Passive Income – getting money without having to work for it. In reality there is nothing like true passive income. You have to either take some financial risk by investing in assets that can lose value or spend some time managing those assets (often both). So in reality passive income is income for which you have to do little work to keep maintaining the income. It may take work or investment upfront but will give you returns in the future.

Which assets can give passive Income?

There are many assets that can give you Passive Income. Some of them have existed for a long time and some are more recent. Let’s break the assets in to two main categories.

Assets that Produce Passive Income

These traditional asset types have long been used to produce passive income.

Real Estate: historically, the most popular and common asset class for passive income has been real estate. Buy a real estate asset and rent it. The rental income is your passive income. You have to spend time maintaining the property and finding a tenant but most of it can be outsources to contractors.

Dividend Stocks: Stocks that have a good dividend yield have been a favorite of passive income seeking investors for a long time. These stocks provide you regular flow of cash in form of dividend payout and you still retain the stocks. Dividends have also received favorable tax treatments.  There is risk that the stock you have selected for dividends may lower the dividend, dropping the yield or the stock price may fall. By creating a portfolio of dividend stocks, you can negate such an effect.

Interest on savings: Interest on your savings in your savings account or CDs is a very common form of passive income. With the current low interest rate environment we have in US, it may seem like this category does not exist. It’s probably true for people in US but outside US, there are still opportunities to get a good interest rate on your savings and CDs.

Small business: Owning small businesses with turnkey operations. If you own a small business like a restaurant or a boutique where you don’t have to look at the day to day operation of the business then you have created for yourself a small business which produces passive income. It is often difficult to get passive income in such businesses but it is possible if you are willing and able to put in the initial effort to build a team which can take care of most day to day issues without having to bother you.

New assets for passive income

The above categories have existed since a long time and people have invested in them to build their passive income portfolio. More recently there has emerged a number of new passive income assets that have the potential for better income and probably even less work.

Websites: Making websites and monetizing them via ads or by affiliate programs is a common way for smart webmasters to create passive income for their portfolios. The more visitors you can attract to your website the larger the potential for income from your website.

Digital Product sales: The most lucrative of all passive income asset classes are digital products.  There are almost endless categories of digital product you can create and sell or sell digital products created by other people. Some examples include eBooks, courses, templates, audio books, designs, etc.

Peer to Peer Lending: Banks pay you interest on your deposits and in turn lend out money to others and charge the difference. You can cut the middle man from the picture and lend directly to the borrowers. Sites like Lending club and prosper

Have you tried any of these assets to generate passive income? Let me know your experience.