Today I want to talk about my top 5 passive income streams. Without getting head deep in defining what is passive income or if there’s even such a thing to begin with, I want to list my top 5 income earners in order since this is a question that I get quite a bit.
This list is in order of passive income streams that generate the most profits for me to the least. Note that I mentioned profits and not merely revenues. That is because some of these passive income models have a heavier cost structure, diminishing the bottom line profits.
I generate most of my passive income through web properties, specifically niche websites. What I like best about internet based businesses is that the barriers to entry are little to non-existent. Moreover, the start-up cost is bare minimal. In fact if you already have existing web properties (and thus hosting services), your start up cost is a mere $7-$10 spent for the domain name acquisition.
Currently I blog and manage several niche websites in my portfolio. What I like about this passive income model is that I can establish several streams of income within each web property. For example, I generate income from private and public advertising, affiliate commissions, lead generation, sale of my own digital products, etc.
I also like the fact that as each properties cash flow increases, I have the opportunity to sell the property as a passive income producing asset, resulting in significant cash infusion. I have sold a few niche websites in the past for a five figure gain on sale. My biggest success resulted from the six figure sale of my e-commerce website back in 2007.
Despite the number of web properties I maintain, of all my passive income streams, internet based income models take the least time and attention, and are the easiest to manage.
A healthy portion of my passive income comes from the investment of capital as well. I have retirement accounts, regular trading accounts, fixed deposits (CDs) and investments in small scale hedge funds that generate profits. Unlike profits from web properties however, I let the profits from stock market activity remain and compound within their accounts. Some accounts such as retirement accounts leave me with no option but to keep the funds in there until I retire.
Unlike web properties, stock market investing requires money to make money, and often comes with a much higher exposure to risk because I cannot personally control the outcome of companies I invest in. That said, stock market investing is still one of the more lucrative passive income streams for me, especially portfolios structured for aggressive growth and generating long term income.
Dividend investing however is something I am only now learning about in depth and plan on building a portfolio of dividend stocks on my own. Aside from the few speculative picks, all my portfolios are now professionally built and managed (not necessarily recommending this is the best route).
Investing in real property is one of my favorites because real property is something that is tangible which I can see, touch and feel. I also see it as a vehicle that provides real value to another human being. As a landlord, I feel that I am an important member of the community who provides quality housing to tenants in need. Real estate is also an excellent hedge against inflation over time.
In the stock market, one can trade on margin (debt/leverage) up to 50% of their portfolio value. In real estate, leverage can go much further, in some cases 100% or even more if you can draw a line of credit on the built in equity in an undervalued acquisition.
While I do not trade on margin in the stock market, I certainly acquire real estate on heavy leverage. I like this passive income stream because I feel I have more certainty and control over the outcome of my performance. There are also significantly more tax advantages involved in real estate investing compared to the stock market.
Real estate investing is relatively hands off for me as I have property managers who maintain my properties. But with all that said, my passive income profits from real estate investing are less than the profits from the stock market because there is a much bigger cost component to real estate such as mortgages, personal notes, taxes, association dues, assessments, property management fees, ongoing repairs, maintenance, etc.
I do enjoy the positive cash flow from my real estate portfolio each month, but more importantly the equity buy down, property appreciation and tax benefits. I have not evaluated real estate investment holistically versus investment in the stock market and it is an exercise I plan on taking on one of these days. It would be interesting to realize whether the stock market is truly more lucrative for me compared to real estate. I have a very strong feeling the results will be close.
Because I am a diversity freak, couple with the fact that I love my community, I decided to purchase a small brick and mortar business a few years ago. I bought an undervalued business with the hope of turning it around and selling it at a significantly higher value.
The business had its struggles initially, mostly due to my lack of diligence, but has since gotten on the fast track and is doing quite well for me. I was initially active in the business but it is now under competent management that allows me to wash my hands off it. Steve – thanks to you and team if you are reading this.
The reason this passive income stream is on the bottom of the list is similar to real estate investing, there is a relatively large cost component involved in running a brick and mortar business such as a massive rent amount, utilities, salaries, etc. Nonetheless, the business earns me a nice chunk of passive income on an ongoing basis.
I’ve had a chance to invest in a few start ups in the last few years in the capacity of a small scale “angel” (not through open market stock acquisition). I now consider this a passive income stream because these businesses started to generate some returns for me last year in the form of “dividends”.
My overall goal from these investments however is not so much cash flow as it is appreciation of capital from either company valuation or an acquisition. I might cover these topics in the future depending on how the investments shape up and whether the discussion fits the scope of this blog.
Well there you have it, my top 5 passive income streams. I do have some active income streams I selectively embark on such as consulting projects and corporate training.
Those gigs are far and few in between however. I prefer spending my time enhancing my existing businesses and contemplating additional passive income ideas.
I have several other passive income ideas that I have been contemplating, many of which fall under one of these buckets but other passive income models that are completely new to me. I will update you on my progress as I learn and implement some of these in the near future.
I like what I do because of the diversity I am able to create. In the example of internet based businesses, I am able to establish multiple streams of income within each existing stream.
Readers: What about you, what are your top passive income streams? Are you in the process of developing any? What is it that you’d like to experiment with more?Previous: How to Write an Effective Sales Page to Sell Your eBook