What Exactly Is Passive Income (And How Can You Make It?)
It might sound like something reserved for trust-fund kids, but there are more ways in than ever.
When I used to hear the term “passive income,” a number of things would come to mind: A group of shy dollar bills, letting more aggressive dollar bills cut in line. Telling my bank account to grow up, but then finding it just totally changes the subject.
Of course, as finance jargon tends to go, it’s not quite as literal as that. Generally speaking, passive income is money that comes in on a regular basis with minimal or no effort to maintain it—extra cash without you having to do much to get it, in other words. Pretty awesome, right?
It is indeed. Passive income—as opposed to “active income,” a.k.a. the money you make off your daily grind—doesn’t require loads of your time. Thus, it essentially represents more freedom to do what you want. And what’s more valuable than that?
But as easy-money matters tend to go, it’s more complicated than it sounds. Passive income requires an initial investment of your time and money, and usually some maintenance along the way. Check out the basics to get started with that money-for-almost-nothing scheme below:
It’s perhaps the most obvious form of passive income, but depending on your financial know-how, it can also feel like the most abstract and intimidating. If you don’t plan on turning day trading into a hobby anytime soon, or if the thought of enlisting a financial advisor that you have to like, “talk shop” with seems intimidating at this point, fret not: Ellevest, a financial investment platform aimed at closing the “investment gap,” makes the process super accessible.
If you want to start even smaller, Acorns is a “micro investing” app developed with the help of Nobel-prize winning economist Harry Markowitz. The basic premise is this: For every purchase you make with a debit or credit card, Acorns will round up to the nearest dollar and invest that change into a portfolio for you.
It’s mindless saving and investing with money you likely won’t notice is missing. There are options to add more consistent contributions as well, so you can get more serious as you go.
And here’s a pro-tip from someone who’s both an investing noob and an Acorns superfan: If you go months without remembering to check in on your account, it’s an exciting miracle when you finally do remember to log on and see that there’s money in there!
Rental income and income properties
The most lucrative form of this is owning a house that you rent out to tenants or to short-term guests. If you own the house outright, that’s a pretty sweet setup—a steady chunk of change comes your way every month. And even if you have a mortgage on the property, so long as your rental income exceeds your mortgage and applicable taxes and fees, it’s still one of the most viable and common sources of passive income.
Of course, setting yourself up with a bona fide income property requires quite a bit of money and resources to get it off the ground, and my guess is that if you’re reading this, you’re likely not in that boat. #same
Luckily, with the advent of home-sharing platforms like Airbnb, mimicking the concept of an income property is now way more accessible. If you’re headed out of town for a few days, renting your place out can yield some quick, easy cash.
And Airbnb has made the process easier than ever; they’ll set you up with a professional photographer to take photos for your listing, and they have a “smart pricing” function that will suggest how much you should list your place at depending on surrounding inventory and demand.
Think outside the home rental
Airbnb, sure. How’s about Airpnp, though? It's partly a joke, partly a legit way you can…rent out your toilet. Seriously, though: If you live in a city where a big event is coming through—music festival, marathon, Mardi Gras, Fourth of July fireworks, the Olympics—a flushing toilet is a commodity that becomes increasingly valuable the more people you cram into an area. One reviewer mentioned that in Dallas-Fort Worth, there was only one toilet listed at $100. An economics 101 lesson in supply and demand, folks.
Slightly more practical: If you’ve got access to a parking space or a driveway—especially in a big city—that can bring in some pretty serious bucks when you’re not using it. JustPark makes it easy to put your space on the market for as long or as little as you want.
Same goes for renting out your car if you’re only an occasional user. Turo, one of the most popular apps, alleges on its front page that if you have a $20,000 car that you rent out for 15 days a month, this could potentially bring in $6,501 per year.
Words: Deena Drewis
Photos: Daria Kobayashi Ritch