15 ways to create passive income
It's been said that the average millionaire has over 7 forms of passive income. So, to exceed your expectations, here is 15 forms of passive income to get you started!
1. Own a Vending Machine
As you know, this is very detailed in the "About Me Section." Owning a vending machine is a great way to create passive income. I currently own just one vending machine, but would love to increase the number over time. My machine is an old Pepsi machine and I charge $0.75 per can. It's located in the driver's room at my family's trucking company. This is a high traffic area where drivers and mechanics frequently stop before starting their day. I would recommend targeting a location that has at least 50 people that come through per day. It can be tough to find a location that doesn't already belong to you because many businesses that have this sort of foot traffic already have vending machines of their own. However, if there is a will there is a way! This Pepsi machine creates anywhere from $300 to $500 of passive net income per year. In other words, it makes $300 to $500 per year after all expenses (reinvestments in purchasing more pop). I know this doesn't sound like much, but it's extremely passive and it happens like clock work. That's one less car payment (hopefuly you don't have one of these) or one less house payment every year! If you do that, then you cut your loan payoff down by years and the compounded effect of this habit is huge. For example, using the Dave Ramsey Investment Calculator and a few assumptions, $350 of extra annual income from this source is worth $193,189 in 41 years. I used 41 years because I'm currently 26 years old with an estimated retirement age of 67. I assumed $0 saved for retirement (this is not true for me, but it's important to be conservative in your calculations) and that I would save $30 per month ($350 divided by 12 months). I also assumed a 10% annual return over this period of time and the result was $193,189. Feel free to punch those assumptions in the calculator to see for yourself.
2. Reis and Irvy's Robotic Ice Cream Machine
This is an idea I have not acted upon yet, but I'm really excited to employ this strategy in the future. I actually heard of this idea from a radio advertisement while I was driving one day. This is a robotic ice cream machine that you place in a busy area and then you watch the cash role in! Here is the link so you can see how it works for yourself. As I discussed above in the vending machine section, it's important to find a good high traffic area to place this machine. I wouldn't go with anything less than 50 people per day. Maybe, you could work out a deal with a local storefront owner to split profits if they allow you to put your machine at their location. Again, you may need to be creative when coming up with a location.
This is my absolute favorite form of passive income. Dividends are paid from stock investments. Remember, an individual stock represents ownership in a public corporation (think owning a share of Facebook, GE, Exon Mobile, Etc...) I'll assume my readers are familiar with dividends so I don't have to get into a lesson here (If you're not, read this article!). Dividends come in like clock work. Especially if you find good index funds that invest in hundreds or thousands of individual stocks you know the dividend will be coming in every quarter. It's also possible to invest in only stocks that have a long history of increasing their dividend every single quarter or year. This is called dividend growth investing and there is an entire community of people out there who are dedicated to this form of investing. I would recommend these links to learn more details of dividend growth investing.
Here is one of my favorite bloggers, Michelle of Making Sense of Cents, and her take on dividend growth investing.
This form of passive income will take time to build a meaningful income from, but this also has the potential to be your largest income source someday and it will be the most passive form of income you can earn. My goal is to have annual dividend income exceeding $100,000 per year. That may sound crazy, but it is very achievable. Using a modest dividend yield of 4% you would need $2,500,000 to generate $100,000 of dividends per year. If you take advantage of your retirement options at work, $2,500,000 is also a very achievable number. I'll use my age (26) as an example using the Dave Ramsey Investment Calculator. For this example, I'm using a retirement age of 65. After 401(k) contributions and taxable account contributions to my Vanguard account, I'm saving approximately $1,854 per month. So if I didn't change anything, by the time I'm 65 I will have about $8,000,000! Now, I used a conservative 8% return estimate. Historically, returns in the stock market have been closer to 10-11%. Also, this example doesn't take into account my other investments, so realistically I will be worth much more than 8 million by this time. Also, I achieved the $2,500,000 threshold in this example by year 2043, which is only 25 years away. Get serious about creating dividend income today!
4. Rental Real Estate
I'm reluctant to call this "passive" income, but rental real estate is another fantastic way to ensure you have income coming in every single month. Don't get me wrong, This form of income will require work, and lots of it. But, if you learn to become a good landlord and you invest in quality properties over time, this form of income will pay forever. I'm a huge fan of BiggerPockets and if you are serious about real estate investing then you should be a member of this website and listen to their podcasts by Brandon Turner and Josh Dorkin. I'm currently house hacking (see below to learn more) a duplex and I can't wait to grow this portion of my income. There are many forms of rental real estate (residential, commercial, Airbnb, self storage, and the list continues) so it's a good idea to do your research and figure out which areas you would like to specialize in. Spend time reading books and educating yourself and then dive in.
5. Self Storage Investing
I know I said dividends is my favorite form of passive income above, but self storage is a close second. This would also fit into the "rental real estate" category and I would also be lying if I told you this is completely passive. However, this is a rock solid form of income that is relatively recession proof. This is a true passion for me so you can expect to see a lot of articles and videos on this topic in the future.
Some of the advantages of self storage compared to other forms of rental real estate is the cost of construction is significantly lower than other forms of real estate, yet the rent per square foot is very similar to other forms of real estate. In translation, that means a good self storage investment is much more profitable than other forms of real estate. Other benefits include no toilets and trash to deal with. You won't be getting any calls in the middle of the night to deal with a leaking toilet. Also, the landlord laws for self storage are much more in favor of the landlord compared to residential investments. If someone isn't paying you, you just simply place a lock on their unit and go through the procedures of selling their belongings. The entire "eviction" process can take a month or two opposed to several months for a residential tenant!
You also have many units at one location, whereas if you buy a duplex you have 2 "units." This matters because if you have 2 units at a duplex and they are both bad tenants you are losing a ton of money each month. With self storage, it's very common to have 100-200 units at one location, so a few bad tenants is not going to sink your business.
It's truly amazing to watch how the popularity of YouTube has exploded over the years. According to Coach Tom Ferry in this video more than 85% of the world's content will be video by the year 2019. If you are not learning to market through video then you will simply fall behind. Again, I'm reluctant to call this completely passive, but this is a form of income where you can do the work up front and watch the income continuously come in later. The best part is you can earn income directly from your YouTube videos, or maybe you just simply use YouTube to better market your business which will help increase your earnings in that business. So, the benefits are two fold.
Many of the top YouTubers out there monetize their videos a few different ways, but here are the top 3.
Selling digital products
If you are passionate about something, why not write about it? This is why you are reading this blog this very moment and this is a huge goal of mine in 2018. I'm passionate about personal finance and sharing my ideas with others. A blog can be a great way to create passive income, however don't be like most people who start and quit shortly after. A blog requires consistent and quality content. Popular blogging expert Neil Patel suggests a minimum of 3 posts per week. If you really break that down, that will require a little writing every single day. According to him, there are 3 primary ways to monetize your blog
Set up a Google adsense on your blog. Each time someone clicks on an ad, you will receive a small payment.
Sell your own product
There are numerous other ways to monetize your blog, but those are a really good start. If you really want to dive into blogging, I suggest you give Neil a follow and watch all of his videos. He does a great job.
8. Car Wash
A car wash can be a fantastic source of passive income. Like other forms of investments, this will require significant work and investment up front, but once it's up and running you will have a great source of consistent passive cash flows. Another idea I have recently had that fits with this business nicely is automated pet washes. Check out this awesome business idea here. In fact, many of these pet washes are designed to work closely with a car wash or laundry mat.
There is a local guy in town who I have taken notice of over the years. He has designed his life around solid passive cash flows. He owns the local laundry mat, self storage facility, vending machines, dry cleaners, the building that a subway restaurant rents from him, the local car wash, and the local beer barn! For those of you who don't know, beer is not aloud to be sold in stores in the state of PA, so all over the state there are drive threw barns where beer is distributed to consumers by the case.
9. Laundry Mat
A laundry mat is not the sexiest investment in the world, but it pays cold hard cash month in and month out. This business requires high foot traffic in close proximity to a large number of residents' homes. This is also a great little business to add ancillary forms of income. An example would be to have a laundry mat with vending machines and a dry cleaning section. Maybe you could also offer a coffee vending machine, or the automatic ice cream machine I mentioned above. The possibilities are endless here. If you invest in a quality building and quality machinery this can be a relatively hands off investment, other than collecting your quarters, of course! However, with that being said, it also has potential to be very hands on if you invest in poor equipment and don't take care of the place. It's important to have 2 or 3 good plumbers on speed dial so you can have any issues fixed quickly.
10. Cash Back Credit Cards
This is a huge advantage I have been focusing on lately. But let me start off by saying this strategy requires discipline! If you are not paying your credit card off every single month then you should forget about employing this strategy, period. Here is one area I disagree with Dave Ramsey on. If you are a responsible credit user, this can be a huge advantage to you and your family. I prefer cash back credit cards where you earn a percentage cash back on every purchase, but travel points is another great feature with some credit cards. If you have to make certain purchases throughout the year anyhow, why not earn some rewards for those purchases and effectively lower your expenses in the process.
11. House Hacking
In my opinion, if you are young you should absolutely be utilizing this strategy. Your living expenses are most likely your largest monthly cash outflow. Living expenses include things like your monthly rent, gas bill, electric bill, water and trash bill, internet bill, cable bill, and the list continues on. If you're paying rent, then that money goes out the door every single month and you won't have anything to show for it. What if you had the opportunity to live for free or even make a little money per month from your living situation?
The term house hacking was coined from Brandon Turner at BiggerPockets. It's the idea of purchasing a multifamily home, such as a duplex, triplex, or quadplex (or a single family home and renting individual rooms) and living in one of the units while you rent out the others. The idea is to have rent collected from your tenants pay all of your living expenses such as the mortgage, insurance, property taxes, and the bills I mentioned above.
Even after all of your expenses you net $0 or you even lose a little money, this is still significantly better than the alternative of paying rent on top of those bills.
This is best explained with an example. I'll give you the details on my first house hack deal. I purchased a duplex in which my fiancé and I live in one side and rent out the other side. I purchased the property for $55,000 with 10% down on a 30 year mortgage and I get $400 per month from the other side. My mortgage is only $263. Now that sounds great, but while I'm living here I'm actually not cash flowing right now because of other expenses. Taxes here are $160 per month and insurance runs another $45 per month. However, this situation is still significantly better than paying rent as I'm still building equity and when I move out and rent my unit then the property will be cash flowing very well and my cash on cash return will be 59% per year! Stay tuned as I'll be posting a lot more about this topic.
12. Wrap Your Car
There are a lot of companies out there who will pay for unique publicity. Wrapping your car in a company's brand is very eye catching and it could be a great way to generate monthly advertising revenue. This guy made over $1300 per week by wearing company branded t-shirts! Check out Wrapify.com, which is all about getting paid to wrap your car!
13. Get out of Debt
Getting out of debt can be a great way to increase your monthly cash flow and also one of the quickest. Have a $500 a month car payment? Pay off your vehicle as fast as possible and your monthly cash flow goes up by $500. On top of that, if you're smart you will take those savings and invest it into another passive income generating investment to amplify your returns!
14. Rent Your Car on Turo.com
This is a very interesting idea I just recently heard of. I think this one might take a little time to catch traction, but it already seems to be popular in some of the larger cities. If you can rent out your home, why not rent out your vehicle, too? Your vehicle is a very wasteful liability and this would be a great way to turn it into an asset. Before you rush to take advantage of this idea though, please have a conversation with your insurance agent! There is a very good chance this sort of thing would not be covered by your current insurance policy. Check out their website at Turo.com.
15. Become an ATM Vendor
This could tie in well with your vending machines and ice cream machine businesses if you already have a busy location. Here's a website all about creating passive income from ATM's. At my insurance office, we have one of these attached to the outside of the building and people stop all day long. As a result, you earn a small percentage of every transaction fee. This will also increase foot traffic to your other business at this location!
“My goal is to have annual dividend income exceeding $100,000 per year.”
Creating passive income requires a series of small actions over time.
There are all sorts of ways to begin creating passive income and this is not an exhaustive list. I would love to hear your ideas in the comment section below and help me find more forms of passive income! If you enjoyed this article, please take a moment to subscribe to my site so you always stay up to date. Also, please find me on Instagram, YouTube, and Facebook. Thanks for reading. Until next time, I'm Nick with Coin Stack Financial, cashin' out!