How would you like to put in a little work once and then get a steady stream of income forever after? Sound too good to be true? It’s not — this type of arrangement is called “passive income” and is actually quite common.
How passive income works
Passive income is money that keeps coming in without your having to do any further work.
One familiar example of passive income is royalties for authors.
An author who writes a popular book may still be selling copies decades later, and receiving royalties on those sales, without having to do a lick of further work.
You may not have what it takes to become a best-selling author, but you can still set up passive income using other systems.
Buying bonds is a great way to get passive income that’s both regular and guaranteed. Unless the bond issuer defaults, you are going to get the promised income payments on the promised schedule until the bond matures, at which point you get your initial investment back. And at that point, you can turn around and put the money into a new bond and keep your passive income going. The main drawback for bonds is that right now, interest rates (and thus payments from bonds) are extremely low, so you’d have to put an enormous amount of money into your bonds to get much back.
Passive income from stocks is called “dividends,” and while they’re not guaranteed as bond payments are, dividends from companies with solid financials and a long history of paying out regularly are pretty darn dependable. When buying dividend stocks, it’s important to look beyond just the yield: You want to check its financial position to make sure that the company can keep on paying dividends at that level or higher for the foreseeable future.
If you’re willing to put a little more cash on the table to get this passive income thing started, consider becoming a landlord. As long as you can keep tenants in the building, you’ll keep getting their rent payments every month — and as long as you set the rent payments higher than the amount you’re paying every month on the building’s mortgage, you’ll be making a nice bit of income out of the deal.
If you want to keep your investment completely passive, you can hire a property management company to take care of maintenance and handle the tenants for you. The property management company will charge you a percentage of your rent income for their services, but the cost may be well worth it for you to not have the hassles of coping with tenants.
Other passive income ideas
No matter what your skills and talents may be, there are likely ways to use them to generate passive income. Are you technical? Write a few apps and sell them in the Apple Store. Love books? Create a book review website with affiliate links to Amazon, and you’ll collect a small commission any time someone buys a book through one of your links.
Interested in retail? Build an e-commerce site and use a drop shipper to supply the products. Have a hobby — any hobby? Record a how-to video related to your hobby and sell it as an instructional webinar. Really, there’s no end to the possibilities for passive income — all you need to get started is a little imagination.
— Wendy Connick
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Source: The Motley Fool