In this article, we will discuss the legitimate ways to earn passive income and the pros and cons of each. Before investing, you might want to check our previous article about 5 Considerations Before Investing. Let’s begin.
#1 Real Estate
Owning a property can generate you a passive income thru rentals. You can get a broker to manage your property whose work includes finding tenants, property visits, settling contracts, coordinating repairs, and payments. Broker fees will depend per country but it is usually 1 month per 1 year of the contract. Anything lower than 1 year is negotiated.
Ads
Depending on the country and location of the property, rental yields can be anywhere between 4% to 12% per year but can be drastically lower when the property has a high vacancy rate. Return on investment (again depending on the country and location) can be anywhere between 10 to 15 years. If you think a property may have a vacancy rate of 65% or more per year, don’t even bother investing unless you are only after capital appreciation, in which case you should only buy during the preselling period.
Condominiums tend to appreciate from the preselling stage up to 5 to 7 years after turnover. They usually depreciate in value after 7 to 10 years but depends on whether there are new improvements in the area such as new commercial properties or new transportation terminals. There are people who flip properties buying them during the preselling stage and selling them a few months before or after the turnover period. If you plan to do this, just be mindful of all the taxes and penalties that you might need to pay.
Other ways to earn from real estate include leasing out farmland (if you or your family have one), investing in REITs or Real Estate Investment Trust, and buying condotels. We will have a deep dive into these other investment vehicles in future articles.
Ads
Things to consider when investing in rental properties:
1) Know that there would be a lot of taxes and dues that you would need to pay regularly; association/homeowner’s/condo dues, real estate tax, broker’s fees, maintenance fees.
2) Renting out property is a services business and require human interaction. Getting a broker would definitely help but it means fewer earnings for you as well.
3) Rental properties are not liquid. If you need the money, allot 1 to 2 years before your property can be converted to cash. If your property is not very attractive in terms of location, allot more years, or get ready to sell at a loss if you want it faster.
4) You should compute for the annual yield that the rental property will give you. If you will net 5% (as an example) would you be able to get it in other investment vehicles that are more liquid and with less hassle?
5) Look for new townships and those with future transportation developments if you are planning to invest in property. In this way, you will be able to maximize profit not just with the rental but also with capital appreciation.
#2 Bonds
Another way to earn passive income is by investing in bonds. These are fixed-income assets where you act as a creditor to corporations or the government and in return get a quarterly or annual payout. Read the details about Bond Investing in our previous article. Depending on the country, bond funds can yield anywhere between 2% to 5%.
Bonds are good for those who want to preserve capital. If you are saving up for your child’s education, you wouldn’t want to put your money in a high-risk investment vehicle as it may eat up your capital. Who is going to pay for your child’s education if that happens? If you are planning to retire in 5 or 7 years, you can also put part of your savings in bonds. Check out the table for the time horizon and other factors for different investment vehicles.
#3 Stock Dividends
Some of you might be discouraged because you need a huge capital to able to feel the effects of dividends. Well, investments are grown either by capital or by time. Legitimate passive income won’t promise you quick money. It never does. If it did, it’s a scam. Look for stable, growing companies with high and sustained dividend yields.
Dividend Yields are computed by dividing Dividend Per Share over Stock Price. Higher dividend yields are better as it gives you more for your investments but note that it should be sustained at least 3 to 5 years. This is because if you’ll only look at one year, it is possible that the stock price plunged due to bad news that caused the dividend yield to spike up. What if the bad news is the company will close down (say due to regulatory reasons) in the next few months and that is their last dividend? This is obviously no good.
The good dividend yield for stable companies in the PSE is somewhere between 6% to 9% per year. Check out DMC, MER, SPC, GLO, MWC, PRF3B, and CEB. Take advantage of the relatively cheap prices as of the time of publishing this article. Dividends this year may be low but you can also take advantage of price appreciation when everything goes back to normal.
Choosing a stable company in a stable industry may mean almost passive income for life with dividend stocks. Of course, there are risks still. I personally allocate up to 50% of my investment portfolio here.
#4 Copy Trading
You can participate in the growth of the US stock market by opening an account with eToro. Don’t know how to start? No problem, eToro offers a copy trading system where you can copy all the trades and investments of professional fund managers. I personally just copy “jaynemesis” who invests in US stock exchange. His portfolio has grown 40%+ this year and that translates to earning for my account as well. No need to read the news, no need to value stocks, no need to time the markets, no need for any emotions, the guy you are copying does it all. Now that’s another way to earn passive income. Need capital preservation? Copy “OlivierDanvel“. The guy never had any negative months since 2017.
Explore other professional traders who you can copy with eToro below:
Note that copy trading is risky and should only be meant for investment diversification. I personally wouldn’t advise putting more than 30% of your investment portfolio in this system.
#5 Royalties
Getting paid continuously for a work done once is one of the more rewarding passive income sources. It used to be reserved for book authors or singers but with the internet today, anyone who is dedicated can earn royalties from YouTube, blogs, and other websites. All you need to have is a passion for the subject matter and persistence. Below are some ideas to create content and earn royalties from YouTube:
| Like playing a musical instrument? | Post your music covers on YouTube. |
| Like tech stuff? | Review cellphones and gadgets on Youtube. May require initial investments, but you can always resell it. |
| Like playing online games? | Stream online. |
| Like drawing? | Create a time-lapse video of your creation. |
| Are you an architect or an engineer? | Create a channel reviewing houses of famous celebrities. |
| Good at video editing? | Create a channel featuring highlights or fight scenes of famous movies. Review YouTube policies first. |
| Are you a teacher? | Create quick supplemental courses on YouTube. |
| Like music? | Create a lyrics video. |
| Like cooking or baking? | Create recipes video. |
The best way for you to learn something is to teach it. If you are interested in a subject matter, try creating content about it and you will be forced to research and understand concepts about it. Scared that others might discover your secrets or expertise? Heck, if you are not earning anything from it, then what’s the purpose of keeping it? The world is big, you cannot possibly influence all people. Also, it becomes a challenge for you to keep growing in your art.
