The 30-somethings guide to creating passive income

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Disposable income. Flexibility. Personal development. And the freedom to fail.

If those statements strike a chord with you, you’re not alone. Today’s 30-somethings are increasingly looking for ways to create passive income so they can start living the life of their dreams.

Tyler Bryant, a young professional living and working in Washington, DC, has a great salary; and on the weekends runs Black Peppa LLC, a catering business she launched to bring in extra income.

But juggling a full-time job and a side hustle can be all-consuming. Which is why now more than ever, Bryant and millennials just like her, are interested in creating passive income.

“Me and my friends are always trying to come up with ways to make extra money that doesn’t require so much time,” says Bryant.

Has the thought of creating passive income crossed your mind?

Or perhaps you’re ready to start, but don’t know how? Here’s what you need to know about what passive income is, the myths and misconceptions, and the best ways to get started:

How the Government Defines Passive Income

The Internal Revenue Service (IRS) classifies the income you earn under three broad labels: active income, passive income, and portfolio income.

Passive income, is income earned on a regular basis that requires little to no effort to maintain. Some examples of passive income include royalties from book or music sales, cash flow from rental properties, or cash flow from a real estate investment trust (REIT) like DiversyFund.

Myths & Misconceptions About Creating Passive Income

If you’ve ever done a search for “make money online” or “passive income” it’s likely you found some article, online class, or product promising you riches beyond your wildest dreams while you binge Netflix or jetset around the world.

Any opportunity promising money without work is ridiculous. Most of your work will come from the research. You should always do your research on any business venture or investment you’re thinking of joining.

That doesn’t mean great opportunities aren’t out there. But the work will also come from the sifting and sorting needed to find the truly good opportunities from the truly terrible ones.

3 Solid Passive Income Ideas You Should Consider

The passive income ideas below were chosen because of the viability they offer in producing true passive income. And for your convenience, each one has been assigned a Barrier To Entry score or BTE, between one and five.

The easiest opportunities (requiring little money and time) will have a score closer to one. And the absolute hardest opportunities (requiring lots of money and time) will have a score of five.

Barriers to entry are critical as they have historically been the reason most people cannot invest. Up until recently, some of the best investment strategies required tens of thousands of dollars to get started. This shuts most people out as they are unable to participate in these wealth building opportunities. But rapid advancements in technology is closing this gap.

3 Strategies To Start Creating Passive Income:

Launch An Affiliate Marketing Websites

Can you identify a product or service with lots of competitors that most people need to compare before making a purchase? If yes, then an affiliate website comparing a particular product may be one of the profitable passive income streams you create.

Many product creators and businesses use affiliates to help sell their digital, physical, or service based products on a platform that you, the affiliate owns– like a website, newsletter, or YouTube channel to name a few.

To get started with affiliate marketing, you’ll want to join an affiliate marketing network like CJ.com or Share a Sale. Once you’ve joined, search through their list of potential products and choose the ones you’d be interested in selling.

I recommend finding similar products and offering customers your honest review of each product or building a comparison website to help people choose the best option for them.

For example, you could choose to find all companies selling flowers and create a comparison website showing your website visitors the best bouquet at the best price. Many large companies are already doing this with hotels, insurance, and more. Some examples include Hotels.com, a hotel comparison website. And PolicyGenius, an insurance comparison website. You’d be taking the same concept and simply doing it on a smaller scale.

The Good 

The potential to make consistent income as an affiliate is certainly there. If you can find a great, unsaturated niche you’ll be able to create real passive income on a regular basis. Another great reason to start with this type of website is because you don’t need much traffic to be profitable.

The Bad 

Finding the right products to compare or focus on can be tough, but it’s not impossible. The problem is that many people randomly choose products without doing any research. A simple Google search will show you if lots of people already had the same idea or if there is an opportunity for you to come in and do it better.

Another great research strategy is called “social listening.” This strategy involves using social media platforms like Facebook, Twitter, and Reddit (just to name a few) and reading what people are saying about your particular product. Having an understanding of the pain points people experience around certain products, and solving those pains, is a great way to make your website stand out.

That small amount of research is a simple place to start that will significantly lower your risk of failing.

How to Get Started

Again, to get started you’ll want to sign up for an affiliate marketing network. Many such networks exist, but two I use and recommend include CJ.com (one of the largest and most trusted) and Share a Sale, also a large and highly trusted platform.

Join as many as you’d like and start searching for companies that you’d like to work with. Next, you’ll need to build your website. Whether you’re building it yourself or using a freelancer on a website like Fiverr to build it for you, you’ll need to buy a URL and a website host.

Because I believe in spending the least amount of money when getting a business idea off the ground, I like using websites like Namecheap to buy URLs and Siteground to host my websites. Namecheap lives up to its name by being one of the cheapest (if not the cheapest place on the interwebs to buy a URL).

And after years of launching websites and building brands, I finally settled on Siteground as my website host of choice because of their uh-mazing customer service for non-techie’s (like me). If you have any issues with your website, you can literally call them in the middle of the night, and a live person will pick up the phone and help you.

BTE Score: 2

Although nothing is guaranteed, I love this option because the BTE is so low. Seriously, what’s the worst that can happen? You spend a couple hundred bucks and get the website up, wait six months, and make no money. A seasoned business owner or entrepreneur will tell you they have lost a lot more getting their ideas off the ground. The most important part is that you start, learn from your mistakes, and try again.

Direct Real Estate Investmenting

Ah, real estate. The investment route that has created many a millionaire and billionaire of our time. Even today, owning real estate continues to be what separates the haves from the have nots.

Getting started in real estate investing takes lots of commitment and lots of cash. But if you have a passion to learn the ins and outs of the industry, you’ll certainly be positioned to do well.

The Good 

Having a tangible investment, that you can see and touch, can be very fulfilling. And offering a nice place for people to live is a great way to provide a service that people will always need. With proper research and the right team, real estate can be a great tool for creating passive income and growing your wealth.

The Bad 

Buying property is a great passive income strategy. But it can take lots of time and lots of properties before you can actually have make enough passive income to live on. Many real estate investors have cash from other sources (like a job or a business) that they use to invest.

How to Get Started 

If you don’t have any money saved up, you’ll want to open up a high yield savings account, like this one from CIT Bank, and start socking away some cash. Saving in a high yield savings account is better than using a regular savings account because of several reasons.

The first is that you will receive a higher interest rate for the money you save. This can be an extra $10 to hundreds of dollars per month paid in dividends (depending on how much you have in the account and the interest rate.) But those extra dollars every month can really add up and help you reach your savings goals.

The second is because unlike a regular savings account, where you can simply transfer money immediately, transferring money from a high yield savings account typically takes 2-3 business days. This buffer helps people really think before using their cash for frivolous purposes.

Once you have some cash, you’ll want to find a good real estate agent and a good lender. Ask a friend or colleagues you know who has recently purchased a home to recommend one. And if you’re already part of a credit union or some neighborhood bank, reach out to them for your lending needs before heading to the big banks. Either way, you’ll want to compare interest rates so you get the best deal.

Now that you have your cash, your real estate agent, and your lender, it’s time to find the right property. If you’re handy or up for a remodel, you can save by buying properties that need a little work.

Once you’ve purchased your property, you’ll need to find a renter. Some properties already come with a renter and you can choose to offer them a new lease. Keep in mind however, the renter is free to renew or find somewhere else they’d prefer to live.

BTE Score: 5

Did I mention nothing is guaranteed? Well if you missed it the first time, I’ll just slide it in one more time. Real Estate takes lots of research and lots of money. Most people who want to buy a home to  rent out (and not to live in themselves) will need to make a down payment of 10%, 20%, and sometimes more than 25% of the purchase price of the home. Most people don’t have $30,000 lying around. The money needed upfront also does not take into account any maintenance costs you may have.

Does that make real estate a bad investment? Absolutely not. In fact, it’s a great long term strategy for long term growth that has been used for generations. There is also plenty of information and resources available to truly learn how to make good decisions on your path to creating passive income with direct real estate investing.

Indirect Real Estate Investing

Our final tried and true vehicle for creating real passive income is indirect real estate investing through REITs (real estate investment trusts). One new trust to come on the scene is DiversyFund. Their team recently asked us to take a look at their fund. Here’s what we found:

The Good 

You might not have $30,000 saved up to buy a rental property right now, but do you have $500? The beauty of REITs like DiversyFund is you can start investing for the amount of money you might drop on a new pair of shoes.

DiversyFund is a private REIT that does everything in-house. They find properties, analyze them for cash flow, and manage any remodeling needed.

Because of this hands on approach, they save on lots of outside services and pass those savings on to investors like you. DiversyFund investors pay zero brokerage or middle-man fees.

The Bad 

Like most real estate investing, your investment is largely illiquid. This simply means there are restrictions if you want to get your money out before a property is sold or the fund closes.

Investing in anything has risks. No fund can guarantee past performance can be replicated or predict future performance.

Every investor should take into consideration the risks of this or any other investment they make.

Smaller investors should carefully consider how much they put into real estate, whether publicly traded REITs or private equity funds like Fundrise and DiversyFund.

How to Get Started 

Like everything else, your foray into REITs (or any investment for that matter) should begin with research. There are public and private REITS as well as funds classified as real estate crowdfunding. Compare your options and find the best one that works for you.

To get started with a fund like DiversyFund, start by reading their in-depth Getting Started guide. Then, create an account by signing up here. Next, you’ll want to fund your account. You can get started with just $500 when you choose their Growth REIT.

BTE Score: 1

Many millennials want to start investing but simply don’t have the money or the network. Investing through real estate crowdfunding or a REIT like DiversyFund is a great way to start where you are. A $500 investment equals virtually no barrier– which is perfect for those just starting out.

The Bottom Line

From creating an affiliate website to direct and indirect real estate investing, there are plenty of options to choose from if you’re serious about creating passive income.

The most important part is that you start. Pick the opportunity that appeals to you the most, do your research, and start today. Because the sooner you get started, the sooner you’ll be able to live the life you’ve been dreaming about. Jet setting and all.

This article originally appeared on Capital Standard.