Building passive income: Ideas and examples
Breaking out of the hamster wheel, working less, taking more vacations and simply enjoying life: It sounds like a dream that is shattered when the alarm clock rings at 6:30 on a Monday morning. At least that’s how it is for most people who rely 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 become financially independent.
Contrary to popular belief, these are not eccentrics or people with incredible talents. They are completely normal people who have worked intensively on the topic of building up passive income. And have obviously made some of the right decisions.
In this article, we take an in-depth look at these ideas and opportunities to generate passive income. It is intended to serve as inspiration and shed light on the wide range of opportunities that we all have in 2024.
What is passive income? Let’s start with an explanation of the term “passive income”: Passive income is the generation of income without long-term, regular, active involvement. The prerequisite for this recurring income results from a one-time effort in the form of labor or capital investment, as well as energy. It is important to know that passive income generation does not happen overnight, but is built up over a longer period of time.
What are the benefits of passive income? Who is it suitable for?
Passive income is suitable for almost all of us, no matter what goal we are pursuing or what stage of life we are currently in.
- Would you like to increase your salary in the long term?
- Are you looking for more independence or additional freedom in your lifestyle?
An additional source of income in the form of passive income may be just the thing for you.
How do I generate passive income?
There are numerous ways to create a passive source of income. Depending on what you are particularly interested in and what kind of effort you want to invest, there are various options. Depending on where your talents and skills lie and what you enjoy doing, there are numerous ways to create a personal definition of passive income:
- Are you online-savvy? Perhaps your own blog, for example, which generates income through collaborations and advertising, is an exciting option.
- Are you into technology? Perhaps lending or staking in the crypto sector is just right for you.
- Have you received an inheritance and would like to draw on it in the long term? An exciting investment in a property that generates monthly rental income could be an option for you.
- Are you ready to invest capital in shares? A dividend share strategy could be a route to passive income.
The definition of passive income is therefore not uniform. Depending on how much time you want to invest, how much capital is available and where your personal strengths lie, the explanation of the term passive income differs.
Passive income
Most people earn their money through “purposeful, social, planned and conscious, physical and mental activity”. The definition of passive income, in turn, means earning income without receiving anything directly in return. It is therefore the opposite of active income, which is based on work.
However, this does not mean that you don’t have to do anything at all. Passive income is about generating regular income with a one-off investment/expenditure. This investment can either be made financially or in the form of work. The latter is the case, for example, if you write a book that you can then sell for years, but this doesn’t mean that you don’t have to do anything. Passive income is about generating regular income with a one-off investment/effort. This investment can either be made financially or in the form of work. The latter is the case, for example, if you write a book that you can then sell for years.
How long it takes for 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 up a passive income system. The most popular include:
- Invest in real estate
- Shares and dividends
- Opportunities in the crypto sector
- Invest in P2P loans
- Invest in ETFs
- Online: Setting up your own blog
If you are less interested in a system for generating passive income with an initial workload, but would 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 from real estate offers you the greatest security of all the options mentioned here. And you don’t have to start a huge real estate business – just one or two apartments as an investment are often enough to generate a monthly passive cash flow.
However, a property does not necessarily generate profits. If you live in the property yourself, you will not have any regular income. If, on the other hand, you buy an apartment as an investment and rent it out, you can collect the rent month after month and have a nice passive income.
In order to build up a positive cash flow and thus passive income with a property, the rental income should exceed the financing costs (repayment + interest). There are currently only a few apartments available as investments that meet this requirement. Brokerage fees in particular make real estate investments unattractive as a source of passive income, as the costs increase with each broker.
It is better to buy directly from the “producer”. Meine-Renditeimmobilie GmbH refurbishes apartments to the highest quality standards and sells them directly to investors without intermediaries and their fees.
Favorable financing, which you can find in a financing comparison, is also an important aspect. But even if you have to pay a small amount each month in the first few years, the investment is worthwhile. As soon as your property is paid off, your passive income will increase dramatically and you will only have a few costs.
If you purchase additional 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 a further advantage.
The real estate industry also offers you a great deal of variety. You can choose from different types of real estate. Would you prefer to buy a residential or commercial property or would you rather invest in a care property?
Passive income with P2P loans
A P2P loan behaves in the same way as a bank loan, but is granted exclusively 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, here too, equity must first be available 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 conventional banking. Borrowers on P2P platforms have to pay a more expensive risk premium in the form of interest than solvent borrowers at banks due to their weaker credit rating. 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. The default rates for P2P loans are higher than for conventional bank loans.
Passive income with ETFs
Trading ETFs basically works in the same way as investing in shares. However, the risk is significantly lower with ETFs, as the focus here is not on a single 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 profits are paid out as dividends. There are also special dividend ETFs. Then you can also generate passive income with an ETF.
Passive income with crypto
You can choose between several methods to generate passive income with cryptocurrencies. In the crypto world, the term DeFi (Decentralized Finance) has become established, in which the incomparable efficiency of blockchain-based systems results in lower costs for 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 in the form of Bitcoin & Co. However, you need advanced technical knowledge and must first invest money in high-performance 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 various network functions. Checking / verifying transactions is common. You then receive staking rewards for completing them.
- Lightning Node: By operating a Lightning Node, you provide payment channels through which people can carry out 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 experienced people the opportunity to earn money with cryptocurrencies.
- Recruit customers: Crypto companies are interested in attracting as many users as possible to their platforms. For this reason, they are often willing to pay commissions if you generate new customers for them. You can do this through advertising, affiliate links or recommendations, for example.
- High degree of independence and freedom
- Additional source of income
- Room for more free time
- Live your passion & benefit financially at the same time
- Basic building block for financial freedom
- High time investment
- Often requires financial advance payment
- Certain willingness to take risks (of loss)
- High degree of patience, perseverance and consistency required
- Low predictability of fixed income
Passive income online (blog/affiliate)
Today, anyone who can find a suitable niche in the internet universe can earn money with an affiliate model. However, finding a suitable niche is not that easy. Most lucrative niches are occupied. One option 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 website in a short time and for little money.
Once this has been created, you can place advertising banners or affiliate links (affiliate marketing). In other words, you use your website to advertise for others and receive payment for doing so. In this way, you can generate passive income online and earn money.
However, for this method to be financially worthwhile, you need a wide 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.
Building 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 other sources of income without a lot of equity capital.
For example, share and ETF transactions can be implemented in the form of savings plans. In this way, you only invest small amounts each month and can still build up a lucrative portfolio in the long term.
Buying a property doesn’t always have to involve raising a large amount of equity either. Passive income without equity is also possible with 110% financing. The property may even generate 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 capital”: Time! As the definition of passive income says, time is necessary to build up an income on the side. If you have time and a little creativity, you are in the best position to develop and test new business ideas that can then provide you with passive income without start-up capital.
A good example of this is the story of the now world-famous Snapchat app, which allowed American pupils and students to send photos during lessons or lectures that deleted themselves after ten seconds. This meant that the teacher or lecturer was not aware of what was being sent. So sometimes all you need is a little creativity to find business ideas for passive income as a student.
Advantages and disadvantages of passive income
Advantages:
Disadvantages:
As in all areas of life, there are two sides to this coin. This makes your own mindset and approach to the project of passive wealth accumulation all the more important. Only those who clearly define, pursue and implement their own goals will be able to succeed in the end.
Passive income experience
There are now many people who have made a fortune 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 earn passive income, today rental real estate and crypto investments are all the rage.
From Warren Buffett, who made his fortune with shares, to real estate self-made millionaire Robert Kiyosaki. This shows that there are many opportunities for passive income. The following video shows other exciting ways to earn money passively:
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But even for the most successful people, this does not happen overnight. Perseverance and staying power are often required. But in the end, this is exactly what pays off! If you are thinking about building up a passive income with real estate, we will be happy to help and advise you. Why not arrange a free initial consultation today to find out everything you need to know about your options with a rented condominium as a source of passive income.