7 ½ Investments to Generate Passive Income

Most investors would agree that making money while you sleep is the ultimate end goal. Passive income investments typically offer much more flexibility than traditional assets, allowing you to generate passive income which can be reinvested as you earn or collected as profit.

We’re big believers in long-term goals and for many people, passive income investments represent a relatively safe and adaptable way to reach these goals. If you’re looking to achieve early retirement for example, having a broad portfolio of assets generating income can set you up for success going forward.

With that in mind, here’s our list of the best investments to generate passive income and how they can be utilised in a wider portfolio.

1. Real Estate with a Long-Term Holding Pattern

It might seem biased to include real estate in this list, but the truth is, property investment is one of the most commonly chosen passive income investments for a reason. With a long history of reliability and flexibility compared to other investment assets, a long-term strategy focused around property can offer some of the best returns.

How Can I Earn Passive Income with Real Estate Buy-to-Let?

In theory, it’s simple. Buy a property and rent it out. The rental returns are your passive income and can be used in a variety of ways. Commonly, you’ll find investors looking to scale once their first property is delivering income, re-investing to build up a portfolio of multiple properties.

Once you have a selection of properties, you still have a number of options. You can either sell and reap any capital gains made on the property since purchase or, if you have a long-term goal in mind, continue to rent them out to maximise your profits. The key thing to remember is, the rental income pays for the property’s mortgage while still delivering a small profit. Once you’ve paid off the mortgage? It’s pure profit.

What makes property unique is it also offers a second stream of income alongside the rental returns. Capital appreciation, mentioned peviously, can also build during this time, meaning even more profit if you’ve chosen a good location and quality development. The UK property market, for example, has a history of following set price cycles that offer excellent returns provided you ride the wave – prices doubled between 2001 and 2015 despite the financial crisis in 2009.

The most important thing to remember is that this ‘long-term’ strategy is reliant on consistent rental income, otherwise you may find yourself paying out of your own pocket. Always work with established professionals, do your research into the rental market in your chosen location and buy quality upfront to maintain a good flow of happy tenants.

2. Dividend Stocks

Dividend stocks are another traditional choice for those just starting their investment journey. Offering a predictable income and long-term growth potential, dividend stocks may not offer the most lucrative returns but they’re dependable and work well as part of a wider portfolio – provided you invest with the right companies.

How Can I Earn Passive Income with Dividend Stocks?

Building passive income via dividend stocks is all about choosing the right company. Once you’ve invested and the company is earning, that money is paid back to you as a dividend. At this point, you can collect the dividend as a cash payment into an investment account or even reinvest for additional shares.

There are a number of different strategies related to dividend stocks that typically depend on the risks you’re willing to take. If you have a high-risk dividend stock, for example, you’ll earn a better return than you would for a low-risk alternative. As you’d imagine, having a varied portfolio of both is usually recommended.

It helps that investing in dividend stocks is easier than ever as technology has advanced. There are now a number of online brokers that can help you get started quickly and most of them don’t charge trade fees, which can save you money later down the line.

3. Real Estate Crowdfunding / Syndication

Real estate crowdfunding is a form of investing that is growing in popularity, especially as property prices continue to increase. It can be a great way for investors to access a property investment they’d never usually be able to afford – making it particularly popular with millennials.

According to online crowdfunder UOWN, 54% of people partaking in property crowdfunding are aged 18 – 30, mainly as a way to save money for a deposit or utilise an inheritance.

While many ‘traditional’ syndications were created for large-scale projects such as apartment complexes and commercial buildings, we’re increasingly seeing crowdfunding opportunities for projects of all shapes and sizes.

How Can I Earn Passive Income with Real Estate Crowdfunding?

Investing in a crowdfunded property is one of the truly ‘passive’ investments you can make for several reasons. Firstly, it requires very little time investment – generally there will be an assigned manager of the investment that covers the day-to-day, leaving you to reap the benefits.

Similarly, because you’re part of a larger ‘crowd’, financial risk is mitigated across the entire group and everyone still receives the tax benefits associated with the investment. While returns will be shared, and thus lower, real estate syndication remains an accessible investment asset that can still prove lucrative. For those that prefer total control however, there may be more suitable alternatives out there.