Passive Income Definition and 18 Passive Income Streams Ranked

How to find the best passive income idea for you

I love passive income! It’s completely changed my life and given me the freedom to work on the projects I love, even if they didn’t quite pay the bills yet.

But there are lots of passive income myths and scams out there. Even with legit passive income sources, how do you know which to grow?

I’m using the definition of passive income and six years of building online businesses to rank 18 income streams. In this video, I’ll not only reveal which income ideas are most passive but will share exactly how much I make on each and show you how to get started.

We’re building a huge community of people ready to beat debt, make more money and make their money work for them. Subscribe and join the community to create the financial future you deserve. It’s free and you’ll never miss a video.

Join the Let’s Talk Money community on YouTube!

best passive income streams

What is Passive Income?

We’ve got a very special video today, first in a series looking at the best ideas in passive income, how to get started and how much money you’ll make. In this video, I’m ranking the 18 most popular passive income streams from blood, sweat and tears to the ones that will make you money while you sleep.

That idea of passive income and building those income-generating assets has been an important one for me. I got a job in corporate finance after the Marines and absolutely hated it. All I could think about was saving for early retirement even if I had no idea what that meant. I was miserable for a third of my day and was probably going to be that way for the next 20 or 30 years.

Then I started learning about some of these income sources, I started creating passive income. Not only did it mean extra money every month but I actually enjoyed doing it. For the first time since being a Marine, I enjoyed what I did and was making money doing it. That beginning has grown into a $100,000 plus annual income and the perverse side is that I don’t think I’ll ever want to retire from doing this.

Now I want to get into that passive income definition and look at those 18 income streams because I want you to feel that same freedom and financial independence.

Definition of Passive Income

So I’m going to go straight to the IRS website for our passive income definition because that’s always the best source for exciting material, right? Here we learn that passive activity or income is from any source or business in which you don’t materially participate, you don’t have to manage it on a constant basis.

So we’re talking any income source where you don’t have to break your back every day or worry about the money coming in each month. We’ll be using three factors to rank our passive income sources next that are going to play into this definition.

Finding the Best Passive Income Sources

Now let’s look at those 18 passive income streams ranked from back-breaking work to Pina Colada. These are the most common passive income ideas I see suggested and I used three factors to rank them here on the list.

First, I looked at how much time or money it took to get the idea started and making money. This is probably the biggest factor so we’ll talk about this one a lot looking at each idea on the list.

Then I looked at how long you have to build up the idea before it becomes passive income or at least starts building that momentum so you have to do less work. We’ll see that some of these ideas can be completely hands-off while others may always require some time every week.

Finally, I looked at how much you can make with each of these passive income streams. This was more of a tie-breaker than anything, so if two income streams were close then which one had the biggest profit potential.

These three factors are more important than you might think. The idea of making passive income is something like Bigfoot here on Youtube. Grainy pictures of something everyone claims to have seen but nobody really knows if it’s real. Anytime you hear a story about making extra cash with no work, you need to ask yourself these three questions and make the decision yourself.

passive income ideas list
List of Best Passive Income Ideas

What is NOT Passive Income?

So let’s work backwards on the list because I feel like that’s where the most agreement is in what’s definitely NOT passive income. I’m going to go through these first ones pretty fast so we have more time to detail the best income sources that are more passive.

Here first you’ve got things like doing online surveys, driving Uber and freelancing. Yeah, you can make the argument that if you’re not doing anything with your time then these things can make money and you’re not out anything…but it’s kind of a weak argument.

These repetitive tasks are going to mean constant work. You don’t get paid unless you keep doing surveys, keep driving or keep working freelance. In the case of surveys and rideshare, you’re really not getting paid much either.

You can include eBay reselling here as well. Here you’re either buying locally like at a consignment store or anywhere you think you can get a good deal and then resell for higher on eBay. You can make some money but it’s constant work.

I put AirBnB here because, even though you’re not really doing much to rent out your room, it’s a huge hassle. Maybe some of the other AirBnb hosts out there can chime in the comments but I found it to be a pain with little profit unless you’re renting out a totally separate living area.

Passive Income Business Ideas

We’re just five ideas into the list but stick with me because we’re about to get to some solid passive income strategies. From investments you can make to some of the online assets I’ve used to create that six-figure payday.

Selling stock photography is one I’ve talked about on the channel before. It’s a good one if you enjoy photography and you can make a few hundred or even thousands a month but again, this is something that’s pretty much constant. You’ll need a decent camera to start and you have to keep uploading photos on sites like Shutterstock to stay competitive making sales.

Our first real money-maker here is Amazon FBA. This is like starting your own retail company with your own products so you can make a lot of money but it’s also a lot of work.

I have a friend here in Colombia that sells girdles, made locally and sold in the U.S. and Europe. That’s really the business model you want to go with on FBA. You find something, a product, that is really popular and well-done in a country. For a lot of products, you can find an inexpensive manufacturer out of Asia through Alibaba but you can source your manufacturing from anywhere. I know a few guys that still source some of their products from the good ol’ USA and save on shipping.

Then you set up for the manufacturer to slap your label and logo on the packaging and ship it directly to Amazon’s warehouses across the country. You’ve got an Amazon product page for each product and Amazon ships directly to your customers.

This is a really interesting 21st century business idea and one that can easily make six-figures or more a year, but it is a business. You’re constantly checking your product inventory on your Amazon seller dashboard, ordering from manufacturers, marketing and everything else…soooo not really passive.

Is Real Estate Passive Income?

Next we have real estate rentals and as someone that has owned rental property since 2001, this is definitely not passive income. I appreciate this something you don’t have to manage every day but anyone with more than six rentals will tell you it’s at least a few hours a week.

Between screening tenants, keeping up with repairs and permits, evicting people and bookkeeping, this is one of those businesses I see newbies constantly underestimate how much time it takes.

Don’t get me wrong, I love real estate as an investment and still own rentals. I got started buying my first homes after getting out of the Marines. I used the GI Bill and some money saved up. It’s truly one of the best investments for people without a lot of cash to start. You get a feeling of pride from owning a real piece of land like you don’t get with stocks or bonds, but it’s not the passive income miracle you hear about.

Passive Income Investing

Next we have four passive income streams that are more investing than passive income. I think a lot of videos get the two ideas confused and it’s one of my biggest gripes about passive income.

Listen, it’s great that you can put your money down and start earning a return. I realize a lot of people don’t have time for these other passive income ideas so investing in stocks is a no-brainer…I just don’t consider it passive income because you had to work to make that money to invest in the first place.

The only reason these next four, from dividend investing to bonds, p2p and real estate crowdfunding, are here is because they provide some cash flow while you invest.

So you’ve got dividends and bond investing first, each pays out a cash return that’s going to be from 2% to 5% a year for most investments. Now on the upside, these can be extremely safe versus other stocks but that return is really nothing compared to spending your time developing some of these other income streams we’ll talk about.

Legit Passive Income Ideas

Now with 12 income streams down, we’re getting into the real passive income ideas. These are the ones that are going to closely meet that passive income definition, so we’ll spend most of our time here.

Starting this channel in 2017, I would have laughed in your face if you had said YouTube could be passive income. It takes so long learning what works, figuring out a content strategy, filming and editing. You only need to look at channels like PewDiePie or Ryan’s Toy Review, making an estimated $22 million a year, to know that YouTube can be a huge business…but passive income?

Yeah, I don’t think so.

Then I started really getting some momentum and making money even on older videos. Six-months in, I was making money and by November I was averaging almost $3,000 a month just on ads.

passive income on youtube

Sure, I have to continue making videos if I want to grow the channel but those old videos will stay ranked and making money for a very long time. One video created in October, seven months ago, has made nearly $7,000 and still makes almost $500 a month.

With YouTube, the biggest secret is to just get started and be consistent. Big secrets I know, but you’d be amazed at how important just these two tips are. Spend a week watching videos by Derral Eves, Tim Schmoyer and Nick Nimmins on how to start a channel. Take notes on everything and then JUST GET STARTED. Plan on doing at least a video every week, same time and same day, but you’ll start noticing the real growth when you can go to two or three a week.

Think about what makes your channel different, what can you tell people they can’t find on another channel. A lot of times, this is just your personal experience, sharing your own journey and helping others find theirs.

Are Vending Machines Passive Income?

Next on our list of passive income streams is a popular one lately with a vending machine business. I haven’t tried this one myself but talked to a few friends running traditional food and beverage machines to ATMs and the touch-screen games.

This is an interesting business idea and maybe not quite as much work as Amazon FBA but I feel like it’s still more business than passive income. First you have to learn the financials behind these machines, get permits from county and contracts to put them at locations.

Just like in real estate, in vending location is everything. A lot of the best locations will probably already have machines so you’ll need to reach out to the b-team stores and locations. You usually will pay 10% to 20% of the sales to the location owner as compensation.

Machines cost from $500 to three grand and you’ll need some money to buy inventory so this isn’t something you can start with no money. You’ll want to start with at least five to ten machines because each may only earn between $20 to $70 a week according to the National Automatic Merchandising Association.

As far as passive income, don’t forget that you’ll need to restock your machines at least once a week and empty the coin deposit. That means either going to Sam’s Club or getting product delivered. You’ll also have to make repairs and handle customer complaints when the machines eat someone’s money.

I still think this one is interesting to look into but far from passive compared to some of the next few we’ll cover, especially when you consider all of the next income streams can be done right from your home.

Blogging for Passive Income

Our next passive income source here is blogging and this one is a lot like building a YouTube channel. I put it higher on the list for a couple of reasons though.

First, a blog is going to be easier to start and less expensive compared to a video channel. You don’t need camera gear or editing software. It’s also going to be a lot easier to write our articles rather than filming and post-producing for a channel.

I also prefer blogging to YouTube because you can actually own your blog. It’s your little piece of digital real estate compared to YouTube where essentially you’re renting the space for your channel from Google, which owns the platform. A lot of people have found out the hard way that YouTube can change the rules, limit how much you make or even delete a channel anytime it wants.

That said, I think it’s almost a given that you need both. Every YouTube channel must have a blog and every blogger should have a channel. The work really well together, you’ll make a lot more in sponsorships by being able to offer video and blog marketing.

I have a free five-video series on starting a blog, from getting online to the income sources I use to make over ten grand a month. Not all bloggers make that much money. A blogging income survey I did found more than 50% of bloggers make less than $1,500 a month and only about one-in-five makes over five grand a month.

how much do bloggers make each month

How to Passive Money with Affiliate Marketing

This next passive income idea, affiliate marketing, is the work-horse for bloggers, social media influencers and just about everyone making money online. It accounts for just under half of my monthly income and is a great way to diversify your revenue with some of these other online income streams.

Affiliate income is just partnering with a company, talking about their product or service and offering people a link to the company’s website. If someone clicks on your link and then makes a purchase, you get a commission usually between 20% to 40% of the purchase.

Now the best way to make money with affiliates is combining it with a blog or YouTube channel where you have constant traffic. You can also do affiliate marketing with just your social media accounts, so you see a lot of Instagram stars doing this. Basically, you need to get eyeballs on those articles and videos where you’re talking about a product because only about 5% will click on your link and 10% of those will end up buying the product. That means you’ll make about one sale or commission for every 200 people that see your link.

Another way to do affiliate marketing with or without a blog is running ads to your links. This means setting up an ad in Facebook or Twitter or any social platform and then just pointing the ad to your affiliate link. Anyone that clicks on the ad will go straight to the company you’ve partnered with and can decide if they want to make a purchase.

I’ve got a two-video series on affiliate marketing, including how to automate the process so it’s more passive. Check those out because this really is a great way to build your monthly income and those two videos are going to walk you through everything.

These next two income sources, courses and self-publishing, are really very similar and kind of like those similarities we saw between blogging and a YouTube channel.

With online courses, you’re just taking what you know or doing some research to see what people want and then filming a few hours of course instruction around it. With self-publishing, you’re doing the same thing except with a book instead of video.

What I love about both of these is that you can set them on auto-pilot once you’ve created the income-generating asset. I’ve got ten books published on Amazon. I spend about $200 a month on Amazon ads and I get some sales through the blogs but that’s it. Those sources are set to run and I don’t do anything else. They make enough sales to keep the books ranked on Amazon and I make just under $2,000 a month absolutely passive.

With my first online course, I made over $9,000 in the first four months and am developing two more courses. Course platform Teachable reports that 43% of it’s course creators make over $43,000 a year on their courses.

The best part about these two income streams, besides that they’re almost completely passive once you’ve got the course or book done, is that if you’ve got a blog or a YouTube channel, you’ve already got that part done as well. You can develop your book or course idea and create each chapter as a blog post or video. With your blog or channel, you’d need to be creating content anyway so why not just repurpose that content into an asset that’s going to be generating passive income?

I’ve got a playlist on the channel detailing self-publishing and a three-part video series for making money on a course.

I’m following this video up with a detailed look into passive income investments and income streams you can start with no money. Be sure to check out the video series I’ve linked in the post for some of those passive income ideas that I use.

About the Author

+ posts