Passive income is highly sought after by investors because it can help you generate long-term wealth without having to actively work on your investments. This gives an investor the freedom to pursue the things they love while making the money they need to enjoy life. Here, we will look at everything you need to know about passive investments, including some of the types of passive investments that you can consider pursuing.
What is a passive investment?
Passive investments generate passive income, which is income that takes little to no effort to earn. Passive income means that you are earning money from a source that is not your employer or contractor. While you may have to do a little work in the beginning to get your passive income going, you can enjoy the fruits of your labor, and you will not have to work much, if at all, to keep your passive investment bringing in the money for you. For example, if you invest in real estate rental properties, if you act as the landlord and maintenance person, it is an active income, but if you hire a property manager, it is passive income because the manager will handle everything for you.
Passive Investment Ideas
There are many ways that you can invest to gain a passive income with only a little work to get started. Let’s take a look at some of the most common and best ways to earn a passive income from your investments here.
Rental Property Real Estate
Earning a passive income by investing in real estate is typically done by owning rental properties. You can choose to invest in a single-family property, a multi-family property, or a commercial property. While you do have to have the funds to buy the properties initially, the rent can help you pay off the mortgage on the property quickly, and once it is paid off, that rental income is all yours to earn for as long as you own the property.
To make a rental property a completely passive income, hire a property manager. They can find tenants for you, handle maintenance issues, and collect rent for you. Without a property manager, you have to spend a lot more time working as a landlord than you might think. The property manager also makes it so that you can invest in properties in other areas since you will not have to be local to manage them.
A real estate investment trust (REIT) is a great way to invest in real estate without having to find properties, buy them yourself, and maintain them. A REIT is a method of investing that allows investors to purchase commercial real estate ventures, covering anything from office buildings to apartment complexes. A team of experts manage REITs who specialize in creating real estate portfolios that minimize the risks for investors. REITs give the investors regular dividends, which is beneficial if your goal is to generate consistent cash flows. Most REITs are traded on the stock market, but there are public and private ones as well.
The stock market allows people to buy shares of different public corporations, which allows them to earn dividends based on the financial performance of the company. This can be risky, but having a portfolio of stocks that are from different corporations will help reduce some of the risks.
Bonds are another great way to earn passive income. Bonds are notes either from corporations or the federal government to raise funds. If you invest in these bonds, they come with the promise that the investor will get paid back with full interest. The amount of the bond, its interest rate, and the time frame for getting paid back is pre-determines, so you can determine how much you will get back from the investment.
Mutual funds are another strategy for passive income. They are considered to be one of the retirement saving options with the lowest risk. Mutual funds are a large pool of money that you invest into different portfolios. Fund managers select portfolios that will deliver long-term growth and good payoffs while working to minimize the risks. If your employer has a 401(k) program, it is done through mutual funds.
Turnkey Real Estate
Turnkey real estate investing is done by acquiring rental property that a turnkey real estate business has already refurbished. The turnkey real estate business acts as the property manager for the property.
These businesses restore undervalued buildings in the area with a strong rental market, and once they are move-in ready, they sell them to investors. This is great for an investor who wants to start earning their passive income right away and does not want to deal with buying, renovating, or managing the property.
Buy an Existing Business
If you want to own a business without dealing with start-up costs and getting it off the ground, buying an existing business can be a great investment. It is not always easy to do, though. You have to find a company you want to buy and have the funds needed to purchase it. You then have to make sure the business does not fail, but if you do this right, it can be a great source of passive income.
High Yield Savings Accounts
High yield savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), and you can get them at a local bank. These can give you an excellent passive income, but if the market crashes, you might be at risk of losing the money in the account.
Dividend stocks can appreciate in value, and they will pay you profits regularly. These can be a dependable source of passive income, but the success of these is linked to the stock market.
Index funds are another type of mutual fund that is associated with a specific market index. Investing in index funds can mimic the returns of a specific index. They are managed by professionals, so investors do not have to do anything but select the fund they want to invest in.
References to any investments or assets are for illustrative purposes only and do not constitute a recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any investments. Charts and graphs are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.