If done right, passive income can match or even surpass your pre-retirement income. Like a seed planted at the right time, passive income only requires a small amount of concentrated work to get you a big return.
If you’re retired or soon to be retired, here are the best 5 ways to develop passive income so you can keep a high standard of living well through your golden years.
#1: Loan Money Via Peer-to-Peer Lending
Yes, the idea with passive income is to make money and not give it away, but when you loan money through peer-to-peer lending, you get a return on your investment the same as banks do.
People who take out money through peer-to-peer lenders are usually turned away from banks because they don’t qualify (meaning they have no to low credit). They need independent lenders to get their project off the ground.
The returns usually aren’t huge (say around 5%), but it’s still an easy way to make a few bucks.
#2: Rent Out Space in Your Home
Though the thought of renting out a spare room in your house or the second floor of your finished garage may put you on your back foot, renting is an excellent way to make easy money.
You have two options when it comes to renting: Long term versus short term renting.
Long Term Renting
Long term renting is more hands-on at first. Initial work solely revolves around getting the space ready. You’ll want to paint the walls if they’re looking faded, and may even want to consider furnishing it. To advertise it, you will have to post the space online at a site such as Craigslist or through your local newspaper. Because it’s a long-term situation, you will definitely want to interview the potential tenant to make sure you two are a good fit with one another.
If it sounds like a lot of work at first, it is, but after you’re through it’s easy money month to month.
Short Term Renting
Short term rentals take just as much staging in the beginning, but you don’t have to do any background checks. And when we say short term, we mean it: only one night to a few weeks. To find tenants for short term rentals, the best route is to use sites such as Airbnb, VRBO, or FlipKey. These sites do all of the background checks for you, and each time a guest stays at someone else’s house, that owner leaves him or her a review. So if you don’t like what you see, you can simply hit decline when they request to stay with you.
Short term rentals require small amounts of work each time someone stays with you. This means you’ll need to clean up after them by sweeping the floors, wiping the counters, taking out the trash and changing the linens.
#3 Invest in a Turnkey Rental
Turnkey properties are sold ready to rent, so nothing has to be done to them to make them move-in ready. The only things you need to do are purchase the property and find a management company.
Management companies take care of maintenance and tenant placement so that you don’t have to do anything. Just know that every service they provide comes with a fee, which will eat into your monthly ROI. Because of this, do your research, read reviews of past users (at sites such as Bigger Pockets) and go over the fine print to find the best management company that has your best interests in mind.
#4 Purchase Dividend Stock
Dividend income comes from stocks you have purchased. It’s money that is deposited straight to your bank account every quarter because you are a shareholder of the stock.
With any type of stock purchase, you’ll want to do your research. You don’t want stocks that may only perform well for the next couple of years. You want stocks with reliable and consistent stock so that you can rely on money for years and years.
Though dividend-paying stocks require an up-front investment, they can provide consistent cash-flow.
#5: Purchase an Existing Business
When purchasing a business these days, you have two options: purchase an existing brick-and-mortar business or an online business. Before you do either, you definitely want to sit down and have a hard look at the financials with a certified accountant.
As with all passive income options, you want to purchase a business that will give you passive income that is easy and reliable. Strong brick-and-mortar options are laundromats, gas stations, and fast-food restaurants. Though they don’t sound like million-dollar ideas, they’re businesses that, no matter what time of year, are busy every day of the week.
Online businesses, on the other hand, can be very diverse, so you’ll want to take your time to choose the best one. There are literally thousands of options to choose from. You can buy online businesses at places like Biz Buy Sell or Exchange. The businesses are usually sold by people who are simply looking to move on.
Obviously, when you buy a business, that business is going to take day-to-day care and handling. Though it will eat into your monthly cash flow, you’ll want to find someone to manage it for you if it requires a lot of up-keep. No matter which option you choose to go with, brick-and-mortar versus online, you’ll need to understand the market and the daily/ monthly requirements first before you buy. Unfortunately, it’s not as easy as simply writing a check and watching the money come in!
Invest in What Excites You the Most
Even though the idea is to keep a distance from your passive income projects, you’ll have more success if you choose something that energizes your brain. And for real success, don’t simply rely on one course of action. You’ll want to have multiple passive income streams if you truly want to be financially free.
Luke is a writer and editor based out of Los Angeles. He specializes in finance, as well as health and wellness. In his free time, he enjoys watching Astros baseball. You can find him on LinkedIn.