By definition and theory, Passive Income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it. Passive Income differs from Earned Income & Portfolio Income in many ways. Passive Income is generally defined as a stream of income earned with little effort, and it’s often referred to as progressive passive income stream, meaning there is little effort needed from the individual receiving the passive income in order to grow the stream of income. Some examples of passive income include rental property income and any business activities in which the earner/investor does not materially need to participate during the fiscal year.
Passive Income differs from Active Income which is defined as any Earned Income, including all the taxable income and wages the earner obtains from working. Linear Active Income refers to one constantly needed to stay active to maintain the stream of income, and once an individual chooses to stop working the income will also stop. Examples of active income include Wages, Self-Employment Income, Martial Participation in S-Corp and/or Partnerships, etc. Portfolio Income is derived from investments which include capital gains, interest, dividends, and royalties.
OK, let me get serious now. After 20+ years of grinding my face off, here are my current 7 favorite passive income streams, in no particular order…
1. Crowdfunded Commercial Real Estate Investments – Investing in Commercial Real Estate can be an excellent form of a passive income stream. However, because it sometimes can be costly to purchase a property outright, using a crowdfunding platform to invest in commercial real estate debt can be a more affordable and lucrative option. If you want an easy, low-cost way to invest in low platform real estate, consider using a company like Fundrise. You’re only required to have $500 to get started, and they have 3 main eREITs to choose from. This is a great way to get familiar with the overall process from start to finish. Once you become comfortable enough, you can begin investing in larger properties. You may also want to consider checking out Realty Shares, which is one of the largest crowdfunding businesses available today. While most deals require at least $5,000, they occasionally offer properties with a $1,000 minimum. One of the nice things I like about Realty Shares is that you get to hand-pick the property you invest in and get to see the process from start to finish.
2. Investing in Cryptocurrency Masternodes – Something I discovered back in 2011, Bitcoin, a ‘cryptocurrency’, per se. After purchasing my first BTC on Mt. Gox for just under $8, I became overly fascinated by the blockchain technology. Investing ahead of the world, some using Proof of Stake algorithms implemented, these Peer-to-Peer networks require the use of cryptocurrency masternodes. As we look at the cryptocurrency world today, arguably many would agree that over the past 5-7 years, we’ve seen such a vast change in adoption and regulation, it’s inevitable that from now that either cryptocurrency will be a ‘flash in the pan’ and vanish from existence, or will be a new form asset that changed the world forever. If you are one of the former, go ahead and stop reading this point, it isn’t for you. :)However, if you believe that years from now, that businesses, governments, states, communities, and individuals could exist within the new digital currency revolution?
Masternodes are a form of a super-delegate on a blockchain with voting rights. One who collateralizes a larger interest of shares with the intent for the long-term best interest of that blockchain and cryptocurrency.
The fascinating thing with Masternodes is two activities that provide a differentiation strategy when investing. First, because the cryptocurrency has masternodes, the supply of the currency is ‘locked’ by other masternode holders, and the more masternode holders that join the blockchain the more that are locked. This drives the demand higher as the supply comes off the market. Secondly, running a masternode provides core functions to the network so you’re paid a high-interest rate (yield) on investing your overall investment, in some instances, we can scrape approximately 75% – 160% return on our investment, depending how many masternodes we are providing services for and how long you/we hodl for.
3. Peer-to-Peer Investment Lending – Peer-to-peer investment lending is when you loan other people money who don’t qualify for traditional financing. With investment returns often in the 6-10% range, investing money with a business like Lending Club can get you much higher income results than a typical savings or money market account.
Added Fun Fact:
United Airlines MileagePlus BonusOne cool bonus with Lending Club is that they also give investors a chance to earn award miles while investing. Investors with up to $100,000 in LendingClub can earn one award mile for every $1 they have invested in on their online investment lending platform!
4. Write and Publish a Book – This is a fun one. Whether you’re a ghostwriter, use a pen name, or just go all out and feed your personal brand, writing and publishing a book, or books is another lucrative passive income stream. With as many outlets are available to us now, consider how the global consumer never sleeps; as a published author, you can generate a passive stream of income when you’re both awake and asleep. Licensing and Distribution can and will also play a large role in how lucrative this income stream can be. Choose your team and methods wisely and everybody will win.
5. Create a Drop Shipping based Online Store – E-Commerce has allowed for us to globalize a very small 24 hour-a-day operation. And through Drop Shipping, creating an online store, e-commerce has become very popular. Here’s how it works: you create an online store that offers products from certain manufacturers. A person visits your site, orders a product, and your system sends the order to the specific manufacturer. The manufacturer then completes the order by shipping it directly to the customer. I once did this when I discovered Alibaba and was able to source 25,000 vape pens for pennies on the dollar, no money out-of-pocket, and never once touched a box or generated a postage label.
One cool thing is this type of business is one where you do NOT need to order inventory. Your customer pays for the product – you collect the profits, while the manufacturer store, process, and ship your products to the customer. That’s it.
6. Buy a Distressed Business That Can Run 24/7 – Sometimes businesses get burnt out and often need change hands when it remains within private channels. When ownership and change management takes place, there are often opportunities to allow for the current model to become a 24/7 operation, if it isn’t already. Being able to capitalize on every moment available, will allow you to obtain the next level of your business.
7. Pay off Debt – OK. Not what most people would think about, however, the less money we’re paying in interest to creditors, the more money we will have in our pockets each month. This is a simple form of passive income. Paying off debt quickly can increase our incomes, even more, when we’re no longer paying interest to creditors each month.
That’s all folks. Let me know if any of these are also working well for you. I love discussing success stories!