One of my favorite money quotes is from Warren Buffett, the Oracle of Omaha himself. He says, “If you don’t find a way to make money while you sleep, you will work until you die.”
Of course, he’s talking about the importance of passive income. Passive income is recurring income that takes little or no effort to earn and maintain. It really is money that just shows up in your bank account month after month while you’re sleeping.
In this post, I’ll cover the best passive income ideas to help you build — and maintain true wealth. This list will help you become financially independent faster through a passive income, the Holy Grail of making money!
21 Best Passive Income Ideas
Here are the top passive income ideas to help you earn money while you sleep:
- Invest in Crowdfunded Real Estate
- Certificates of Deposit (CDs)
- High-Yield Savings Accounts (HYSAs)
- Money Market Accounts (MMAs)
- High-Yield Dividend Stocks & Funds
- Purchase Bonds
- Private Equity Funds
- Peer-to-Peer (P2P) Lending
- Real Estate Investment Trusts (REITs)
- Buy an Existing Business
- Rent Your Car or Parking Space
1. Invest in Crowdfunded Real Estate
Real estate investing isn’t only for the ‘rich.’ You can invest in rental real estate by using crowdfunding platforms or platforms that pool money from multiple investors to purchase and manage properties.
Crowdfunding real estate companies like CrowdStreet is for accredited investors. They require a $25,000 minimum upfront investment but allow you to invest directly into the commercial real estate of your choosing (versus the “beginner” or “long-term growth” portfolios that competitors offer).
If you want to invest with much less capital, try Fundrise; they allow investments as low as $10. The low minimum makes this accessible to more investors and provides plenty of options for property investment.
With a CrowdStreet account, you will be able to invest in individual commercial real estate projects. You can also invest in a Portfolio of dozens of properties to diversify your holdings.
2. Certificates of Deposit (CDs)
Certificates of deposit are about as exciting as late-night poker reruns on ESPN. Still, if you want to park your money somewhere safe and insured by the FDIC, CDs can at least help you reduce your losses to inflation while generating a tiny bit of passive income.
Remember that CDs are time deposits, so you must leave the funds untouched for the whole period. For example, if you invest in a 12-month CD, you shouldn’t withdraw the funds for 12 months, or you’ll pay an early withdrawal penalty that will reduce your profits.
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3. High-Yield Savings Account
Savings accounts typically pay peanuts in interest, but high-yield savings accounts differ. They pay 10 – 12x the APY typical banks pay. The difference is you bank online and often can’t make cash deposits.
You may have to meet a specific balance requirement to earn the high yield or make a certain number of monthly transactions. But the requirements are well worth it when you can make 4.0% – 5.0% on your savings accounts, and they’re FDIC-insured, so you don’t have to worry about a loss.
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4. Money Market Account
Money market accounts are another great way to make your money work for you. Like HYSAs, they are high interest rate accounts. The difference is they are a cross between a checking and savings account. You get the APY of a high-yield savings account but can write checks or use a linked debit card to withdraw funds.
Money market accounts pay impressive yields, which is why they are one of the great passive income ideas. The downside is you may need to keep a high balance to earn the higher APY, so it’s best for investors with a lot of capital.
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5. Invest in High-Yield Dividend Stocks & Funds
While most dividend-yielding stocks pay only 1.5-3.5% in dividends at best, a minority pay high yields in the 6-8% range. However, if the company has a bad quarter, it may not pay dividends. Of course, the company may go out of business entirely, too. That’s the risk you run with equities.
Instead of picking an individual dividend stock, another option is investing in mutual funds and ETFs specializing in high dividend yields. Try researching funds on either your investment bank’s stock screener or use a free service like Yahoo’s stock screener if you haven’t opened an account with an investment bank yet.
Watch out for high fund management fees when investing in stocks or funds. Actively managed funds often charge high fees, consuming much of the fund’s returns. When in doubt, invest in a passively managed, low-cost index fund.
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6. Purchase Bonds
Bonds are the classic, traditional passive income stream. The premise is simple enough: you lend money to a government or corporation by buying a bond for a certain time, say ten years. For the next ten years, you earn interest payments. Then, upon reaching maturity, you get your original investment back.
Keep in mind that the original balance will likely lose money to inflation, but it can be a good way to balance out your portfolio.
If you’re young, you can tolerate the added risk and volatility of the stock market. As you close in on retirement, consider bonds a more steady income stream within your retirement account.
7. Private Equity Funds
Private equity funds are another passive income idea typically for accredited investors.
A private equity fund is a pooled fund that invests in a large-scale project, whether a large real estate investment project, a startup company, or some other investing venture. The fund is managed by an individual or management group that oversees the fund’s investments and pays dividend income to investors.
Often private equity funds require a medium to long-term investment, measured in years.
While private equity is not a passive income opportunity available to most of us, it can make excellent passive income streams for the wealthy and is worth mentioning as a possibility after you make your first million or two.
8. Peer to Peer (P2P) Lending
If you’re looking for a way to invest in others, another passive income option is lending money to individuals through P2P lending websites like Lending Club and Prosper.
You can choose the borrowers and loans you like by browsing through the loan requests on these websites. If the loans interest you, start with a small amount for your first loan to get your feet wet.
The returns typically range in the 6-10% spectrum—nothing to scoff at. Of course, the risk is expected to be significantly higher at the higher end of that spectrum.
As you get more comfortable evaluating loans on these platforms, you can gradually scale up your investments. While I have not invested in P2P website loans, I’ve known other passive income investors who have seen great success with them.
Note that peer lending websites tend to make personal loans rather than real estate investment loans.
9. Real Estate Investment Trusts (REITs)
A real estate investment trust, or REIT, tends to pay generous dividends. Why? Because a REIT typically invests in income-producing real estate or high-interest debt service.
REITs do well when real estate markets are performing well, and their dividends and values suffer when real estate markets suffer. The nice thing is you can trade REITs during standard trading hours, while benefiting from diversifying in the real estate industry.
If you want to diversify your portfolio into real estate but don’t want to invest directly, REITs can be a high-yield option.
10. Buy an Existing Business
If you like the idea of owning a business but don’t want to go through the hurdles of starting your own, you can skip all the early startup headaches and buy an already profitable and functioning business.
Brick-and-mortar, e-commerce, online application, or software—you name it, you can buy it. Browse a few businesses for sale on BizBuySell to whet your appetite and see what passive income source best suits you.
But if you’re serious about the idea, do in-depth research into the industry, and don’t stop at a single business listing website. Buying a business is an enormous commitment, and you should ensure you’re purchasing a business that allows passive income and doesn’t require you to work for money.
11. Create an Online Course
If you’re passionate about a topic, chances are someone is too. An online course can be the perfect complement to your blog or podcast: you provide free content to attract the right prospects, then offer a full-service, comprehensive, step-by-step digital course for the ones who are ready to take the next step, or it can be a standalone course that you sell on sites like Teachable.
Online courses are a tricky way to start if you don’t already have a website. But if you’ve been building good content and attracting an audience through your blog or podcast, consider an online course as a way to “level up” your business from affiliate products and advertisers.
12. Publish an Ebook
Self-publishing on Amazon is easier now than ever. There are no startup costs and you don’t have to convince a publisher to take a chance on your book. Whenever someone buys and downloads your book, you receive author royalties.
If you’re serious about it, you can make thousands of dollars in passive income by self-publishing on Amazon!
13. Start a Blog
You can start a blog about anything today. As long as you can capture the audience, you can make money.
As your blog builds traffic, you can monetize it by mentioning affiliate products or services, publishing ads on the blog, or selling your own products or services.
Starting a blog might be the perfect side hustle: you can do it on your own time, build multiple passive income streams, meet new people, and unlock tons of new opportunities.
It also only takes a low initial investment but offers tons of income potential.
Just remember: like traditional investing, a blog is a long-term play. You won’t generate income on the first post you publish. But keep sharing good content and solid advice, and the returns will find momentum.
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14. Buy a Blog and Use Affiliate Marketing
Starting a blog takes a lot of time and effort, so it’s not a 100% passive income idea. However, if you search hard enough, you’ll find blogs for sale that you can purchase and monetize yourself.
The nice thing about buying established blogs is you don’t have to work as hard to get the audience. If you purchase a blog with a large audience, your only job is to keep the content going and to publish affiliate links the audience likes so you make passive income from someone else’s hard work starting the blog from scratch.
15. Start a YouTube Channel
Whether you review products, give your opinion on local events, or perform entertaining work, there are many ways to earn income passively through a YouTube channel.
While YouTube rewards channels that have higher viewer counts with built-in ad revenue, the easiest way to make money on YouTube is through product endorsements. These can be your other passive revenue products like Ebooks or secondhand sales. You can also use affiliate marketing to create on-click revenue.
One video product review could net you several hundred thousand views depending on the item, and a site that perpetually draws in thousands of viewers per video can net a clean passive income.
16. Sell Stock Photos Online
If you’re a photographer or have access to an extensive portfolio, monetizing your photos through the internet is possible on Dreamstime.com. You can sell the rights to your photographs to businesses and brands that would like to use them.
It’s also possible to start a small business photo exchange if you’re a passionate photographer. There are a lot of local art shows and exhibitions where you can display your work and create new consumers.
17. Advertise on Your Car
If you don’t mind driving around with ads on your car, you can make a nice chunk of change just by driving around.
By letting companies use your car as a mobile billboard, you can make a few hundred dollars a month. Sites like Wrapify can connect you with companies interested in advertising on personal vehicles.
This can also be a good supplement to your ridesharing income, since you’re already driving, you can increase your income by wrapping your car in ads.
18. Rent Out Your Extra Room
If you have a spare room in your home or a finished lower level that doesn’t get used, earn passive income by renting it to tenants. Of course, you must be comfortable having someone else in your house, but it can help you pay the mortgage, and you don’t have to do anything different than what you already do to maintain the home.
You can advertise your room for rent on sites like Airbnb for temporary renters or find a long-term tenant who needs a place to live rather than just a quick place to stay while visiting your town.
19. Rent Out Storage Space
Did you know one in 11 Americans pays for extra storage space? The self-storage industry is booming and has been for years. As passive income ideas go, this business model is pretty simple. You can rent out any space like your garage, basement, or crawl space.
Renting storage space is much less regulated than the residential rental industry, making evictions far cheaper and faster if the worst happens and your renters default.
A company called Neighbor proclaims itself to be the Airbnb of storage. And we highly recommend them!
It’s easy to turn your space into passive income and is a great side hustle, earning up to several hundred dollars a month.
List your space, set your terms, then start earning easy cash by converting unused space into money-making revenue streams.
20. Rent Out Useful Household Items
Just like renting homes or rooms, renting out personal property is a way to increase your passive income stream.
Sites like FatLlama can help you advertise your things to people who may be interested in renting them. Although you might need to purchase insurance and perform maintenance to keep your stuff up to snuff, the benefits of renting out household items means regenerating your cash flow and recuperating expenditures.
Baby equipment is a frustrating expense. Babies need cribs and highchairs, but they ultimately grow up, and that equipment becomes useless.
If you have any baby equipment, you can rent it to new parents on sites like BabyQuip.com. This can turn into a passive side hustle and put old baby gear to use again.
Do you own some equipment you’re not using? It could be anything: farm equipment, industrial equipment, office equipment, or even your lawnmower. Someone could use it!
21. Rent Your Car or Parking Space
Familiar with Turo? It’s a simple enough concept: “Airbnb for cars.” Individuals can rent their cars out short-term to other individuals. Yet another example of the sharing economy at its best!
Turo does provide state-minimum insurance with all bookings, and several options for car owners to add more protection if desired. Still, make sure you do your homework to fully understand all the risks and liabilities of your car before renting it out on Turo.
If you don’t want to rent your car, consider renting your parking spot. Did you know that the average vehicle is parked 96% of the time? Parking spaces are highly valuable, especially if you live in a city.
Individual parking spots in San Francisco can go for as much as $375/month. Let’s say you live in a less expensive city; I bet you could get $100/month or $1,200/year! Draft up a contract and rent it out!
What is Passive Income?
The true definition of passive income is earning money for doing nothing. While that’s often the case, eventually, as you can see from some of the top passive income ideas above, you may have to put forth some effort initially.
The hope is that eventually, the income source takes a life of its own, and you start earning money in your sleep. Some methods, however, are completely passive, like crowdfunding. You invest money in your chosen investments and don’t have to lift a finger again.
Others, like writing and monetizing a blog, require some effort on your part, but the opportunity to earn money doesn’t end; anytime someone visits the blog and clicks a link to purchase something, you make money.
What Passive Income is NOT
Passive income is not your 9 to 5 job, a part-time job, or assets that don’t produce income. If you have to trade your time for money with no end in sight, it’s not passive income.
It’s also not passive income if your chosen investment doesn’t pay dividends or interest. For example, common stocks aren’t passive income because they don’t pay dividends, like dividend-yield stocks.
Passive Income Ideas For Beginners
Everybody starts somewhere. If you’re a beginner, don’t let your inexperience deter you from trying to build passive income. Realistically, beginners can do any of the passive income ideas listed above — you can learn any of these business models quite quickly.
That being said, as a beginner, it’s important to focus on your mindset first. Start slow, even if you’re only earning a small amount to start with. Passive income compounds and builds over time.
Here are some of the best passive income ideas for beginners:
- Stock Photos or Videos
- Rent out your car or parking spot
- Rent out your room or spare space
- Advertise on your car
- Start a drop shipping business
- Create an online course or ebooks
How Many Passive Income Streams Should You Have?
There is no “one size fits all” approach, but for beginners, I recommend you pick two or three from the list that excites you.
Don’t try to invest in more than that for now—each passive income idea has a learning curve, and if you bite off more than two or three, you’ll find yourself with too much to chew. As you mature in these areas, slowly branch off into others.
Frequently Asked Questions
Adding passive income streams to your cash flow is a great way to increase your emergency fund, reach your financial goals, and provide yourself with peace of mind. Here are some more questions people have about passive income ideas.
How can I make passive income with no money?
Many of the ideas on my list of passive income ideas require no money upfront. For example, you can rent your spare room, sell stock photos online, or wrap your car and earn passive income without investing any money.
How do I minimize my taxes on passive income?
Talk to your tax advisor to determine if you can classify your passive income opportunity as a job. If it meets the IRS guidelines for a business, you can take deductions for certain expenses, reducing your taxable income and tax liabilities.
Can you make $5,000 a month in passive income?
It would take many streams of passive income to reach $5,000, but you can reach your goals with practice and consistency. The key is to diversify your efforts and find as many passive income opportunities that require little to no effort to maximize your earnings.