Finance & Wealth

19 Ways to Generate Passive Income in 2020

By Michael Dinich | Jul 20, 2020
Michael Dinich | ACHNET

Making money while you sleep has a beautiful ring to it. I mean, who wouldn't want to be making some extra money while playing with the kids or while watching a game? Earning passive income provides the opportunity to do just that.

Those who achieve financial independence will tell you that having multiple streams of income from different sources is the key. The only problem is that most ‘passive' income ideas that you'll come across are not passive at all. Since you're already busy with your everyday life, you won't want to pick up a 2nd job that you don't have time for.

Passive income means income from something that requires no (or little) work. Most passive income ideas need you to put in a LOT of work. And doesn't that kind of wipe out the passive in passive income? The best passive income ideas are just that – passive.

The truth is, to build a passive income stream, you will need to invest in an asset that produces passive income for you. Unless you are making money the old-fashioned way (inheriting it), or you are willing to put in some effort.

The truth is, to build a passive income stream, you will need to invest in an asset that produces passive income for you. Unless you are making money the old-fashioned way (inheriting it), or you are willing to put in some effort.

For now, let's talk about a few passive income strategies if you're ready to invest and make your money work for you instead of losing value in a bank account. It may surprise you what some of the best passive income ideas are.

Truly Passive Income Ideas

1. Passive Real Estate Investing

Talk to anyone who's a landlord, and they'll tell you that passive is the last word they'd ever use to describe having to replace a washing machine after a full day of work.

However, there are a ton of companies that give you the ability to invest in commercial and residential real estate projects without having actually to do any of the heavy lifting yourself. It's often better having your very own real estate professional picking the properties.

One example is DiversyFund. It's a private REIT (real estate investment trust) that allows you to invest in professional real estate projects passively for as little as $500. The thing I love about companies like DiversyFund is that they don't make money unless the investors make money since they invest and manage the projects themselves.

Another thing that makes DiversyFund different is how they invest. Rather than try and be all things to all people, DiversyFund invests in lower risk multifamily housing. They use technology and expertise to scour the country for properties that fit their specific criteria. They're looking for properties that have high occupancy with positive cash flow that needs some work. We're not talking about complete renovations. It could be updating bathrooms or kitchens. Or maybe they just need a fresh coat of paint.

The fact they do all of the work themselves means they can do it for much less than many of their competitors. Once complete, when leases run out, they can increase rents, which increase cash flows and the value of the properties. Holding periods tend to be in the five-year range. Preferred returns for their properties are in the 7 percentage range.

When incentives are aligned, you give yourself the best chance to win.

2. Open a High-Interest Savings Account

If you are afraid of investing, there's a chance you have a decent chunk of change saved in a checking or savings account. Saving money is always a good thing.

Sadly, the banks' brick and mortar banks that most people use don't value them and barely pay any money in interest. The big banks like Wells Fargo, Chase, Bank of America, and the others essentially pay around 0.08 percentage interest. That means that even if you have hundreds of thousands of dollars with them, you'll very little money (like ~$200 per year).

That's why having your money in a high-interest savings account is CLUTCH.

The best high-interest banks are online only, so you won't need to mess with going into the bank to get started. The best part is that as of this writing (May 2020), they pay over 1.50 percentage interest per year. That means you'll be making $3,000 per year off of your couple hundred thousand dollars instead of $200 like you would with a megabank.

Even if you don't have a ton of money saved up, you will still make way more money than you would with a regular checking or savings account. One of my favorites is VARO Money. They consistently pay higher rates than almost any local or national brick and mortar banks.

Invest Your Money Wisely

While having a high-interest savings account is an excellent way to make some income passively, it pales in comparison to investing your money.

While earning 1.50 percentage on your savings is about as good as it gets, you can make much higher returns in the stock market. The S and P500 had an annual return of over 28 percentage in 2019.

Investing comes with its risks. Investing requires an understanding of a fundamental principle. Risk and reward are related. Here's what I mean. The higher the risk of an investment, the higher the expected return. Volatility comes with higher returns. That's why we need to have a long term perspective when investing in risky assets. Investing money in the market and holding the funds for the long term is the way to be successful. Timing the market, stock picking, and active trading are not winning strategies.

Oh sure, some people get lucky and guess right. And they always make the headlines. But follow them for any length of time, and you'll find they do not consistently keep up their past performance. Investing in funds that track the market and holding them for many years is the right strategy.

Many people feel comfortable doing their own investing. However, that's not true for many. If you're someone who doesn't want to invest on your own or need help, seek to find a qualified financial advisor.

3. Invest in Dividend Stocks

Dividends are profits paid out to owners of stocks. Some companies pay dividends on a regular schedule, which means it can become a dependable source of income.

Investors who love dividend paying stocks will talk about the fact that their investment is not only generating dividend income but potentially also appreciating. Keep in mind that stocks that pay high dividends still have risk in them. They can drop in value like any other stock. Historically, the drops in price are less than the overall stock market. But you should never invest in any stock, a high paying dividend stock or otherwise, thinking you're doing it without risk.

Dividend stocks are similar to other equities in the sense that it's usually best to buy and hold for a long time.

Some people even rely on dividend checks for their regular expenses. Depending on your expenses, that might mean you have to own a significant number of shares! If you have some extra cash to invest and you understand the risk involved, dividend stocks are something to consider.

4. Earn Passive Income with Lending Club

If you're looking for another way to earn passive income, you may want to consider Lending Club's peer-to-peer lending platform. Lending Club allows investors to diversify their assets by investing in different types of loans. The type of loans you choose will determine the return and risk exposure of your investment (remember, risk and return are related).

All you need to do is invest as little as $25 in a single loan. Your investment is combined with other investors to make up the entire loan amount. While others may want to invest more many sticks with $25 to reduce their risk exposure. By only investing a small amount in different loans, you can reduce your risk of default.

After you make your initial investment, you will begin to make passive income on the payments the borrower makes. As the borrower continues to pay down the loan, you will receive interest payments every month. Even if you don't plan on reinvesting your passive income back into the platform, you will still earn a return on your investment. Keep in mind, interest rates may vary and will be determined by various factors, including the borrower's creditworthiness and the amount of their loan.

Since this is a peer-to-peer lending platform, you're essentially the lender. This means that you must collect the principal and interest amount. It's up to you to choose whether to cash out or reinvest your funds in your Lending Club accounts.

Semi-Passive Income Ideas

1. Put Your Real Estate to Work

Owning real estate is a great way to turn your home into income.

I was recently contacted by a long-time reader who had just received her first passive income check in the mail, and she was ecstatic. She was a single mom of two daughters, and her youngest had recently gone off to college.

She had always dreamed of running bed and breakfast but never had the time to devote to it. But once she became an empty nester, and realized she had two open bedrooms, she could rent out to guests.

After signing up for Airbnb and jumping through the hoops, she was able to rent out her rooms for $50/night each. She said she's considering moving out to a smaller space and renting out the entire home since it's in an in-demand area of Fort Worth, TX. She said she is making enough money to hire a neighbor to handle the clean-up duties, so it's as passive as can be.

Not bad!

Rent Out an Extra Bedroom

Sticking to the real estate theme, there's a decent chance you have an extra room that hardly gets used