| Provider | Best For | Key Benefit |
|---|---|---|
| Prime Alliance Bank | Best Overall | Competitive interest rate for any balance |
| Patelco Credit Union | Best for Small Balances | Higher APY for smaller balances |
| Axos Bank | Best for Debit Users | Full debit card access with no monthly fees |
| Ally Bank | Best for Ultimate Flexibility | Access your funds online, through ATM, debit, or Zelle |
| Synchrony Bank | Best IRA Options | Rollover an existing IRA to an IRA money market account |
Alternative Passive Income Ideas
You’ll find a laundry list of alternatives to stock, bond, and cash passive income ideas. Some of these choices are more passive than others. Real estate investing is frequently touted as a response to the question, “What is the best way to earn passive income?” But real estate investing takes many forms, some more passive than others. Owning and managing real property is passive, until a pipe breaks or the renter doesn’t pay their rent. Then it is a lot of work. With real property investing you’ll also need a chunk of capital to begin. Real estate crowdfunding apps or investing in real estate investment trusts (REITs) are more passive. Once you purchase the securities, you wait for the cash flow.
Another popular way to earn passive income online is by creating an affiliate website, but this involves more work than meets the eye. An Airbnb rental is only semi-passive if you hire a team to manage the property. Cash-back credit cards and shopping sites might be considered a passive income idea, yet you’re spending in order to receive the cash. That’s not a net-positive endeavor.
Other alternatives to passive income involve digital property sales, like e-books, courses, apps and other online goods. For all of these passive income ideas, there is a hefty startup time commitment and some upfront cash as well. You’re also less certain of receiving a return on your investment if the sales miss expectations. Evaluate these alternatives to passive income to learn whether there’s a strategy for you.
REIT Investing
A real estate investment trust or REIT is an investment vehicle that owns a pool of commercial real estate. There are REITs that provide broad diversification across the real estate landscape. Or you can buy niche REITs that own senior housing, student housing, warehouses, commercial property, mortgages, shopping malls, data centers or many other varieties of property. The benefit of REITs for cash flow is that they are required by law to pay out 90% of their taxable income to shareholders.
Peer-to-Peer Lending
Debt investing is popular, with many platforms that enable everyday investors to be the bank and lend money to others. Apps like Groundfloor provide investors the opportunity to lend to real estate buyers. Other platforms match up borrowers with lenders for a variety of cash needs.
These peer-to-peer lending apps offer higher interest payments than other traditional stock, bond, or cash vehicles. But they are riskier as the loan payment defaults can eat into your returns. To minimize that risk, you can choose to invest in higher quality loans and diversify by owning many loans.
Affiliate Marketing
Affiliate marketers sell products and services on their website or social media accounts and receive a commission from the brand for the sale. Affiliate marketers frequently write reviews to draw visitors to their website. The setup for affiliate marketing is not passive and involves creating a website or social media platform, developing contracts with companies who pay affiliates, and writing content to draw visitors to the website.
The passive aspect of affiliate marketing is that once the content is written and a website develops a stream of visitors, your work is diminished. That’s only partially true, as you’ll need to write new content and update old content in order to maintain and increase website traffic. Additionally, it can take months or more to begin to generale cash flow. We place affiliate marketing on the higher-effort step of the passive income ideas ladder.
Best Alternative Investing Platforms
| Platform | Focus | Minimum Investment |
|---|---|---|
| Fundraiser | Real Estate Investments | $10 |
| Masterworks | Art Investments | $10,000 |
| Yieldstreet | Asset Variety | $2,500 |
| iTrustCapital | Gold and Cryptocurrency | $1,000 |
Factors to Consider When Choosing Passive Income Streams
Capital
All passive income ideas require startup capital. To develop a meaningful passive income stream from financial assets like cash-equivalents, stocks, and bonds, you’ll need a decent account balance. With $100,000, an investment paying a 5% dividend or interest payment provides $5,000 per year cash flow.
Although affiliate marketing requires a small cash outlay to potentially obtain cash flow, you’ll pay more with your human capital or time.
Risk
All investments carry a degree of risk. Certificates of deposit and high yield cash investments don’t risk the principal value of your investment, but could lose purchasing power over time due to inflation. Investing in higher risk dividend paying financial assets involves the potential to lose principal and also decreased cash flow, should dividends be cut. Crowdfunding passive income investments are less regulated and can tie up your money for longer periods with added risks of defaults and platform failures.
Taxes
With the exception of tax-exempt municipal bonds from your state of residence, all income is taxed by the government. After-tax income is what really matters, so understand how your investment is taxed, and your specific marginal tax bracket. Dividends and interest payments may have their own tax rates..
Key Differences Between Stocks and Alternative Investments
| Stocks | Alternatives | |
| Liquidity | Extremely liquid; can trade throughout the day. | Many have lock-up periods which tie up your money for periods from several months to several years |
| Fees | Fee-free trading with most brokerages; most ETFs and mutual funds charge less than a 1.0% expense ratio | Fee structures range from simple to quite complex; a few platforms provide low-fee alternative investments, while others have complex fee structures including performance-based add-on fees |
| Minimum investment | Fractional stock and ETF shares can be bought on multiple investment platforms for as little as $10 | Platforms are available for both accredited and non-accredited investors; minimum investment amounts range from a low of $10 to four to five figures. |
| Correlation | Stocks exhibit distinct correlations among specific sectors and geographic regions. Lower correlations between assets lead to more price stability within your investments. | Alternatives will also have correlations within themselves and won’t always move in lockstep. The correlation between stocks and alternatives will depend upon the time period and specific alternative investment vehicle. |
FAQs
What’s the Difference Between Active Income and Passive Income?
There is a fine line between active and passive income. Clearly, going to work every day in exchange for a regular paycheck is active income. Task work such as food delivery, rideshare driving, freelance jobs, consulting, and contract work are also ways to create active income. With active income, you get paid for working. Passive income ideas span a range of jobs.
Receiving income in exchange for zero effort is unlikely, unless you count receiving an inheritance or winning the lottery. Writing a book and then receiving royalties is a great example of passive income, yet with the passage of time, book royalties will decline. In contrast, if you buy a dividend-paying stock fund, once you select the investment, you will receive ongoing dividend payments without much additional effort. Some passive income ideas are liquid, like buying dividend-paying investments, while others are less liquid, like long term real estate syndications. Some passive income jobs require minor ongoing work in exchange for cash flow, while others are less passive and involve greater ongoing effort. Passive income strategies range from those with a small startup effort, like investing in dividend-paying stock or money market mutual funds, to more labor-intensive ones, such as managing rental properties or creating an affiliate marketing review website.
How Can You Make Passive Income With Little to No Money?
By creating digital products like courses, apps, e-books, and more and selling them, you can create passive income with minimal cash. Books can be sold on Amazon, while you can sell other products through your social media accounts or an online store.
If you have a job with a 401(k) or other retirement account, you can contribute part of your paycheck to that account and invest in financial assets. At retirement you’ll have enough money to create a passive income stream.
Can You Live Off of Passive Income?
Yes, you can live off of passive income. It’s easiest to live off of passive income if you live in a low cost-of-living area. To live off of financial investment and cash-equivalent income, you’ll need a larger amount of money. To earn $30,000 per year, you’ll need $600,000 invested at 5% per year.
To live off of digital product or service sales, you’ll need to earn several thousand dollars per month. The same goes for affiliate marketing.
Older individuals who have built up a large amount of investable assets are most likely to be able to live off of passive income. The exceptions are those folks who’ve made a lot of money young in life, live simply, and invest for income and capital growth.
How Do You Pick the Right Passive Income Idea?
To pick the right passive income idea, assess your available time, risk tolerance level, and available capital. Also, explore your skill sets to determine which passive income ideas are a good fit for you. The easiest way to start investing for future passive income is to start small and automate your investing.
Who Should Consider Passive Income Streams?
Everyone should consider investing for the future. When you are older you’ll have the opportunity to create a passive income stream. Younger individuals with ambition and the ability to motivate themselves are wise to consider creating passive income streams. Employment is uncertain and creating multiple streams of income is a sound financial plan.
