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Best Ways to Earn Passive Income

written by: N Nayab•edited by: Wendy Finn•updated: 1/11/2011

Passive income is income from investments and business where the money, or the initial amount of effort, provides growth or return for a long period, without the investor’s further active participation in the business. Read on for the best ways to earn passive income.

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    There are many ways to earn passive income, and most of them fall under two broad categories:

    1. Investing money upfront and allowing the money to grow with time. The most common investments are in business, real estate, shares and securities, and natural resources, and require a considerable investment.
    2. Investing time and effort rather than money to secure continuing return over time without any additional effort. Examples in this category include many ways to earn from the internet, and royalties, and require a small amount amount of investment, and/or an investment of time.

    We look at that best methods to earn passive income within these two categories, starting with the ones that require a larger financial investment, with the cash poor/time rich strategies detailed on page 2.

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    Business Investments

    Ways to Earn Passive Income A business investment where an investor invests money as a silent partner, is a good way of earning regular passive income.

    A variant of passive income is selling franchise rights. A business, having made the effort to establish itself, can sell franchise rights that allow franchisees to use the businesses brand name, logo, and patented business processes or products. This is done in exchange for regular franchisor fees, without directly involving in the business operations of the franchisee.

    One of the most underestimated turnkey business opportunities to earn passive income from, is installing vending machines, or those that allow users to check their weight. Individuals can purchase such vending machines, and negotiate with restaurant owners, mall operators, etc., on a commission basis. The agency that sells the vending machine maintains it as well, meaning that the role of the entrepreneur is limited to collecting the cash from the machine at periodic intervals.

    Image Credit:

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    Real Estate

    Ways to Earn Passive Income One of the most common ways to earn passive income, is through real estate investments. By renting commercial or residential builings, you can earn regular monthly income without much effort, apart from the one time effort in acquiring the asset, and finding a suitable client. You can then get an agent involved, which further reduces the involvement of the investor. You can cut down the workload initially too, by looking at real estate investing over the internet.

    Even without rental income, real estate values tend to appreciate over time, and people having invested in land or buildings, could sell the asset for a higher price than the initial purchase price; very often, such appreciation can be much higher than the inflation rate.

    The key to earning good passive income from real estate, lies in purchasing the asset at a good value, without falling for highly inflated prices of a speculative market.

    Image Credit:

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    Stocks and Securities

    Another of the more common ways to earn passive income, is investment in shares, and other securities, such as mutual funds, bonds, and fixed deposits. Investments in shares and mutual funds appreciate and provide quarterly or annual dividends. Securities such as stocks, and bond treasury bills, provide interest on the deposits, as do fixed deposits. One option is to cash the dividends as they come in, and the other option is to reinvest the dividend; over time, the power of compounding, provides very good returns on the capital invested, with no effort from the investor.

    In general though, t the higher the possibilities of return, the higher the risk. Purchasing shares and mutual funds from the stock exchange has the potential for maximum gains, but can also cause big losses in capital. On the other end of the spectrum, government bonds or bills are virtually risk-free, but the returns are minimal, and the capital usually needs investment over a long term.

    The IRS considers gains from stock and securities as portfolio income, a separate category from passive income.

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    Investment in Natural Resources and Metals

    Investment in precious metals and gems is an alternative method to earn passive income. The advantages of such investments (especially gold), are high liquidity. Electronic traded funds mirroring the prices of these precious metals, allow for investing in such precious metals through the stock exchange.

    These investments, while providing capital appreciation, need not necessarily provide a regular monthly income. You should also bear in mind, that short-term investments tend to remain extremely susceptible to price volatility.

    Investing in oil and gas drilling, or timber operations for royalties, is a variant of investing in the stock exchange. Returns could be high, but many such opportunities are marked with high levels of fraud and speculation. A safer alternative is to purchase a portion of the timber operations directly, and reap the rewards when the planted trees grow in size over age.

    All the above ways to earn passive income require substantial upfront investment. Continue to Page 2 for ways to earn passive income with little or no monetary investment.

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    The best business opportunities to earn passive income from, is through internet. Starting blogs and monetizing the same by placing ad, making submissions to content sites, affiliate marketing, and starting automated ebay shop all rank among good options to earn passive income without much investment. Earning royalties from books and intellectual property is another good, albeit difficult passive income opportunity.
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    Internet Earnings

    Ways to Earn Passive Income Of late, opportunities using the internet, rank amongst the best business opportunities to earn passive income from, with little or no investment. Passive income opportunities in the internet, vary from monetizing websites or blogs, submission to content sites, or automated online selling.

    Monetizing Websites and Blogs

    One good way of earning passive income from the internet is by starting a website and placing ads in it. The best ways to monetize the website or blog include:

    • Subscribing to Google AdSense is the most popular way to place relevant block or text advertisements on your website. Each time a visitor clicks on an AdSense link, Google charges the advertisers through their Adwords account. The website owner earns a commission based on the eCPM value, or clicks per thousand impressions.
    • An alternative to AdSense is Simply, which works in the same way AdSense does, but in addition, allows for filtering of unwanted ads, and creation of targeted text ads with chosen tags.
    • Other website advertising alternatives include Kontera and Infolinks. These programs add code to the website, and create hyperlinks out of selected targeted text on the webpage. When visitors click on the links, the advertisers pay the website on a Pay per Click basis.

    Content websites allow users to add content, and earn a part of the commission these websites earn, by displaying ads on the webpages.

    Another option to earn passive income from the internet is uploading content, such as photos and videos, to popular sites that allow users to do so. Visitors interested in using such content pay for access and use of the images etc.

    Online Selling

    The affiliate marketing business, is another popular internet based passive income opportunity. Popular affiliate programs such as Amazon affiliate program make the process easy. The parent company provides the products, tracks sales, and gives commission for each sale made from the website, or the e-store.

    Yet another option, is setting up an eBay shop; an automated eBay shop, either affiliate marketing, or buying wholesale and selling retail within ebay itself. While eBay normally requires active involvement, it is possible to automate eBay auctions with any good auction software programs available on the internet. Such software automates all transactions, including starting and ending auctions. Hiring out the shipping part also converts ebay into a passive income source.

    Image Credit: Stewart

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    Royalties from publishing a book, licensing a patent, or some other form of intellectual property, are other good business opportunities to earn passive income from. Writing books and making inventions however, require great skills and very often a large amount of time.

    Royalties are passive income for all practical purpose, but IRS tax guidelines consider it as non-passive income.

    One important point to consider, is that all the above opportunities make for good passive income opportunities, only if done in the right way. Failure to do it correctly, would invariably result in the individual needing to spend time to chop and change portfolios, attract visitors, or indulge in some marketing exercises.

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    Among the various options to earn passive income, internet earnings provide the best source for most, as it requires very little upfront investment and minimal follow up work. Royalties from intellectual property would rank as an even better source provided one has the skills to produce quality work. Among the various investment options, stocks and securities rank as the most profitable althoug volatile, and real estate the most stable but the least profitable for time invested.