Did you know that the weekly median wage of U.S. workers was just under $1000 in 2021? While this figure was higher for professionals and those in management positions, it still might not be enough for you to live the life of your dreams. Most people think of income as a direct result of your employment field. While this is true for most, passive income is also an option to help you gain financial freedom.
Read on to learn more about the best passive income streams and how you can benefit from them.
What Is Passive Income?
Passive income is earned through a means other than being paid as an employee, contractor, or client. As passive income is often the result of an investment, you will most likely need some cash upfront.
Rare cases of inheriting a source of passive income can occur.
There are two primary forms of passive income: rental properties and investments. The first form, rental properties, generates earnings from a tenant’s rent payment.
Business investments provide income in a variety of ways. For example, you could invest in a business and be paid an amount of the earnings relative to the percent you own.
Can Passive Income Make You Rich?
Passive income can make you rich. Many of the wealthiest people in the world made their money through real estate or investing in businesses.
But you must understand that the odds of becoming rich—especially quickly—are not high. Most people have to start small and build from there, depending on how much spare cash they have available.
What Are the Benefits of Passive Income?
Learning how to make passive income comes with some element of risk.
If you own a rental property, it must be rented out to make money. When you invest in a business, it could take years to earn the initial investment back, if at all.
But there are plenty of benefits, too.
Small Initial Amounts
If you are new to investing, you can start by risking smaller dollar amounts. There are websites where you can invest in a business or real estate for as little as $100. You should only invest an amount you are comfortable with losing.
Some mentorship programs are available to begin your career in passive income. These programs allow you to learn from experienced investors. You may also have the chance to make a small investment in something that already has a primary investor and learn from that person.
Choice of Investments
There are multiple ways to earn passive income, ranging from traditional opportunities like investing to more recent trends like blogging and social media posts. This allows you to tailor your investment to something that suits your interests and experience.
Passive Income Without A Monetary Investment
There are ways to make passive income by investing your time rather than your money. This is often referred to as sweat equity.
You can also loan out items you already own, such as your car or house, to earn a passive income. When you do this, you are risking damage to your property, and you are sharing the revenue generated with the company that lists for you.
How Is Passive Income Taxed?
Any earnings you generate through passive income are taxable. The amount of tax you pay will depend on the income earned and the time you invested.
The Internal Revenue Service has qualifications for passive income. The main two are that the business can operate without you, and you have committed less than 500 hours on the year to it.
Once it passes those qualifications, income may be subject to different state and federal laws. Always consult with a tax specialist before you file.
Real Estate as a Passive Income Source
Since real estate is one of the most popular passive income sources, it deserves a deeper dive. However, there are some critical points to consider with real estate before parking your cash in an additional property.
If you choose to invest in real estate, you have a few options. You could invest a smaller dollar amount in a real estate fund for a smaller return with less risk. If you have the capability, you could invest in a property directly by buying and renovating it.
If you choose the latter, there are several best tips to be aware of.
First, you should know the market you are buying into—more precisely, the properties selling and what they are selling for. Additionally, you should resist the urge to chase every opportunity and instead focus on a specific real estate area and develop a niche.
Renting Out a Property
If you choose to lease out a property for rental income, there are several items you must be aware of.
First, you must learn the local laws for rental properties and landlords. Next, unless you plan to be on-call, you should find a management company responsible for the day-to-day maintenance. Finally, be respectful of your tenants by learning about them and respecting their privacy.
Experiment With Passive Income Ideas in 2022
Now that you know what passive income is and how to make some for yourself, what are you waiting for? While real estate is the most popular, there are many ways to earn passive income, and there could even be tax advantages. If you choose to go the real estate route, you can be an investor or a landlord.
If you are ready to earn passive income through real estate, contact us for more information.