Passive Income Ideas (Make Money Off Your Money)

If you are trying to build your wealth and cover your expenses, there are great passive income ideas that you can use for additional revenue streams. 

Essentially, you generate passive income by investing in something that generates income. 

There are all kinds of passive income ideas out there. 

Some are true forms of it, while others don’t really fit the definition.

And, there are two definitions of passive income.

A popular definition, which we will use for the this post.

Basically, the popular definition of passive income is income generated in a way that requires little, if any time. 

There is also an IRS definition which is important for tax purposes.

There are plenty of passive income ideas that are not actually taxed as passive income. 

If you want to learn more about the complexities of passive income, check out our post:

What is Passive Income?

In this post we are going to discuss the following passive income ideas:

• Personal Rental Property
• Public company equity investments
• Public company preferred equity investments
• Corporate debt investments
• Peer to Peer Lending
• Invest in Private Real Estate
• Real Estate Investment Trusts
• Treasury Bonds
• Municipal Bonds
• Bank and Financial Institution Instruments
• Private company equity investment 
• Private company debt investment

Our list of passive income ideas may be shorter than other personal finance websites.

That’s because there are a lot of ideas that are not actually passive income, even in the lens of the popular definition. 

A lot of the other “passive income ideas” involve you putting in a decent amount of time to successfully generate income.

They can still make you money, but they do require some time.

For more on these ideas, check out our post:

Ways to Generate Income with a Little Time and Effort | Almost-Passive Income Ideas

Personal Rental Property

Let’s start with the one that actually can involve some time and work. 

Many people own rental properties, renting out the home or apartment to other people.

They collect income through rent and the property may appreciate, creating a gain if they sell the property.

Renting out property is weird because it fits in the IRS definition of passive income but may not be actually passive income.

Are you interacting with the tenant? 

Do you have to go in and make repairs?

Are you cleaning and listing the property when a tenant moves out?

There actually can be a lot of work with owning a rental property.

But, you can also outsource all of this work.

There are rental management companies that will maintain and operate your rental property for you.

Rental properties are a great source of passive income because they are one of the more valuable assets that you can rent out to another person.

Also, it’s easier to get financing to buy a rental property. 

Public Company Equity Investments

Stocks.

Specifically, stocks with dividends.

You can generate passive income by investing in companies that pay out a dividend.

A dividend is a return of capital (money) to the shareholders. 

This is probably the most common way people generate passive income in the popular sense. 

You can buy stocks individually or you can buy ETFs or mutual funds that hold a group of stocks. 

Public Company Preferred Equity Investments

While most people know about stocks and dividends, they do not know about preferred stock. 

Preferred stock is generally issued with a specified dividend yield. 

As a holder, you may get a larger dividend and get it before the common stockholder, but a preferred dividend doesn’t appreciate in value like common stock.

There is usually a trade-off between a higher dividend and no appreciation in the value of the stock. 

You can also find ETFs and mutual funds that focus on preferred stock of companies. 

Corporate Debt Investments

Another passive income idea is purchasing corporate debt or the bonds that companies issue. 

Most people invest in corporate debt through ETFs or mutual funds but you can also buy a single company’s debt. 

The debt usually pays interest and then a specific value at the maturity date. 

Peer to Peer Lending

As technology has evolved, so have investment opportunities for retail investors. 

You can now lend your money to other people. 

There are all kinds of websites where you can sign-up and begin lending your money. 

Websites like lendingclub.com and prosper.com are among the more popular websites. 

You can even invest in pools so that your all money doesn’t go to one individual, making microloans to a large group of people. 

Investing in Private Real Estate

A newer passive income idea is investing in private commercial real estate. 

While it’s easier to buy a single family home, it has taken a lot more capital to buy a multi-family property or commercial property.

But, platforms are popping up where you can directly invest with other people in private real estate. 

Real Estate Investment Trusts

There is a third option for investing in real estate to generate passive income. 

You can invest in a real estate investment trust or REIT. 

REITs are companies that typically own real estate return net income to shareholders.

There are also REITs that lend money involving real estate.

There are a variety of companies that rent out property to different sectors so you can invest in a company that owns server farms, or a company that owns hospitals, or even a company that owns malls. 

Treasury Bonds or Country Bonds

If you want to generate some passive income, you can always lend your money to the US government.

You can directly lend to the US government or you can buy an ETF or mutual fund that invests in treasury debt.

You may also be able to find ways to invest in other countries’ debt.

Municipal Bonds

Staying with the same line of thinking about government debt, you can also invest in debt at the local or state level. 

There are mutual funds and ETFs that you can buy to invest in municipal debt and earn interest.

An interesting aspect of municipal debt, it can be triple-tax advantaged. 

What does that mean?

Certain municipal debt qualifies to be tax-exempt for investors who reside in the state where the debt is sourced.

So, if you live in California and buy California municipal debt, you may not have to pay local, state, or federal tax on the returns of that debt.

Bank and Financial Institution Instruments

You can always stick your money in a the bank.

While the income may not be much, you can stick your money in a high-yielding savings account, certificate of deposit (CD) or a money market fund.

All of these instruments will pay you some money and are insured by the FDIC.

Private Company Equity Investment 

One of the traditional and potentially IRS-defined forms of a passive income idea is investing in a business where you are not involved in the operations. 

This may be more difficult if you are not wealthy or don’t have the opportunity to invest in a business.

But, it is still a passive income idea that you may have the opportunity to take advantage of later in life. 

Private Company Debt Investment

Similar to a private company equity investment, you could also lend to a private company.

On thing to keep in mind, you may be able to lend to your own business and the interest charged counts as passive income for tax purposes. 

Final Thoughts

There are plenty of ways to generate income.

Some may involve time and some may involve your money.

All of these passive income ideas involve little or no time but may not be considered passive for tax purposes.

If you’re looking for some almost-passive income ideas check out our post:

Ways to Generate Income with a Little Time and Effort | Almost-Passive Income Ideas