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Ideas for Passive Income Streams - 2021

February 19, 2021 14:15 UTC
Reading time: 19 minutes

To be honest, everyone is looking for passive income streams. With the cost of living seemingly rising every year, so do individuals’ responsibilities and goals. Maybe you want to buy a new home, pay for your children's education, get your next dream car, or simply go on vacation and travel the world.

As many people don’t have the time to get a second job, it’s smart to think of another, more creative way to start creating passive income streams.

In this article, you’re going to learn how to create extra passive income streams for yourself and I’m going to provide you with some bright ideas that you can get started on in 2021.

passive income streams

 

What are passive income streams?

What is passive income? Perhaps many of us have heard of the term "passive income streams" somewhere, even once. Since things are often known by their opposites, let's define "active income" first.

Active income is money that you earn through your regular, contracted efforts and activity, so in your regular day job, you get paid whenever you provide your service or product to a customer, which means that you have to be present every time you want to get paid. This is the common method of generating an income or salary.

Now, passive income streams pays you on a regular basis from a source other than a day job or an employment contract. How to make passive income? The most common ways that people tend to get involved with passive income streams are through the following: 

  • Renting out real estate
  • Investing in the stock market
  • Businesses that don’t need you to be actively involved in organizational processes

When people are asking how to generate passive income, it’s important to remember one point: It's a misconception that passive income streams don't require work to generate the money, or that it will get you rich quickly ... this idea still needs some work. 

For example, you may need to do property maintenance, product updates, and market analysis for your upcoming investment, so you can keep your passive income streams flowing.

One of the main factors, to keep the additional passive income streams flowing, is to study and devise a strategy that will guide you in your business and generate income to enhance your financial security.

So, how to make passive income? Let's now take a look at the most common methods people turn to when thinking about how to create passive income streams for themselves.

Passive income streams - Real estate

When you first hear about real estate investing, you might consider buying a property and waiting for its price to rise. The traditional buy and hold method. While you wait, you can rent the place for a monthly or annual fee. It’s true! But, let's take a look at one of the latest ways in which you can create potential passive income streams from real estate you already own.

Let's look at a popular method now for renting out real estate in this way.

AirBnb

Airbnb services have become very popular in recent years, and they are a very popular way for people to rent to earn passive income streams.

If you have your own property, you might consider researching your local laws and regulations, and the relevant tax system, and you could consider taking advantage of listing the apartment or house you own on the Airbnb service app.

While the company recently announced its IPO, the Airbnb Initial Public Offering (IPO) was a highly anticipated event by investors. It was originally scheduled to start at the beginning of 2020. But after the Covid-19 crisis, which caused a significant drop in its income, the US company decided to delay this measure.

Airbnb took the opportunity to formally file an IPO application to the SEC (Securities and Exchange Commission) on November 16, 2020.

Airbnb revenue depends mainly on seasonality, which naturally reflects tourism activity. They differ according to different criteria, such as school holidays, depending on the country and the weather. North America, Europe, the Middle East and Africa (EMEA) account for 41% and 40% of its revenue, respectively.

According to the initial public offering (IPO) file, Airbnb has seen significant growth in its revenue in the past five years between 2015 and 2019.

In the first nine months of 2020, its revenue decreased by $1.2 million compared to the same period in 2019, down more than 30%.

Despite revenue growth and fundraising prior to Covid-19, Airbnb lost some money before the IPO.

Like any high-growth company, Airbnb must invest capital to maintain its advantage over its competitors.

Airbnb revenue:

  • 2015: $ 900 million
  • 2016: $ 1.7 billion.
  • 2017: $ 2.6 billion
  • 2018: $ 3.6 billion
  • 2019: $ 4.7 billion

Source: Businessofapps.com

The Airbnb IPO is not intended to distribute a dividend in the near future, in light of its growth model.

A reminder

Before attempting to set up a passive income business through Airbnb, there are some key points to consider.

The rental market is not a porous one. You need to study prices and competition. You need to ask yourself if your residence has a market at all.

Renting a property on a regular basis isn’t a risk free passive income source either. An Airbnb property manager needs to consider potential damages, additional maintenance expenses, and higher bills to be paid. You should consider all of this and more in your budget and accounts for your Airbnb passive income stream (or semi passive income stream).

Passive income streams - Real estate via a stock exchange

How can you invest in real estate through a stock exchange to earn additional passive income?

In the stock market, you can use many different assets that allow you to operate in the real estate market to generate passive income streams. Each of them has its own characteristics, so let's see what passive income opportunities each one offers:

Exchange Traded Fund (ETF)

An Exchange-Traded Fund, or ETF, is a listed investment fund. ETFs are securities that can be bought and sold on the stock market through a stock broker. These funds offer different asset classes, from traditional stocks to currencies or commodities.

Exchange-traded funds are similar to mutual funds, but offer lower costs and greater diversification.

If you want to invest in real estate as a passive income revenue stream but prefer to spread your risk, choosing an ETF might be an option to consider. Additionally, investing in an ETF won't require much serious research on a company-by-company basis, as is the case with traditional stocks.

Real Estate Investment Fund (REITs)

A Real Estate Investment Fund, or REITS, is an entity that creates or manages real estate to generate additional income. This can be one of the ways to make passive income for someone who is willing to educate themself a bit, to understand how REITs function.

REITs are subject to specific requirements, such as that they have to distribute a large proportion of their income to shareholders by paying dividends. Because of the dividends they pay, some people see them as a passive income opportunity.

The REIT model generally allows individual investors to hold shares in the various entities listed in this mutual fund portfolio. The property can be apartments, healthcare institutions, hotels, office buildings, industrial buildings, etc.

Most of these funds specialize in a specific sector, and focus their time, energy and financing on this segment of the real estate market. However, their portfolios also include diversified assets with different types of different characteristics.

Simply put, an REIT can be thought of as a public company that manages or finances real estate that provides a financial return. These funds generate a steady flow of passive income for their investors, but they provide relatively less capital growth.

A reminder

While you may be considering REIFs as one of the online passive income streams to consider, remember that they can also be challenging to successfully invest in. You need to do proper research and study before choosing the right investment. And you also need to think about the challenges that stand behind the companies you want to invest in, such as reducing their profits, their challenges in achieving profits and income, physical real estate business, and associated crises, such as the 2008 mortgage crisis in the US.

Shares in real estate companies

On world stock exchanges you can find many companies whose business is related to real estate. You can buy or invest in one or more company stocks in this sector with a lower budget than you would need to buy the actual real estate itself. This makes trading real estate stocks one of the ways to earn passive income online.

Real estate companies not only offer housing but also hotels, resorts, supermarkets, health centers, and more. Therefore, the acquisition of shares of many different companies in the real estate sector facilitates diversification. Additionally, some companies offer dividends to shareholders, which is an added bonus (and a common way for investors to earn a passive income stream from their stock investments - I talk about this next).

A reminder - Dividends

When it comes to choosing the best stocks to invest in, high dividend paying stocks are on the list for many investors. Why not? If an investor is able to pick some high-performing stocks, they can benefit from the growth in stock prices, as well as regular dividend payments in the form of dividends.

Dividend stocks are shares in public companies where those companies pay shareholders a slice of their profits to their shareholders. Dividends are usually paid on a quarterly basis and are a way for shareholders to share in the company's success and receive automated income. Most of the dividends are cash dividends. 

These are share-based cash payments to investors. For example, BlackRock Inc, the world's largest CFO of ETFs, had its most recent quarterly payment on 21/12/2020, which was $3.63 per share in dividend payments - this is known as the dividend amount and is subject to change every quarter.

Dividends payments make these types of stocks especially attractive for people interested in ways to make passive income.

Source: Streetinsider.com

A reminder - Choosing the right stocks

If you are brainstorming passive income ideas and are considering investing in stocks, there are some key points to consider before any trader begins. 

To choose the right stocks to invest in, you need to have good knowledge of the stock market and the risks of losing your investment due to incorrect analysis and research. You should consider changing dividends regularly according to the financial position of each company on a quarterly basis. 

As such, you’ll need to continuously investigate and analyze the financial conditions of each company to keep your passive income at the levels you are aiming for.

You can read our article on the "Best Shares to Buy in 2021" to get some more insight.

In case you’re ready to begin investing

Are you ready to begin investing? Before you can start, you will need to get a trading platform. This gives you access to markets and the ability to open and close trades and you can do it all from your computer or phone.

The world's top trading platform for traders and investors wanting to trade different assets is MetaTrader 5. This gives you access to thousands of global markets, free market data and news and advanced charting functionality.

The best part? You can download the MetaTrader 5 platform absolutely free with Admiral Markets! Just click the banner below to download it today:

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Passive income streams - Investing in bonds

Bonds are a fixed income product that provides a vehicle for long-term fundraising for various bodies and institutions. Although there are different types of bonds, all bonds operate in the same basic manner and can be a smart method of building passive income streams.

Bonds are a type of debt. In other words, it’s a bond - a promise to pay - that the bond issuer makes to the bondholder, subject to certain conditions. The bond issuer bears the debt, and the person buying the debt, the bondholder, is the one who provides the money.

The bond issuer can then use that money to finance whatever spending plan they desire. In exchange, they pay fixed interest on the debt at regular intervals for the life of the bond (it’s in these payments that you are creating passive income streams through bonds). At the end of the debt term, the bond is said to be due, at which point the issuer repays the principal amount of the debt (known as the principal).

There is an intimate relationship between interest rates and bonds. Because bonds pay a fixed amount periodically, they become more attractive when interest rates fall, and less attractive when prices rise. Therefore, bond market prices may differ from the issue price and are often used as a proxy for medium to long-term interest rate projections. 

Of course, the price of a particular type of bond would also be affected if perceptions changed regarding the creditworthiness of the issuer.

A reminder

Before turning to bonds as one of your passive income investments, you should also consider the credit risks associated with them, such as inflation risks and interest rate risks that may affect your investment and the resulting additional income.

You can read about low-risk bonds in our article, "Why and How to Trade With Government Bonds".

Passive income streams - Affiliate marketing

An affiliate marketing program is when you promote a product or service provided by a third party. You earn a commission if the third party buys as a result of your promotion. In the context of trading, this means providing a link to an external broker's website or trading platform.

If someone clicks on your link and then signs up on the broker's site, they pay you a commission, usually based on the size of the initial deposit, a percentage of the deals they make in the future or some other terms. 

For example, in a CPA (Cost Per Action) affiliate program, your payment is based on whether or not a third party performs a specific action, such as opening an account, signing up for a newsletter or some other action. The action you will be paid for is specified, beforehand, in the agreement. These structures can vary widely. 

While affiliate marketing isn’t completely passive, it is one of the most common passive income streams online.

However, there is a legal note. You must be realistic. Unless you’re already running a site with very high levels of traffic or you’re willing to put in a great effort to make the project a success, this likely will not be a substantial source of income. 

It will make more sense to treat it as an extra source of passive income, which is a secondary income stream that, if well-executed, could lead to a high return on a relatively modest investment of time.

A reminder

Affiliate marketing needs skills, tools and a certain amount of time to create interesting content to attract potential customers and turn it into one of your top passive income streams. 

If you’re starting fresh, it will take time and energy to build your visitor traffic flow, and get your audience engaged. Considering the high competition, they might also cross over to the next marketer or influencer.

Learn more about Admiral Markets' Forex Affiliate program and commission structure here.

Passive income streams - Peer-to-peer lending (P2P)

Peer-to-peer (P2P) lending has been very popular in the past few years, and with a good rate of return on your loan, you can actually target around 10% per annum of your initial credit investment.

There are many online platforms for P2P lending, where you can start with small amounts and move to larger amounts for lending over time, it all depends on your risk management and your strategy.

Usually, users request the amount they need through the platforms or in an office, where available, and the lenders will lend them that money or a share of it, which is then returned over time with interest. This is another interest-based way to make passive income.

A reminder

Before deciding to start P2P lending, I remind you that there are reasons many people don’t consider it to be one of the best passive income streams. 

The lending business has its own risks as well, and you have to practice good risk management. When participating in multiple loans, you need to consider the risks of giving up your money and make sure that the payments you receive are not fraudulent, and that they’re on time.

High competition from banks and low interest rates due to the pandemic crisis are also something to consider.

For example, Morgan Stanley's share price reached an all-time high after they reported high dividends throughout 2020. The risks entailed lead some investors to believe that P2P lending isn’t one of the top passive income streams available. Education and understanding the market you are entering is an essential for minimizing financial losses you can’t afford.

Passive income streams - Rent your car

Renting and lending is not limited to real property, nor the business of lending money. You can earn passive income streams by renting your car too. There are many ways you can participate in this through online platforms, social media groups, and other types of ads. It’s a basic need and many people need a car on a daily basis. With the people using your service and your car, they could bring you a steady passive income stream.

A reminder

Again, before renting your car as a passive income stream, consider that it may also require additional maintenance and expenses, and more insurance policies and tax returns. So, make sure you do your calculations for the expenses associated with your car rental before you engage in the car rental business.

Passive income streams - More ideas

Aside from purely passive income streams, you can earn extra income through other methods of working from home. Some are semi passive income streams, while others are active. The advantage with these, is that you work remotely.

Online business and freelance work

You can create your own website with the services that you can provide, be it auditing, digital marketing, design, architecture projects, etc. You can benefit from the online world and use it to reach an audience of clients to build a business for a semi passive income stream.

You can also create a semi passive income stream by reselling products or selling your crafts on platforms like Amazon.

The leading e-commerce company’s share rose by more than 70% last year, thanks to the company's diversification and growth in online shopping during the pandemic and rapidly growing Amazon sales. Additionally, Amazon is now aspiring to enter the healthcare market. If you work hard at the beginning and understand what you need to do to be successful selling on Amazon, it’s possible that it can turn out to be a stable passive income stream opportunity.

Online teaching and courses

One way you can generate extra income is by tutoring online and offering courses for what you master, be it languages, design, or anything you're good at. This isn’t like one of the passive income streams I’ve already mentioned (it’s active), but it can be remote, which can sometimes offer flexibility a physical office environment can’t offer.

During the pandemic, the amount of skills people have started sharing online has changed more and more. Some are even participating in education. Everything has been operating through online platforms like Zoom, Skype, Slack and more.

Passive income streams - Last words

When considering additional passive income streams, there’s no set limit for everyone. It varies from person to person according to their skillset, available resources, personal goals, financial goals, and future priorities.

Before starting and participating in any activity, you always need to study the associated risks, and prepare well with a good plan.

You can have many passive income streams, as long as you can manage your plans and deal with the risks. Always remember to have a good and achievable strategy, and be mindful of the risk along the way.

Always make sure to strike a balance in your income and expenses, between active and passive income streams. Stay focused and diversify your income sources.

Are you ready to start investing? If you want to experience a real investing environment, but without risking any money, you can sign up for a free demo account with Admiral Markets by clicking the banner below. Yep, zero-risk trading with real market data:

Free Forex Demo Trading Account

If you have more questions and inquiries, don’t hesitate to contact us. One of our best financial advisors will contact you to clarify any inquiries and questions that you have in mind, and provide the best information from their practical experience.

Other articles that may interest you:

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Happy trading!

 

This article does not contain and should not be construed as containing investment advice or investment recommendations or an offer or request for any transactions in financial instruments. Please note that this past analysis is not indicative of current or future performance, as conditions may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.