The idea of making money while doing absolutely nothing surely appeals to every human on this planet, and it’s easier than you think.
The two hurdles that stop most people trying to create passive income streams are:
- The initial investment (either time or money)
- The risk that your investment doesn’t pay off
In order for your investment to be truly passive, you’ll often need to instruct a middle man to manage it. It’s key to ensure your management costs don’t outweigh the profits.
Below, we detail the middle men and costs involved with three of the most popular passive income streams. We’ll also explore the initial investment and risk for each of them, and how to minimize them both.
Example 1: Real Estate Investments
You can create passive income from real estate by renting out your property to a tenant. Your initial investment requires buying a property. Your middle man is the landlord, who takes care of finding tenants, collect rent, organizing maintenance, etc.
To make profit, you’ll need to ensure the rent you charge exceeds the costs of your mortgage, property maintenance, and landlord’s fees.
Of course, you can reduce your costs by completing these tasks yourself, but that means your profits will no longer be passive.
The risk is that you’re unable to find tenants to pay the rent that makes the property profitable, or that the property itself declines in value.
Example 2: Creating a Product
You can make fantastic passive income by creating and selling a product. Your initial investment is the time and money you put into creating the product. Your middle man is an online store such as Amazon, iTunes or Shopify, which takes care of accepting payments and delivering the product to customers.
The risk is that barely anyone likes your product and you don’t make enough money selling it to justify the time investment, or that you’re stuck with a large amount of inventory of unsold products.
Example 3: Dividend Stocks
Many businesses will pay dividends once or twice a year to shareholders. The initial investment is buying the shares. Your middle man is a stockbroker. The risk is that the stocks don’t increase in value enough to cover your initial costs.
Not all businesses pay dividends or even offer the opportunity to pay stocks, but this doesn’t mean you can’t invest in them. Moneysling offers consumers the opportunity to pledge money into start-up companies, regardless of whether they’re an accredited investor or venture capitalist.
How to Overcome the Risks of Passive Income Streams
It’s impossible to eliminate the risks associated with these or any other passive income streams. However, you can minimize the risks by making an educational investment.
This will be:
- A Time Investment: This involves consuming content to educate yourself on how to create a winning product or choose the right investment. There will be a steep learning curve, and a lot of self-trust will be needed, but many investors enjoy the satisfaction of masterminding their own success. The Moneysling blog could be a good place to start. We like the content that Robert Kiyosaki and Robbie Burns put out too.
- A Financial Investment: This involves hiring someone to suggest investments for you. There are plenty of experienced investors who run profitable managed investment funds, but they’ll take a huge chunk of your profits and there’s no guarantee they’ll come up with the winning picks every time.
As long as you’re trading time for money, there will always be a limit to the wealth you can achieve. Passive income is the only income stream that is truly limitless. Accept that investments will turn sour, but educated investors will make more smart decisions than bad ones. The sooner you make your educational investment, the sooner you can get started creating a passive income for yourself.