Passive income ideas

passive income ideas earn money while you sleep
You can generate income by selling your time, by building something that you can sell or by investing capital. Passive income should be passive. This list includes passive income ideas absolutely anyone can do, thus excluding the first two categories.

I follow all of these ideas and already get around 2,000€ per month in passive income. The internal rate of return for my passive income portfolio is over 15% - so far.

As with any passive income ideas, what counts is the long-term expected return. I always compare an investment to the stock market, where the long term expected return is generally believed to be around 7%.

When judging an investment's return, it should always be compared to its volatility i.e. risk. Additionally, the volatility of the investment should be considered in context of your other investments. When you add investments to your portfolio, use modern portfolio theory to consider how it affects your overall volatility, not just expected returns.

If there were passive income ideas that would produce higher returns, investors would flock to those ideas, driving eventually down their profits. Thus, a similar rate of return is to be expected.

It also means that to generate truly passive income you'll need to invest capital. Other forms of income are not passive, including other quoted side hustles like blogging, stock photography, creating Etsy products etc.

7 truly passive income ideas anyone can do


  1. Stock market
  2. Bonds
  3. Finance consumer loans
  4. Become a landlord
  5. Buy solar cells and sell the electricity
  6. Lend to small businesses
  7. Lend to real estate development projects
 

1. Stock market

There are a lot of ways to invest in the stock market, but in case this area is new to you, you probably don't want to hear about investing in direct stocks.

Exchange Traded Funds are a great first step into the stock market. Some of the most popular ETFs are so called index-ETFs, through which you can diversify efficiently across a large number of companies.

To buy ETFs though, you need a brokerage account. I personally use Interactive Brokers for their unparalleled global reach and lowest costs.
 

2. Bonds

Now that you already have an interactive brokers account, you can also buy bonds.

Bonds provide fixed passive income with lower risk. The US treasury bond rates are a good indicator for what you can expect as return. Current yields are around 2%, and this is considered risk-free, but when you include also inflation, your real returns are practically 0.
 

3. Finance consumer loans

Consumer loans have become hugely profitable in the previous years, yielding more than 10%. Most of my capital is in consumer loans. Some of these platforms I've reviewed on the site:
 

4. Become a landlord

One of the oldest ways to generate passive income is through becoming a landlord. If you know the market well enough, then this strategy can create a steady income in the form of rent, but also the apartment can appreciate in value.

You might also be able to leverage a low-interest mortgage, which further improves your return on investment.

The yield for a rental property varies by country and by region. I own an apartment in Finland that yields a 4.4% interest when fully paid (including all upkeep), but since it is completely financed with a loan, the internal rate of return for the first year is actually 41%.
 

5. Buy solar cells and sell the electricity

Interesting alternative investments exist, but they're difficult to find. One such alternative investment idea is buying solar cells and leasing them to a customer.

One innovative company that is doing this is Sun Exchange. Sun Exchange allows you to buy solar cells and lease them to customers such as schools in South Africa, where electricity is in high demand. Such sustainable investing also means your capital is working for the good of the planet.
 

6. Lend to small businesses

It has never been as easy to invest in small, unlisted companies. Once a company is listed and its stock can be freely traded, it becomes much more liquid as an investment. Prior to that, it's a very different story.

Now however, there's no shortage of platforms that help crowdlend to small businesses. I've written about some of the ones I've used:
 

7. Lend to real estate development projects

If you're not ecstatic about becoming a landlord but like the idea of having exposure to the real estate market, lending to real estate development projects might be more your thing.

By investing through platforms such as www.crowdestate.eu and www.bulkestate.com, you lend money to companies that develop large real estate properties. These can be for example old, forgotten properties at high value locations or development of completely new residential houses. These require large amount of capital, local knowledge and lots of time, but can yield very generous returns.

Crowdestate and Bulkestate both yield passive income returns of over 15%.

What did you think of these passive income ideas?

Have I missed something?

If you have a passive income idea that I should include in this list, please let me know! You can reach me on twitter on @thewealthyfinn.

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