Build passive income

Letzte Aktualisierung am 21.04.2022

Break out of the hamster wheel, work less, take more holidays and simply enjoy life: That sounds like a dream that is shattered punctually on Monday morning at 6:30 when the alarm clock rings. 

At least, that's how most people feel who depend on their wages month after month. 

And then there are people - and we are by no means talking about billionaires on luxury yachts - who have broken out of this seemingly endless vicious circle of work and pay. Who can live their lives in a much more self-determined way because they have taken advantage of opportunities to make themselves financially independent. 

Contrary to popular belief, these are not eccentrics or people with incredible talents. They are just normal people who have intensively studied the topic of building passive income. And have obviously made some right decisions. 

These ideas and possibilities for generating passive income are explored in depth in this article. It is meant to serve as inspiration and illuminate the wide range of possibilities we all have in 2021. 

Passive income definition

Most people earn their money through "purposeful, social, planned and deliberate, physical and mental activity". 

The definition of passive income, on the other hand, means earning income without direct consideration. It thus represents the counterpart to active income based on work.

Passive income creates financial freedom.

Passive income creates financial freedom.

However, that doesn't mean that you don't have to do anything at all. Passive income is about generating regular income with a one-time investment / effort.

This investment can either be made financially or in the form of labour input. The latter is the case, for example, when you write a book that you can then sell for years.

How long it takes you to build up regular passive income depends entirely on which form of income source you choose. One thing is certain: you don't generate passive income overnight.

Passive Income Ideas

There are many different ways to build a passive income system. Among the most popular are:

If you are less interested in a system for generating passive income with an initial workload, but prefer to invest your capital for passive cash flow, we recommend the article What is the best investment at the moment.

Passive income real estate

Passive income through real estate offers you the greatest security among the options mentioned here. And you don't have to start a huge real estate business - just one or two flats as an investment are often enough to create a monthly passive cash flow.

However, a property does not necessarily generate profits. If you live in the property yourself, you have no regular income. If, on the other hand, you buy a flat as an investment and rent it out, you can collect the rent month after month and thus have a nice passive income.

To build up a positive cash flow and thus passive income with a property, the rental income should exceed the financing costs (repayment + interest).

Flats as capital investments that fulfil this condition are currently only available in isolated cases. It is precisely the intermediary fees that make real estate investments unattractive as passive sources of income, since the costs increase with each intermediary. 

It is better to buy directly from the "producer"., for example, refurbishes flats to the highest quality standards and sells directly to capital investors without an intermediary, often generating a positive cash flow and thus passive income for the average wage earner. 

Favourable financing, which you can find in a financing comparison, is also an important aspect. But even if you have to pay a small amount per month in the first few years, the investment is worthwhile. As soon as your property is paid off, your passive income increases drastically and you have few costs.

With the acquisition of further properties that you also rent out, you will even be able to live exclusively from your rental income in the future. With a financed property, you also need little start-up capital, which - in addition to the security factor - is another advantage.

In addition, the real estate industry offers you a lot of variety. You can choose from different types of real estate. Would you prefer to buy a residential or a commercial property or would you rather invest in a care property? 

Passive income with shares / dividends

Many people choose shares for their passive income. For a share investment to be suitable as a regular source of income, it is important that they are dividend shares. In this case, listed companies distribute their profits to investors in the form of dividends.

The more shares you own, the higher the passive income generated by the dividends.

However, share investments are always risky and a certain amount of start-up capital is required.

In order to assess whether a share is a good opportunity for long-term passive income, it is advisable to look at some key figures for optimal share selection: 

  • Dividend yield: Does the company pay out a fairly high amount relative to the purchase price of the share? If you bought a share for 55 euros and receive 2 euros in dividends per year, this corresponds to a dividend yield of 3.63%. If you own 100 shares, you will receive 100 x 2 euros in dividends per year = 200 euros. 
  • Is the share a so-called "dividend aristocrat"? By definition, a dividend aristocrat is a stock that can point to many years of constant or rising distributions. The longer the history of dividend payouts, the more popular the stock is for someone who wants to build reliable, long-term passive income.
Test now:
Does real estate as an investment suit you?

Passive income with P2P loans

A P2P loan behaves like a bank loan, but is exclusively granted by private individuals to other private individuals.

P2P loans are granted via so-called P2P platforms such as Mintos and Bondora. The lender receives interest from the borrower for granting the loan. Of course, equity capital must first be available here as well in order to be able to lend it.

P2P loans as a passive source of income are quite lucrative because the interest paid is higher than in traditional banking. Borrowers on P2P platforms have to pay a more expensive risk premium in the form of interest due to weaker creditworthiness than solvent borrowers at banks do. Of course, this also makes it more attractive for the lender. Higher risk means higher interest income.

Passive income with P2P is also always associated with the risk that the loan may not be repaid. Default rates with P2P loans are higher than with conventional bank loans.

Passive income with ETFs

Trading with ETFs basically works like investing in shares. However, the risk with ETFs is significantly lower, as the focus is not on an individual share, but on a specific index.

This index can be a country index (e.g. DAX ETF) or a sector ETF (e.g. Medical Care ETF). There are also other criteria for index formation. The ETF universe is almost limitless.

Here, too, it is important to ensure that the profits are paid out as dividends. There are also special dividend ETFs. Then passive income can also be generated with an ETF.

Passive income with crypto

To build up a passive income with cryptocurrencies, you can choose between several methods. In the crypto world, the term DeFi (Decentralised Finance) has become established, in which the unparalleled efficiency of blackchain-based systems results in lower costs for the users of the financial system. This opens up numerous opportunities to generate passive income with crypto.

  • Mining: With mining, you make your computing power available and receive payment for it in the form of Bitcoin & Co. However, you need advanced technical knowledge for this and must first invest money in powerful hardware.
  • Staking: Staking requires fewer resources and is a somewhat simpler method of generating passive income with cryptocurrencies compared to mining. You hold money in your wallet and perform different network functions. Common is checking/verifying transactions. You then receive staking rewards for doing this. 

    Passive income with Bitcoin.

    Passive income with Bitcoin.

  • Lightning Node: By operating a Lightning Node, you provide payment channels through which people can conduct their Bitcoin transactions. You receive fees for each transaction. However, this requires very extensive technical know-how.
  • Lending: You can also lend your cryptocurrency holdings to other private individuals and receive interest in return. This method also offers less technically savvy people the opportunity to earn money with cryptocurrencies.
  • Recruit customers: Crypto companies are interested in gaining as many users as possible for their platforms. For this reason, they are often willing to pay commissions if you generate new customers for them. You can do this, for example, through advertising, affiliate links or recommendations.

Passive Income Online (Blog/Affiliate)

With an affiliate model, anyone who can still find a suitable niche in the internet universe can earn money today.

However, finding a suitable niche is not that easy. Most lucrative niches are occupied. One possibility is to look at current trends and be one of the first to occupy a newly created niche. The best example in recent history is the topic of "e-scooters". A few years ago, the term was completely unoccupied, whereas today there is high competition for the keyword.

Nowadays, creating a website no longer requires technical dexterity. Numerous modular systems help you to create your own homepage in a short time and for little money.

Once this is created, you can place advertising banners or affiliate links. So you use your website to advertise for others and get paid for it. This way you can generate passive income online.

However, for this method to be financially worthwhile, you need a large reach and must first make your website known. This can take a lot of time and usually requires extensive marketing measures, as the competition is fierce - keyword SEO. However, this knowledge can be acquired through self-study.

Build passive income without start-up capital

The dream of passive income does not always require a lot of start-up capital. Creating your own website requires almost no equity capital, and there are also ways to get started with the other sources of income without much equity capital.

For example, share and ETF transactions can be implemented in the form of savings plans. In this way, you invest only small amounts each month and can still build up a lucrative portfolio in the long term.

Even the purchase of a property does not always have to be associated with the raising of a high amount of equity capital. With 110% financing, passive income is also possible without equity capital. In this case, it is even possible that the property will yield a positive return from day one after the loan costs and repayments have been paid. What other type of investment can you say that about?

Passive income as a student

Many students dream of building up a passive income, but often lack the money. Yet students in particular have the most important form of "equity" at their disposal: Time! As the definition of passive income already says, time is necessary to be able to build up an income on the side.

If you have time and a bit of creativity, you have the best prerequisites to develop and test new business ideas, which can then provide you with passive income without start-up capital.

A good example of this is the history of the now world-famous app Snapchat, which allowed American pupils and students to send photos during class or lectures that deleted themselves after ten seconds. This way, the teacher or lecturer did not see what was being sent.

So sometimes all it takes is a little creativity to find business ideas for passive income as a student.

Passive Income Experience

Meanwhile, there are many people who have earned a golden nose through shares or real estate or affiliate marketing.

Every decade brings out its own "stars". While a few years ago shares and dividends were the ultimate way to passive income, today rented real estate and crypto investments are in vogue.

Starting with Warren Buffett, who gained his wealth with shares, to the real estate self-made millionaire Robert Kiyosaki, to the founders of www.singlebö, who have built up a substantial passive income with their website.

It can thus be stated that there are many possibilities for passive income.

The following video shows more exciting ways to earn money passively:

But even for the most successful people, this did not happen overnight.

If you are thinking about building up a passive income with real estate, we will be happy to help you with advice and support. The best thing to do is to arrange a free initial consultation today, where you will learn all about your options with a rented condominium as a passive source of income

Passive income with real estate

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