The Road To Financial Independence: Passive Investments

Many of us spend our times working full time jobs and don’t have any extra time for a side hustle or part time work.   If you’re a person looking add new income to your normal paycheck, one of the best ways to supplement your income could be through passive investments.

Or, perhaps you’re looking for income that can completely substitute your income, allowing you financial freedom.

What Are Passive Investments?

Imagine creating a machine that prints money without much manual work.  Every month the magical box prints money and you’re sitting with a steady flow of cash that comes to you on a repeated basis.   This might sound too good to be true, but there are numerous investors who may get income through these machines.

Passive investments are just like that.  If you can find an investment that can generate additional money, you can increase your net worth and periodic income.

So what are common passive investments?

Rental Income

Location, Location, Location.   Provided that you can find the right location, rental income can be a fantastic way to add to your passive income list.  Rentals may not be completely passive since they require maintenance and upkeep.  However, if you hire the right property manager, all the work can be outsourced and the rental income can be completely passive.

To find the right real estate investment, check the location, the expenses, mortgage, HOA fees, and other financial costs and compare that to the total expenses.  Expenses are mortgages, taxes, monthly utilities.  You can then determine whether or not the rental has positive cash flow.  I may be oversimplifying this but there are plenty of resources available to help you find the right property.

Peer to Peer Lending

Peer to Peer lending is a lending system that allows you to be the bank.  So how do banks make money?  They derive interest from the money that they lend out.  You, like the bank, can lend out your money to others such as individuals and businesses.

Peer to Peer lending has been growing rapidly.  With uncertainty with stock and bond market, many investors are looking for ways to gain consistent income.  To make money, there are dozens of online platforms that allow you to loan out your money to people who are seeking to borrow.   Although there are default risks, peer to peer lenders have done well with some nice returns in sometimes double digits.

Popular peer to peer lending sites include Lending Club and Funding Circle.

Sell on Amazon with Amazon Fulfilment

Amazon sells over 480 million products.  Believe it or not, most of the Amazon products are from individuals like you and me.  As an Amazon seller, you can sell products while Amazon does the shipping and fulfillment.  This means that even while you sleep, when someone buys one of your items, Amazon does all the legwork.  They process the order, pulls the stock from the warehouse, and then ship the product.

Keep in mind that there is a cost for this service.  If you can find a product and source it from places like China, passive income is very possible.

High Yielding Stocks and Bonds and REITs

Perhaps one of the most passive investments, stocks and bonds can yield some nice income through dividends.  Companies like AT&T, Proctor and Gamble, and Coca Cola provide percentage yields that can give you consistent periodic returns.  In fact, some of these stocks can provide a 2% or greater return, which is much higher than a typical CD or money market.

If you’re leery about stocks and bonds, consider something like REIT fund.  REIT stands for real estate investment trust and, as the acronym shows, real estate investment is the main core.  REIT investments have averaged around a yearly 10% return — not a bad return considering that the stock market has a return on average of 8% per year.

Brokerages and mutual fund companies can be a great place to start investing in any of these investment options.

Pay Off Credit Card Debt

According to Time magazine, most households don’t pay their credit card balances in full.  And, interestingly, the average debt is $4,717.   Considering interest rates, the average monthly payment is $189, which could be a big chunk of your paycheck.

Why not pay it off and give yourself a raise?  If you can grant yourself a $200 raise per month, that amount can add up to a savings of $2,400 per year.  If you’re one of the many individuals with high credit card, this payoff can increase your income simply because you won’t be needing to allocate a part of your paycheck

Reverse Mortgage 

Depending on your situation, you may want to consider a reverse mortgage to allow you gain additional income.  A reverse mortgage is a loan that can be used against the equity of your home.  For seniors or people near retirement, this may be a good option if a house is already paid.

The house reverse mortgage can provide steady tax-free income.  Keep in mind, the payments dwindle down your home equity and your beneficiaries will receive less than the actual value of the property.

Summary

With households living paycheck to paycheck, passive income may help you weather financial storms.  There are plenty of online materials that can help you figure out how to get started.  If you’re willing to put in the time, passive income can go a long way, even through retirement.