If you have money but no time and are looking to build passive income then you’ve come to the right place. We detail 10 ways of making passive income when you have some starting capital. We also share how much you would need and expect to make.
Minimum Investment: $500
Typical Annual ROI: 30%+
There are marketplaces such as Flippa and Empire Flippers where you can buy and sell your own websites. Compared to typical investments such as property or stocks websites have a much higher yield (around 30% ROI annually). Website costs are usually in the thousands of dollars with some going to millions. Though there are some websites such as Cari Studio which are being sold for $500 (on Flippa) but make $90 monthly. You could see yourself getting your money back in just 6 months with those numbers!
Websites can make money through a variety of different ways – affiliate marketing, Amazon FBA, Dropshipping – if you are interested we cover all these models in depth in this article. It’s important that you know how a website makes money. It’s not just set and forget since you may need to manage aspects such as order fulfillment (if you purchased a dropshipping site) or search engine optimisation/paid ads (if you purchased an affiliate marketing website). This is why websites command a higher ROI – they aren’t really as passive as you think!
If you are really interested in the model, it’s worth reading this case study by Yaro Starak, where he details how he makes $1,675 / month in passive income buying and selling websites.
Minimum Investment: $100
Typical Annual ROI: 3 – 10 %
Peer-to-peer lending is the process of marrying people who want to lend with people who want to borrow. Typically, rates are higher than savings accounts because the banking middelman is cut out. However, from a risk perspective, it isn’t as safe as a standard savings account. There is always a chance that the borrower defaults. This is highly unlikely with a bank.
There are platforms such as Zopa and Funding Circle which act as intermediaries between lenders and borrowers – each with their own rates. If you are interested in the model, Money Under 30 has a list of the best sites here. You don’t need much to start – some companies such as Lending Works require as little as $120. Bear in mind that 5% of $120 is just $6 – so to create a passive income stream that you can live from may require a large chunk of upfront capital.
There are niches within the P2P lending space such as real estate. The company HouseCrowd facilitates loans on the property market and offer returns ranging from 5% – 7%. If this excites you – check out this article on Bernard Hummel where he discloses exactly how he allocates €230,000 and which P2P platforms he uses.
Minimum Investment: $20,000 +
Typical Annual ROI: 2 – 10%
Ah the age old guaranteed ticket to wealth. I was speaking with a private banking colleague of mine who mentioned how the majority (50% to be exact) of his high net worth clients made their money through property investment.
The way you make passive income from property is by buying it and then renting it out after.
Investing in property is usually quite pricey, in most cases you would be buying a single house outright. So you would be looking at the $20,000 + mark for a down payment. In terms of ROI, it’s important to note that in most cases you would usually get a mortgage and this rate is usually higher than the rate you would rent the property out at. So even though the yield is around 2 – 10%, with a mortgage it can be pushed towards the upper end.
Globally, property yields vary with certain cities (Instanbul, Turkey – 2 %) experiencing very low yields whilst other cities (Chisninau, Moldova – 10%) experiencing very high yields. For a full list, please see this resource by Global Property Guide.
If this time-tested model is interesting, you should check out this video by Chandler David Smith where he talks about how he makes $40,000 / month with his set of properties. He goes into detail on aspects such as principal paydown and property appreciation. Definitely worth a watch!
Minimum Investment: $50
Typical Annual ROI: 4% – 20%
Apple & Microsoft split up their ownership into small bits called shares. Whenever you buy a share you become an owner of that company and are known as a shareholder. When the times are good companies pay out dividends to shareholders (usually quarterly). This is how you can gain passive income through stock investment.
The Annual ROI can be very good (20%+) from this because of the fact that the stock price also increases. This is the great thing about stock investment – you benefit both by receiving a dividend and by price appreciation.
So what’s the downside – whenever the stock market crashes (e.g. in 2008), you could actually lose money.
There are platforms such as Interactive Brokers or TD Ameritrade where you can buy and sell stocks. If you are interested in this model, then check out Project Life Mastery’s video where he earns $8,000 / month passively from his $3.5 million stock portfolio.
REIT (Real Estate Investment Trust)
Minimum Investment: $1,000
Typical Annual ROI: 2% – 10%
If you want to invest in real estate but don’t have enough capital to buy a property. Then you should consider REITs (Real Estate Investment Trusts). These are publicly traded vehicles (like stock) and are usually companies that own, and in most cases operate, income-producing real estate.
Instead of buying a house outright, you would buy a share in this company and the stock would produce similar gains to a rented house/property.
REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and commercial forests. There are also new platforms such as Fundrise – which allow you access to institutional quality real estate without the high fees and upfront capital.
If you are inspired by this model, definitely check out Joseph Carlson’s video – he goes into great detail on which REIT’s perform well and gives you a peek into his diversified portfolio.
Minimum Investment: $5,000
Typical Annual ROI: 0.10%
Annuities are a type of insurance instrument where the buyer pays a premium to the insurance company and receives payout over a specific time period (say in 25 years). This video explains the concept very well.
The terms with annuities vary and are not always a great deal so it’s best to talk to a trusted financial advisor if you’re interested in purchasing an annuity. Unfortunately, annuities can come with very high fees since they are so customisable.
However, if you do have zero risk tolerance for loss then they can be a fantastic addition to your portfolio. With an annuity, you can get the income monthly after investment and receive higher payouts if you defer the payment.
For example, if you are 25 and want to get a deferred annuity from the age of 60. You will receive much more monthly income when you are 60 since the insurer can grow that sum you have provided via investment. Even though the rates of annuities are typically smaller than those of say stocks, you get guaranteed income until you die so it is a very safe investment.
Minimum Investment: None
Typical Annual ROI: 1-2%
Savings accounts are the lowest yield but also the safest way to make passive income. You can check this list by Bankrate to see the best banks to get your savings account. Even though savings accounts are very low yield – the great thing is that they typically do not require any minimum investment.
Another advantage of having a savings account is that typically you get your money tax free as well. There are a wide variety of different savings accounts available – easy access savings accounts, notice savings accounts, regular saver accounts, individual savings accounts and fixed rate bonds.
With easy savings accounts you can deposit as much cash as you like into the account – at any time – and withdraw it whenever you want, without having to pay any fees or charges. These usually have lower interest rates and earnings are taxed.
Notice savings accounts require you to give advance notice that you intend to make a withdrawal (30 – 120 days). These usually have higher minimums ($1,000 + ) but better rates than easy savings accounts.
Regular saver accounts require you to put ion money every month but in return you get much higher interest . Rates can be much higher (up to 3%) but you cannot access the money immediately and will typically get a penalty if you miss a payment.
Individual Savings Accounts (ISAs) operate similarly to regularly savings account except the earnings that you gain are tax free./ Unfortunately, the disadvantages is that there is usually a cap on how much money you can put ($20,000).
Fixed rate bonds allow you to deposit a single lump sum and you get paid out every year. The longer you leave the money inside, the higher your interest typically. Usually you cannot get the money out in case of emergencies however.
Minimum Investment: N/A
Typical Annual ROI: Variable
If you have an asset such as a house then you can think about refinancing your mortgage to get an extra chunk of cash. This isn’t technically a passive income strategy but in theory you could use that money and invest it in another higher yielding instrument.
If the yield of this instrument is higher than the mortgage that you have to pay for your house then this means that you can get a passive income. For example, if you have a second property and remortgage it then rent it out. Assuming your rent is greater than the mortgage, you will be cash flow positive and can earn a residual side income.
You could also invest the mortgage lump sum money in other instruments such as bonds (which we talked about earlier). You just need to do the math to make sure that you are net positive.
Minimum Investment: $300
Typical Annual ROI: N/A
Peter Thiel reportedly earned 4000% return on investment in Facebook. He did this by investing in a company before it became public and then selling out once the stock hit a much higher price. With models such as equity crowdfunding you no longer need to have access to private investor networks in order to make these kinds of investments.
Granted these investments do not typically generate passive income and typically you gain money through stock price appreciation. If you do have a keen interest in this space, there are platforms such as Crowdcube which allow you as a retail investor to invest in companies that are not yet publicly traded.
Some of these crowdfunded stocks can also pay dividends though this is more likely the exception rather than the rule. If this really interests you, check out this list from Crowdcube which discloses the exits that have been made.
Minimum Investment: $100
Typical Annual ROI: 5-12 %
Robo advisors are digital platforms that automatically allocate your funds depending on your risk profile and tolerance. These platforms are intended to replace a human advisor and allocate your money appropriately – they will adjust your exposure to stock, bonds and cash to ensure that your account grows in accordance with your risk profile.
Robo advisors are great if you have some investment savvy and interest in the market but do not want to go into the day to day details of portfolio balancing and asset allocation. The rates of returns can be as high as the stock market (20%+) or as low as savings accounts (1-2%) depending on your risk tolerance.
There is a management fee although this is typically much smaller (<1%) than if there was an actual person managing your money (2%). Definitely a model to look at if you are interested in a passive way of generating cash.