Passive Income – Definition
According to Investopedia, Passive Income is earnings derived trom a rental property, partnership business or other active business enterprise in which a person is not actively involved.
In another word, it is an income you earn while you are not actively participating in it. Some say it is an income you earn while sleeping. It is also called residual income.
But do not be mistaken. To enjoy this income, you’ll have put in a lot of effort or time and money upfront, to operate, to participate, to join or subscibe to program membership. This frontloading initiative will result in a generation of residual income.
There are many type of incomes that can be classified as passive income (For US Resident, this is classified differently by the Internal Revenue Service (IRS)).
Passive Income comes in many types and forms. I will group them under the following category
- Property Investment
- Intellectual Property
- Lower Risk Investments
- Higher Risk Investments
Below l’ll discuss the abovementioned passive income stream which are popular amongst most people. Some may need your zero involvement, some minimal and some may require you to put in a lot of effort in the initial stages.
Types Of Passive Income
Invest in real estate and generate income through rental. Real estate is a great pasive income source.
Properties that you can invest in are houses, condominium, office space, shop lots. You could buy the property outright, rent out to tenants on a monthly basis or lease the property (e.g. shop lot, factory outlet) and sublet to prospective tenant at a profit.
Investment of this nature requires quite a big sum of money as initial outlay. However, the return over investment could be substancial.
If you have decided to invest in real estate, you’ll have to ensure your investment give you a return that can pay off your loan or funding cost. The extra over your funding cost is your earning. because you earn money from little effort in running your real estate.
Be aware that real estate do have seasonal trend, which could affect your ability to rent out your property at a profitable return. You may also consider having others to manage your property, like AirBnB or VRBO thereby giving you more time to look for other opportunities.
If you do not have sufficient fund to acquire physical property which require substancial funding, you may choose to invest in REITs (Real Estate Investment Trust). As stockholder, you earn a share of the income produced without having to purchase, finance and manage the property. This is also another attractive passive income stream.
For further reading, you may visit REIT to learn more of this income stream.
I have group up the creating or making of apps, softwares, ebooks, photographys and online courses under intellectual property. These are then sold online directly through your own website or via third party website (affiliate marketing).
If you are into this income stream, you must ensure you have intellectual property protection. There are too many copyright infringement going on nowadays.
One successful ebook could generate an income for you over a long period of time. However, there are great competition as well as piracy over this type of income stream and this could affect your potential earning.
The advantage of this income stream is that start up cost is low ad a great passive income stream. Royalty payment for your intellectual property could potentially last you a lifetime.
Lower Risk Investments
I would consider investing in blue chip stocks (e.g. IBM, Apples), unit trusts, mutual funds, fixed depositsas a lower risk investment tools. Dividend you received from such gains might not be high, but it has steady growth and the risk of losing all your money invested is low.
This passive income stream is suitable for those looking for long term investment. Although it is consider lower risk, you have to be careful with your investing into which companies. The fund manager managed your portfolio so you have little control of the outcome.
Higher Risk Investments
P2P (peer-to-peer) funding, crowdfunding, IPOs / ICOs (Initial Public Offering / Initial Coin Offering) and Forex trading are considered higher risk investments.
I am sure everyone of us has received some proposal, (either through email, Facebook etc) of making money overnight. So many programs out there promised thousands of profit with very small investment. This investment stream does attract many scammers. Scammers took advantage of us, crowded our thinking. We, who are after material gain will continue to fall into this investment trap.
So, with my enlightenment here, l hope you will be more careful and select only legitimate money making program. Correctly executed, this income stream is lucrative. We are talking about a gain of between 10% to 25% annual ROI (Return On Investment). Isn’t this lucrative! Anyone offering you this return on a monthly basis, you have to be real careful. It is most probably a scam!
To be successul, you have to do due diligent, pick the right companies or platform to invest in.
I have invested in crowdfunding, ICO and forex trading. Here i will share my experience on these 3 tools.
Crowdfunding — we have to put some trust into the company that provide and manage loan to merchants. They will put up performance and financial factsheet of merchant that needs funding. Make attempt to spot any hidden or generalise comment in the factsheet. Also pay attention to repeated funding to the same merchant. Other than that, l am profitable with this investment tool.
ICO — Nothing much to say, everyone is going bonkers with the number of new ICOs. You have to be careful with new ICOs. Some may just be a scam. I have invested in CrowdWiz ICO, and it is close now. Distribution of tokens is in progress. I am not able to comment on it’s performance at the moment.
Forex trading — Long learning curve. You enter into the forex trading base on high probability of curency pair going higher or lower, which is term as long or short respectively. Many investors have burnt all their deposit money. It is not a tool for lazy investor. However, you can create a passive income stream from this tool by joining a forex managed account. You may go to Forexsignals to learn more. You may invest a minimum of US$5000. They charged performance fee of 30% on the profit from trading. Their performance is verified by third party.
I have spent many hours on the internet looking for opportunities to create a passive income. Although there are many tools available on the internet, regret to say the abovementioned tools are the most likely be your successful tools in creating a passive income.
If you have other income opportunities that you may want to share or if you have questions or comments on this post, please input it in the comment section.
Please note that advice and suggestion published in this post is solely base on my opinion and experience. l take no responsibility for any losses of money as a result of my advice or investment suggestion in this post. Investing involves substantial risk. You are encouraged to do your own research and understand the risk before participating in any investment tools.