Earning passive income ideas are on everyone's mind. People want to make the best use of their money and earn as much of it as possible. Passive income is a subset of finance that involves earning some type of a yield in which the person making the investment does not have to actively manage it.
Passive income is an illusive way to invest. The goal is to earn the highest returns while doing the least amount of work possible. This article goes into detail about everything related to passive income. From the kind of returns to expect, how to begin, how experts see passive income, different strategies, anything you want to know about passive income will be in this article in some capacity. If there is anything else you’d like to see or learn about, please reach out and contact us, or join our discord community.
The reality of passive income is that it requires work. Work in a sense of research, maintenance, and staying up to date with that investment, and its return/risk profile. Each investment changes over time. Regardless of the type of investment vehicle.
As a general rule of thumb you should be checking up on your passive income investments once a week or month depending on the specific type of investment you have chosen. The most important thing that people have in investing is their own agenda. What defines success for one person might not define success for you. The easiest way to make sure that you are on track to hit your goals is to keep up to date on your own portfolio.
The common mistake people make with passive income would be to “set and forget” about your money. Sticking your money in an account and assuming that it will work for you forever is a very rookie thing to do. The goal of this post will be to make you a passive income earning expert, whether you use Outlet or some other type of investment vehicle. This article will give you the knowledge you need to begin earning new income streams, and invest in unique ways that put your money to work with minimal effort.
Before you start to earn passive income you need to understand the prerequisites of doing so. Every passive income investor should have the following criteria met.
Have a safety-net of funds - Having a safety net is a must when it comes to investing. In most scenarios people recommend to have 6 months of spending to be sitting in cash before you begin to invest. This makes it much less risky to spend your money, and gives it time to age through the investment to yield you more money.
Be ready to lose money - This seems very counter intuitive, however it might be one of the best pieces of advice in the whole article. People want a yield on their money, but never want to risk anything. Like the old saying goes, with great risk comes great reward. Don't be afraid to do something new, or put money into something that other people are weary about. In order to earn you have to be willing to take on some type of risk. There are very few investment vehicles (possibly none) that allow you to earn great returns with zero risk.
Have the knowledge and vocabulary - There are several keywords, and phrases that are specific to passive income investing. Some of the keywords that you should understand are cap rate, yield, AUM, APY, APR, principal, just to name a few.
Diversification - Diversification is more of a concept. The concept is that you should not put all of your eggs in one basket so to speak. Instead you should invest in various opportunities, this minimizes your risk, should one of your investments fail you don't lose everything. Investopedia defines diversification as “Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio”.
Passive income is all about generating a yield. The yield you earn from the investment should be worth the risk you take when investing. There needs to be something that you do with cash that creates more value. There are several ways to go about doing so. Some of the most common ways to generate yield and have a passive income investment are as follows:
Dividend investing: dividends are very important if you are looking for some type of an investment that spins off cash. That cash that you receive from your principal investment is called a divided. A divided is a broad term used in many types of investments. There are some big name stocks that pay a dividend. Some of which you have for sure heard of. This is a list of dividend stocks.
Backing Loans: Loans are very niche and lucrative, but make a great passive income tool. There are an almost infinite amount of loans that you can back. Each loan type is very niche and specific. Backing loans is something we go into further detail in later on in the article.
Equities: Equities are owning part of a business, or a share of ownership in a fund, could be stocks as well. Equities are another common way to earn passive income.
Real Estate: Using real estate to earn passive income is one of the most powerful ways to earn yield. Real estate is a large chapter in this guide, and should be looked at for larger sums of money. Real estate, unlike anything else, has multiple streams of income and benefits unlike other assets or ways to earn a yield.
When you look at some type of investment they earn a yield. That yield is shown as being earned as “APY” or “APR” these units that measurement yield. They are similar but very different.
APY - Annual percentage yield is a normalized representation of an interest rate, based on a compounding period of one year.
APR - the more effective rate to consider when comparing loans. The APR includes not only the interest expense on the loan but also all fees and other costs involved in procuring the loan.
There is no one right or wrong way to earn passive income. Generating these types of income streams take dedication, work, and a lot of effort to begin generating the yield that makes it worth having.
There are some passive income strategies that are far more work than others, each with their own pros and cons. The information below is the most informative part of this article as whole. If you have any questions in particular about what's written please speak to our community via Discord or twitter.
Earning passive income with mobile applications is not as easy as you would think. The sheer amount of choices and learning curve to understand and trust what goes on under the hood of these apps can be a huge hurdle in making your decision on what apps to use in order to earn a yield. This article we did goes into detail about other passive income earning apps.
There are several apps that provide people with passive income, and investment vehicles with very little upkeep or need to check on. Keeping in mind the definition of passive income we are looking for applications that provide a yield with very little upkeep.
The apps on this list are some of the easiest ways to get started with a new stream of income with very little knowledge.
Outlet We are a bit biased, but this is the reason we exist. We want to provide people with passive income without having to keep an eye on your money. Currently Outlet APY is about 300% more than what the best savings accounts pay in the world.
Outlet is as simple as it comes, with little to no learning curve whatsoever. The beauty of the Outlet app is that it comes packaged in a familiar mobile banking experience, while offering great returns and and being totally free. You can get your first $5 on the app here.
Robinhood Although this goes hand and hand with investing in equities and securities this mobile app is very versatile in its offerings. Although there might be a very sharp learning curve for some people once you understand the capabilities and offerings the robinhood has, I’m sure you will fall in love with the almost limitless amount of options. Just be sure you’re investing in dividend stocks to earn a passive return.
SweatcoinSweatcoin is a unique way to earn passive income. In most passive income strategies you need to deploy your capital in order to begin earning something. SweatCoin is the opposite, and is truly passive.
You can get started using Sweatcoin without a dime. Instead of utilizing your money to work for you. Sweatcoin allows you to get paid for the work you do. Depending on how many steps and energy you expend. Although the earnings are low it perfectly describes a passive income mobile app.
There are several ways to make passive income using mobile apps, and some of them have been left off this list, but are listed in another article we made here.
Real estate has made more millionaires than anything in history. It makes total sense to follow that trend. However, there are some barriers to entry before you use real estate to earn a passive income.
Real estate really deserves its own blog post, but this should be enough information so you can see how other people use it to earn. There are people who make use of real estate as an investment class, not just a place to live.
Lets take a look at some real estate investing terms that will explain the basics of real estate investing:
Cash on Cash return: the cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested. In other words, a cash on cash return is the amount of money you recieve back from the actual cost of getting the house. So you are able to buy a house with $200,000 down and you are able to see $20,000 back in profit you are looking at a 10% cash on cash return.
CAP rate: The CAP rate of a property is very different than the cash on cash return. CAP takes into account the total value of the house itself. If someone says they are looking for a real estate deal that pays a 7 cap. If the house was a million dollars then it should earn $70,000 a year. Which is 7% of the $1,000,000.
Real estate is a passive income machine when you get it working for you. There are plenty of options to make your money earn a yield through real estate. Without going into extreme detail there are a few options that make the most sense.
Buy and hold: Most people who own a single family home and doing exactly this. They are holding their home in order to receive a yield. The problem is this yield may or may not be realized when it happens. The problem with a buy and hold strategy is that you need to sell or refinance the home to realize those gains in cash. Buying and holding becomes very lucrative once the house or piece of real estate also produces an income.
Multi-family: A multifamily is one of the most common ways to make money in real estate. Multi-family investment properties are a great way to earn a cash flow and be introduced to earning passive income. Multi-family properties have a tendency to be the highest cash flowing way to invest in real estate. Multi-family properties values are derived from the income they make. A fair deal on a multifamily investment is a 7 CAP.
Pure rental: A pure rental is much different than a multifamily. A pure rental is can be something like a mobile home, or any type of space that serves a purpose to be lived in. Today people are creative and able to identify different types of rentals that are not obvious to most. Airbnb creates a very unique opportunity. The short term rental market is booming due to the marketplace. People are earning passive income by turning shipping containers, busses, and tiny houses into a business.
You might be thinking as you are reading this “How?” There is a lot of upkeep in owning a property. However, there are ways to remove yourself from the management process. There is a whole industry created to solve this exact problem. These services are called property managers. Property managers will help you manage the property and turn it into a passive income machine.
Advice on passive income in real estate: I think that there are a lot of ways to get lost in the sauce when it comes to real estate investing. The number one thing to keep in mind is the cost of doing business and factoring in your vacancy rate. Don't overlook this step. This article goes into detail on the costs of owning a rental property.
Backing loans is one of the easiest ways to earn passive income. There are plenty of apps that help you get started backing your first loans. Backing loans does come with risk, just like most passive income investments do.
There are a few options that help you back loans through some sort of application. Here is just a few of them:
FundriseFundrise one of the more popular choices when it comes to backing loans as a source of passive income. Fundrise is a wonderful mobile first application that enables you to start investing and backing real estate projects. Fundraise makes the process of investing in real estate extremely easy from a users perspective. Fundrise has purchased roughly $2.5 billions in real estate on behalf of its customers.
ProsperProsper is another great service that helps you back loans to earn passive income. Prosper is more of a peer to peer lending service, unlike the other solutions posted. Lending to peers is a more risky proposition, but prosper does a great job mitigating and removing those risks for end users. We would recommend looking into this option pretty deely if you are interested in backing personal loans. That way you understand the nuances, and what goes on under the hood of each loan you back.
SoLoSoLo is another way to earn a stream of passive income. The SoLo app allows you to back peoples loans as well as take out your own. The SoLo app doesn't allow you to take or lend large sums of money like Outlet does. If you are interested in using SoLo you should look into their terms and conditions very thoroughly. Small loans like the ones they issue come with a great yield but also come with great risk.
People invest in stocks for multiple reasons. Some of these reasons could be to invest in something strictly for the dividend. This dividend style portfolio can generate a decent yield and also carry an upside due to the underlying asset. Similar to investing in real estate works.
Lets take a look at an example. If you were to buy a REIT(Real Estate Investment Trust) You would be typically getting a high yield on the dividend and a yield on the share itself. Please do your research as to what type of a dividend portfolio makes the most sense for you.
This is some great information on setting up your portfolio for success. The post goes into more detail what stocks to look for.
To summarize the article there are plenty of options to structure your portfolio. Maximizing for your dividend, or maximize your principal with a smaller dividend. When you look at higher growth stocks with a small dividend those have been the better performing choice for your portfolio, generally speaking.
Once you start earning passive income other questions might come up in your mind. Things like “How do I report taxes on this?” “Where should I keep it?”. There might be others as well, but once you are earning a substantial amount of passive income you should look into opening a separate bank account.
A separate bank account will help you when it comes tax season. This account will reflect only your passive income and should not be used for anything else. Once you have this set up you may want to consult a tax professional.
When you earn a yield on your dollars you are somehow risking them. When you use any sort of passive income method you run the risk of losing your principal. Outlet Finance is known for having a very good principal risk averse strategy. If this is important to you and your investment thesis then you should look for the less risky thing to do.
People who are using passive income apps should know that each app has some time of flaw that will enable you or that company running the service to lose money.
Earning passive income is easier than ever. There are plenty of options that can be able to fit into your lifestyle. If you need help finding some sort of way to earn a passive stream of income then please reach out to us and speak to the Outlet team and community on discord, or twitter. We will gladly help you make money with or without us.