Have you ever wondered how to generate income in addition to what you are earning from employment? The kind of income that you can get without doubling or tripling your working schedule? Then this article may just be for you, read on!
Passive income refers to the type of income generated through ways that do not require too much effort or attention from an individual. In fact, it is generally observed that in today’s time, passive income enthusiasts are often supporters of a work-from-home and/or be-your-own-boss type of professional lifestyle. Nonetheless, earning passive income is a key consideration, especially when building wealth in the long run.
Types of Passive Income
Before talking about how to make 100k in passive income, it is critical to secure first the foundational knowledge on what passive income is all about.
Passive income can come in many forms and so there isn’t a definitive list of those incomes an individual can have. So long as you receive it in a passive manner, then it can be considered as a passive income.
While it can be a lot, there are common types of passive income. Some of the most observed types are:
- Rental Income
This can be derived from a residential property up for rent, lease of building, car, and other property rentals as well.
- Capital Appreciation
This is one of the most common ways in making money from an investment. If you invest in mutual funds, stocks, exchange-traded funds (ETFs), or real estate investment trust (REIT), you believe that the capital you invested will appreciate in value. The difference between your original capital and its present value will then be the returns you get from the investment.
- Dividend Income
Dividend income is received by shareholders of a company regularly. The more profitable that corporation is, the higher the dividend income will be.
- Cashback Rewards
This can be sourced from credit card offerings as well as select sites in exchange for availing of their services.
- Interest Income
One common source of interest income is a bank savings account. This is also the reason why a high-yield savings account is a safe investment that is always recommended to investors. Aside from savings accounts, this can also be sourced from loans that you give out as the creditor/lender.
Best Passive Income Investments
Generally, passive income is derived from passive income investments. From the words per se, this pertains to investments that bring forth passive income to the investor.
How to make 100k in passive income also heavily relies on the quality of investments that you own. With this, the best passive income investments that you should add to your portfolio include:
- Real Estate
- Dividend Stocks
- Peer-to-Peer Lending
Real estate in itself offers a variety of investments. An investor can opt to avail a direct real estate investment, it can be through real estate syndication, or through a real estate investment fund (REIT). Among these three, direct real estate investment and REIT appears to be the way to make passive income for some investors.
Generating income from direct real estate investment typically involves renting out the property and receiving regular rental income from there. This also requires management from the owner but is not as tedious as compared to managing the actual operations of a business.
REITs, on the other hand, do not need much management from the investor at all. It is the companies providing the REIT that does most of the work. Afterward, these companies pay to the investors, through dividends, 90% of the fund’s revenue.
Dividend stocks are a straightforward way of receiving passive income – you buy shares or stocks of publicly-listed companies, you become a shareholder, and wait for the dividend payouts. Investors will then have the option of keeping the money or reinvesting it in more shares.
The type of stocks you buy from the company also encompasses the specific rights on how you will receive the dividends – it can be common stock or preferred stock. While both of these have their respective pros and cons, preferred stock, also known as safe dividend stocks, is a safer choice if your risk appetite is low.
Also known as P2P lending, peer-to-peer lending works by individuals being allowed to acquire loans directly from other individuals, bypassing the financial institution as a middleman. Instead of having three parties on the borrowing, it is reduced to two – the borrower and the lender.
Individual investors who want a higher return on their cash holdings than a bank savings account can provide are P2P lenders. On the other end, P2P borrowers are looking for a better rate than regular banks or an alternative to established banks.
P2P lending also removes additional fees imposed by the financial institutions for the servings they offer. As an effect, this takes away a burden to the borrower and helps the lender maximize the gains more.
Best Way to Make Passive Income
Comparing the idea of investing $100,00 versus earning that amount in passive income, earning of course is the better alternative. To invest $100,000 for passive income may be a doubtful decision for some because this is a huge sum of money. The alternative of making such a value as an income with a lesser amount of capital is the goal. So, how to make 100k passive income? Add to your portfolio the best passive income investments from those suggested in this article that suits your risk appetite, and your investment goal.
The best way to make passive income is not to cheat your way into reaching that goal. Do not believe in instant gratification and overnight absolute success with your investments. Instead, trust in the process.
Additionally, take your time to assess the risks associated with these passive income investments. Remember the risk-return tradeoff – the higher the reward, the higher the risk associated with it.
Just a piece of friendly disclaimer: Passive income investments do not guarantee 100% positive returns for you. In other words, a passive loss is another possibility on the other end of the line.
Lastly, take note of the tax provisions and regulations covered in your jurisdiction. The passive income you are receiving can be subjected to tax and this may also materially affect the actual amount you receive from the passive investments.
For more tips and information on passive income, check out other related articles on our website!