Great Ways to Generate Passive Income

By Debbie Dragon on 4 May 2012 (Updated 7 March 2014) 11 comments

Earning income passively is a dream for most people, since it essentially means you make money without putting in a significant time investment. Most sources of passive income will require time and some money to get started, but if successful, these opportunities can generate income for you long-term and without your direct involvement. (See also: 4 Reasons Why Everyone Needs Side Income)

Here are some great ways to generate passive income.

Create a Product

You can earn passive income by creating a digital product, whether it is an e-book, audio file, video, or some type of presentation, and then sell it over and over again automatically. Once the initial creation of your product is complete, the sales of the product become passive if you set up an automated system to deliver prospects to your sales page, collect payment, and send out their purchased product.

Other opportunities for passive income by creating a product might include writing a physical book and getting it published — ongoing sales of your book are earned passively. Some people become television writers, and when their series is picked up for reruns, royalties earned are considered passive income.

Sell Advertising

As a website owner or publisher of a popular e-zine, magazine, blog, or newsletter, you can sell advertising space. While you will have to do the initial legwork to create a successful website with a large following, once established, advertising revenue is a passive income opportunity where other business owners will pay you to include an advertisement on your website or in your newsletter.

Own a Business

When people think of passive income, chances are they will immediately think about an online business of some type. The internet makes it possible to start and run a business with low start-up costs and low overhead expenses — which means more profit in your pocket. It also creates opportunities for automation, and anything you can automate provides a potential passive income stream.

While it’s often easier to break into the world of passive income online, passive income is not limited to the internet. Any business you own can generate passive income for you if it is established the right way. If you hire people to fulfill the day-to-day activities of your business, your business should generate a profit after all the expenses are paid. The profit you receive as the owner of the business is passive if you aren’t directly involved in the daily operations.

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Become a Landlord

People who own apartments or commercial space earn passive income through the rent payments they receive from their tenants. You receive the payment every month simply because you own the property; and you aren’t exchanging a direct service or time for the rent payment. There are of course, responsibilities that come with being a landlord — but many people find the experience rewarding and a way to establish consistent income without directly trading their hours for dollars.

If buying a property to rent out is out of your comfort zone, you can start on a smaller scale and rent out an extra room in your home, your garage, or even your driveway. Park at My House will tell you the “value” of your driveway and help connect you to people looking for a place to park near event venues or who just need a place to park their vehicle in your area.

Investing

A variety of social lending opportunities online allow you to earn a return by helping fund other people’s loan requests in peer-to-peer lending. Your total investment in the peer-to-peer lending site is generally divided up across multiple borrowers to help reduce your risks, but your money helps others gain the money they need, and you benefit by earning a return on the investment in the form of interest. Two of the more popular social lenders include Prosper and Lending Club.

When saving your money in a bank, take some time to compare savings accounts to earn as much interest on your money as you can. If you meet minimum balance requirements, you can also earn interest on money saved in a checking account. Earning interest on your money is a passive way to increase your income, so you may as well take some time to discover your highest earning potential.

You can also build an income investing portfolio to create passive income while growing long-term investments. You may include a variety of investments from dividend stocks to CDs, bonds, and annuities, with the goal of earning money quarterly, semi-annually, or annually without having to sell the investment.

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Meg Favreau's picture

Readers -- do you generate passive income? If so, do you use one of these methods, or something else?

Guest's picture
ohandy1

how about finding quality goods and services online that offer affiliate pay. Better yet, create a product online and use an affiliate platform to let others help you sell. Of course the affiliates make a lions share. If you are a social animal online being an affiliate for select products can really pay off. I'm putting an affiliate program into my disc repair service.

I don't recommend the large affiliate clearing houses though, commission junction and the like are littered with crappy offers that usually end up being spammed everywhere. Quick way to lose any followers you have. Look for stuff you would buy and search for affiliate programs, usually in the footer.

Guest's picture
Carl Lassegue

I'm actually looking into making passive income by becoming a landlord. More and more people are looking to rent because they are scared of the real estate market.

Guest's picture
Thad P

All good ideas. I am amazed at people who, possessing many of the skills needed to generate passive income, still choose not to.

Guest's picture

I always hear about people trying to generate passive income, but I hate to be the bearer of bad news. You need to have active income before you can generate real passive income! How are you going to buy that rental property?? haha

Sure a couple people here and there might be able to start a blog from scratch, but remember you're never the exception, you're the rule! I think that line is from some movie :)

Guest's picture

This is a thought-provoking article. The dream of passive income compels me, and I have started my own blog with the idea eventually being able to sell an e-book off of it, or something of that nature. Hopefully I will be blessed for it to gain popularity one day, and hopefully I will also be able to investigate some of these other ideas.

Guest's picture
Jason

Sadly "starting a business" is not passive income. It is serious hard work. I started my own business and it eats every available moment of time: customers, vendors, inventory, reports, cash, lawyers, government paperwork. Every time you turn around there is someone who wants something. It is anything BUT passive.

Guest's picture

I am not yet on my way of generating passive income but I am thinking of starting one very soon. Thank you very much for helpful ideas from this post.

Guest's picture

I think starting a own business even if you are doing a job is the best way to generate not only passive income but also building a sort of backbone for your financial health as one should not ever depend on single source of income. Another point is that one should start investing if he or she wants to get the advantages of compounding in future.

Guest's picture

Yes, Debbie, passive income rules, but it tends to come only after a fair bit of hard work, just like Jason commented earlier on. Especially with a business, including landlording, it often takes years before you get to the passive income phase - and before that it's really, really hard work. But still it's worthwhile by far - can say that from my own experience - for many reasons, including the great and growing passive income that eventually follows!

Guest's picture
BigDave

Amazon affiliate sales and other similar programs offer a great way to create a passive income online. Creating niche sites also allow you to generate an additional income stream as well. Though it takes time to develop these avenues, they can be a very effective way to make a passive income.