There's a new buzzword these days, and that's "passive income." While the term may have exploded in popularity, the concept is not so new. Investopedia describes passive income as "Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved." For most people, this description inspires thoughts of a bank account growing while the account holder suns himself on a sunny beach. But let's be honest, this doesn't ring true in the real world. Most passive streams of income spring from strategies that are the antithesis of get-rich-quick schemes. They require years of up-front work and investment, usually returning benefits after having been administered for a long time. Let's look at a few methods that have tried and true results.
Ah, royalties! What a beautiful concept. Do you have a notebook sitting somewhere full of short stories or poetry? Or maybe you have a great idea for a self-help book. You could always go the traditional route and schlep your manuscript to every literary agent and publisher in the country. An easier route may be to self-publish your own book, as noted by experts at U.C. Berkeley. Writing a book is clearly a lot of work on the front end, but once it's written there can be passive income for years or decades to come.
Have you always dreamed of being your own boss? Saying goodbye to the old 9 to 5? Starting your own small business can provide that freedom as well as a bonus stream of passive wealth. Many small businesses require little in the way of daily management. Consider a laundromat, for example. It can be a great small business choice. With some careful planning, a laundromat can provide a smart source of stable, passive, long-term income.
Is multi-level marketing (MLM) just a kosher term for "pyramid scheme"? On the surface, it can be hard to tell. The difference between a bona fide MLM and a pyramid scheme is the focus on selling products, not recruiting more salespeople. Before signing on to a program that may sound too good to be true, look at the Federal Trade Commission's guide to identifying genuine MLM companies. There are some successful ones out there that can provide a healthy stream of passive income to the person willing to put in some initial leg work.
Real Estate Rental Properties
Owning real estate as rental properties often proves to be the least "passive" of income streams. But many experts claim it's the best bet for success in the passive income category. Returns are highly dependent on your selection of properties and local rental markets. If you're hoping for the minimal to no-effort route, professional property managers can manage your real estate for an average of 10% of the monthly rent.
Finding the best fit for your stream of passive income will take time, research and planning. It's helpful to remember that good things take time. As always, we here at CVCU are only a call away for all of your financial planning needs.
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