Passive income is best defined as any sustained income that you receive without having to trade your time for money.
Granted, it might require some work up-front to create passive income, but once the income stream has started flowing, it does not require additional effort to continue earning money. With this definition, something like having a rental property would not be considered passive income because you have to worry about maintaining the property and keeping tenants in order to maintain the income stream.
One of the most popular ways to create passive income is through holding onto stocks that pay a dividend. These are usually shares of very large, mature companies that are cash cows, but do not have many growth prospects, so they pay out a large percentage of their annual earnings as dividends. However, the percentage of return (dividend yield) is usually very low, and the company is not contractually obligated to pay dividends, so this is not one of the best sources of passive income, despite its popularity.
Another passive income idea is to own tax liens or mortgage notes. People may know this as “tax lien investing” and “seller financing”, but you can actually buy tax liens/mortgage notes from other private investors, at a discount. This is one way to increase your percentage return, and the payments are contractually obligated. The only problem is that if the home owner does not make their tax payment or mortgage payment to you, then you have to replace the bank as the “bad guy” and pursue the foreclosure lawsuit yourself. In addition, tax liens and mortgage notes are not traded on the public markets, so you have to find the private buyers yourself. This could entail selling your notes at a discount. Being able to create a passive income with this strategy is possible, but not without its risks.
Of all the passive income opportunities, one of the least known yet most powerful methods to create passive income for life is to use managed accounts. If you really want to learn how to create passive income, then focus on high performing managed investment accounts. Stated simply, a managed investment account is when a professional trader trades your money in a brokerage account. This is also sometimes referred to as “professionally assisted trading.” The secret is to look for trading professionals who have track records of generating the kind of returns that you want to get. You do not personally have to learn how to become a trader. You only need to find the really good traders to work for you. Once you find them, it does not require any further work on your part, except to withdraw your trading profits. If you hire multiple traders, then you’ll have multiple streams of passive income, plus you’re able to carefully manage risk. Some of the key benefits of passive income from this source are that you do not have any tenants to manage, no products to sell, and your investment is very liquid. You can access all of your funds at any time. Through this method you can harness the full power of passive income.