crashed.
Real Estate Has Great Tax BenefitsThe tax benefits of owning physical real estate are very attractive. The first $250,000 in gains is tax-free per individual and for married couples you receive $500,000 in tax-free gains upon sale. Then there’s the ability to exchange a property you own for another property via a 1031 Exchange so you don’t have to pay any capital gains tax. If you own rental property, you can take expenses to reduce any rental income tax. Owning property over the long term is one of the most proven ways to build wealth and generate passive income for the average American. http://oracle.davidkanter.com/2018/06/26/rental-property-from-the-80s-blood-sweat-and-tears-literally/
6. Start a Blog and PodcastJerry, Bob and I started The Money Vikings blog in December 2017. Our mission is to learn, inspire, teach and achieve new levels of wealth and financial freedom. We share ideas with others to inspire them to do the same and build a healthy, productive life and community. By inspiring and motivating each other we have already achieved new levels of net worth and passive income on our journey to “conquer financial freedom!” We have seen tremendous success with our blog and podcast and are even more excited about the future. We truly love the connections we make with other investors and folks building wealth. There are so many great ideas out there that almost anyone can harness! Starting a blog is a huge labor of love and takes time and commitment. I would advise a person to discover a topic they are passionate about and that others are interested in. It must also be a topic or theme that people want to learn about.