As entrepreneurs and small business owners, we’re always looking to make more money while expending less effort.
Passive income is that dream taken to the extreme.
It’s generating recurring cash flow while investing no – or almost no – actual time or energy of your own.
Checks just show up in the mail. Deposits appear in your bank account. Those ‘money is waiting for you’ emails from PayPal land in your inbox. And it all happens on the regular.
I know what you’re thinking. How can I make it rain without doing a damn thing? That’s passive income, Holmes. Let’s dive in!
Passive Income, Legally Speaking
Passive income is the buzzword du jour.
Despite the term’s use (and overuse) in the era of the hustle, passive income actually has a rather limiting legal definition during tax season.
Types of Passive Income
We are not legal or tax professionals, obvi, but here are three types of passive income as outlined by the IRS. Definitions matter here and, again, we’re not lawyers.
BTW, did we mention that we’re not lawyers?
Income from a rental property.
Unless you’re a real-estate professional, rental income takes incredibly little effort to generate – especially if you pay a property manager or keep a handyman on speed dial.
Income from an enterprise in which you’re not actively involved.
If you’re a silent partner or a passive or absentee owner of a small business with a salaried manager, the cash generated by the business is pretty darn passive.
Income from investments, dividends, interest, and capital gains.
Technically, this is called portfolio income and, from a tax perspective, it’s separate from passive income. However, passive income and portfolio income are pretty darn similar as far as how much work goes into each.
Passive Income, Casually Speaking
You didn’t come here for a tax lesson. You came here to learn how to make it rain.
How to Generate Passive Income
Let’s take a look at some passive and quasi-passive income tactics that have gained popularity in recent years.
Cross-Promote With Another Company
Start by adding complementary products from other local businesses to your online store.
When a visitor buys the complementary product, your store passes the order to the other company. They ship the product to the customer. You pocket the margin.
Rent your spare room on Airbnb.
I love Airbnb. The income is not truly passive because there’s a little back and forth with guests and I have to, like, clean the room. That said, it’s a pretty damn good return on about an hour of work. (Plus, it’s taught me a ton about online pricing strategies.)
Rent the rest of your stuff.
Airbnb paved the way for a ton of startups in the new sharing economy. Not all services are available in all areas, but they’re on their way.
Don’t use your car all that much? Rent it on Turo. Got an extra parking space? Rent it on AirGarage. Have a bike collecting dust on your patio? Rent it on Spinlister.
License your photos.
If you’ve got mad photography skills, you can upload photos to a stock photography service like Shutterstock and receive a royalty payment every time someone licenses it for use.
(Oh, and if you don’t have skills and need photos on the cheap, visit these free stock photo services.)
Monetize your website.
As an online seller, you’re probably already familiar with how to generate traffic to a website. You can monetize that traffic in a number of ways – from affiliate marketing links in your copy to Google AdSense ads in your header and sidebars.
Just be careful not to drive folks away from your actual ecommerce store! After all, we don’t want to dehydrate our own business just to make a few drops of passive income rain.