Have you heard the term residual income before? Well if you aren’t fully aware of what that is, be aware that it’s only the more appropriate and broader term, used to define passive income. In the world of today, generating passive (i.e. residual) income is one of the hottest topics for individuals of all ages and social statuses. In this blog, we’ll be sharing six ideas for generating residual income so that everyone has an awareness of the variety of methods that can be used to make money.
First of all - a little bit about what classifies as residual income
Investopedia and most glossaries would define
as one that isn’t dependent on the manual work that a person has to do. In short and simple terms, it’s money that you can make whilst doing absolutely nothing. The concept is alluring and thus people are investing more and more time and money to find ways for generating residual income.
Residual income isn’t dependent on the amount of work you put in. It’s money that’s being made without your personal involvement.
A widespread financial goal for modern entrepreneurs is often to live off of passive income and retire early. Realistically speaking, for most people, residual income could comprise 20-30% of their total income (passive + active). If you’re lucky enough, you can make even more cash each week or month and gradually reduce your dependency from a 9 to 5 job, and focus on your true passions like a hobby, your family, charitable work, etc.
It’s sort of like a modern version of what was once the American dream. Currently, people are envisioning early retirement and comfortably living off of residual income sources.
Here are the ideas.
No.1 Investment with dividends
The easiest way to invest is to put 30% of your monthly or weekly salary into the S&P 500 ETF. Since its creation in the early 1980s, the fund has generated 3.7 thousand percent returns and is considered to be the benchmark for how an investment opportunity should work.
Ignoring the abnormal dips during the pandemic and at the start of 2019, an investment into the S&P over five years would’ve made you a 110+% return on your investment. That’s upwards of 22% per annum which is an astounding figure. This is a deal that you just can’t look past and it’s not like the S&P has only just emerged. It’s the cornerstone of a portfolio for huge investment titans like Warren Buffet and many more. But, this form of investment might only be the 2nd best way to make
through investment in the stock market. The top option is usually investing in dividend stocks. Over time, these generate so much passive income and gain (regardless of how the stock is performing) that the investment is totally worth it.
For example, you invest $5,000 into Coca-Cola stock. Let’s round out and say you get 90 stocks for that amount. Each of these stocks will earn a dividend share. The dividend yield is 3.51% for Coca-Cola. After ten years, your investment would double in value without any additional reinvestment mostly through dividends, as you’d earn approximately $180 the first year, but double that amount after just a few years. If you’d were to reinvest capital gains or buy additional shares, besides seeing the rising stock value, you’d make so much money through dividends over time that it’s really worth the while.
No.2 Real-Estate for short-term rent
It’s usually said that if you rent out a house that you’ve just bought, the market rent price (monthly) should allow you to break even after 20-25 years, depending on the market itself. However, if you’re renting out through services like airbnb or similar ones and prioritise short-term rent, you could potentially reduce the period it takes to break even or even make a profit from your investment in much less time.
More and more people purchase apartments and convert them into airbnb rentals as a limited-time investment opportunity. This is usually done when someone buys up very expensive apartments in prestigious locations. For example, you can purchase a flat in places like West Village NYC, Notting Hill or Chelsea in London, Montmartre in Paris, amongst others. Besides generating
in the four or even five figures monthly, these properties could also make you great returns after you sell them in 10 years.
For example, if you were to look at the main measurement for housing prices in the US - S&P Case-Shiller Home Price Index for New York, you can see that the general perceived and sale value of real estate properties throughout New York City have increased by ~17%. Each year, including recessions, real-estate prices in the NYC area have grown by 3.5%, so this is a golden opportunity to invest in real-estate and earn money without doing anything.
The S&P Home Price Index for New York shows just how stable and how amazing the housing market has been in the past decade, especially after the first waves of the COVID pandemic.
No.3 P2P Loans and Financing
Even if you have as little as $100 to spare, P2P loans are a great way to make some extra-cash both short and long-term. Whether you invest cash or crypto, peer-to-peer lending solutions have been on the rise in this past decade.
Regular, cash-backed loans are very easy to get into. Depending on your location, the legal requirements and formalities might be a bit different, but this is usually how it goes.
- You set up an account in a P2P lending platform.
- You deposit cash from your bank into your account on the platform.
- You scout through the available loan applications and crowdfund or single handedly finance a loan.
- You know all of the interest rates before funding and/or loaning.
- The customer pays back the loan in instalments and you get your initial investment back + interest.
A quick overview on how P2P lending works.
Usually, making significant gains requires tremendous investment or patience through a long-term strategy. But if you were to start with just $500 and contribute additional $300 each month, lending it out for a 14% interest rate, after three years your investment would be worth $13.8k+, whilst your additional cash contributions were only around $10.8k. Over 10 years, this could have doubled your initial investment through mere capital gains.
However, it might seem that the best way to make money in this field is by moving away from cash into crypto. These loans offer much higher interest rates whilst being short-term. Furthermore, you can loan out your assets for 2 years, earn hefty interest and once the value has risen high enough, sell off your assets for a profit.
No.4 Short-term car rental
If you have some cash saved up, use it for down payment or payments on some new, mid to premium level cars. Look for nice optional extras and an attractive interior design. For example, let’s say you buy one Toyota Prius and two BMW 5 series saloons. You end up spending $4,000 per month on their leases (just an example).
Turo is a great app for renting unique vehicles or renting out cars whilst avoiding major car rental companies.
A new Prius rents out for around $70 per day whilst a 5 series BMW could go for $200-400 per day. Even if you rent out your cars for 14 days in a month (less than a half), you’d be generating their leases plus a ~$1,000 extra (20% return). And if you can source unique cars, rent them out in popular locations and provide decent-enough marketing, you can have a source of
for the next 3 to 5 years.
After your cars become higher-mileage or just outdated, sell them for their remainder value and lease out new cars. It’s really simple.
No.5 Rent out tools or household items
Did you know that in the U.S. alone, people spend close to 20 billion dollars annually just on tool rental? If you have tools or household items that could be valuable to others, look for ways to make money whilst you’re not using them. What’s good to rent out?
Lawnmowers, power tools, pretty much anything you can use in construction or car repair, coolers, tents, lights, sound equipment, etc. If an item is of large value, and people need it for a day or two, buying it is just not worth it. From the point of view of a customer, it’s better to just rent it out for a one or two day period and spend $50 or 200$ instead of $1,000 or $5,000 for example.
You can list your items on Facebook Marketplace, Craigslist or your local ad or dedicated rent websites. There’s usually very little involvement from the owner necessary. Place the ad, renew it each week or so and just take calls and bring out the tool or the equipment to your yard or to the door. Take half of the money (or the deposit) after they pick it up and half of it after they return it. Sign a contract if the tool is of high value.
No.6 Launch your own dropshipping store
For the final idea, let’s list something that is widely known yet far from wholly implemented. Many of you are aware of the concept of dropshipping and how easy it is to make money through it. However, a lot of people are still hesitant to spend even $300 or $500 to launch an almost fully automated dropshipping store.
Dropshipping is very easy to understand. You act as a middleman between a manufacturer or the low-margin seller and a customer. You source out products for a low price, let’s say $20. You market them and brand them, selling for $50 each. The customer pays you $50, you pay the $20 to the manufacturer and they ship it directly to the buyer. Keep the profit whilst maintaining no stock.
The more you sell, the better off your business is. However, the largest concern for dropshipping business is having good customer support. Well, you can automate it with dedicated plugins. Atlasmic
can be easily integrated with Shopify, allowing you to automate upwards of 60% of customer enquiries.
Once your shop is up and running, you should promote it on social media (mainly Facebook, Instagram and TikTok) to generate leads and paying customers. Without any significant involvement you can generate
anywhere from $200 upwards of five figures each month.
So, here are the six most accessible ways to generate residual or passive income for yourself. Don’t be hesitant to try out new things and to explore new possibilities with free capital. Even $200 is enough these days to start your business. Don’t be afraid to take financial commitments and get things like a lease or loan for vehicles or real-estate. If you can rent it out, these rental properties or automobiles can return their value and then some. Also, look into what you can do from your home, like renting out tools or starting a dropshipping store.
Hope this helped and we’ll see you soon with our next blogposts!