Passive Income? Well…

Ah, passive income. It has become the romanticized ideal of how to make money, the American dream redefined. “I can be on the golf course or sailing on my 38 foot boat because I don’t sweat to be rich. I’ve created a lucrative passive income stream. I am smarter and richer than you.” Sigh…

I’m not here to criticize the aspiration of creating a passive income stream. I wish I had one (or two)! My goal today is to tell the passive income backstory because in reality, creating a passive income stream is not as easy as it may look. Furthermore, a passive income stream usually will not make it possible to quit your day job and retire early. Most of all, be aware that creating a passive income stream is an active process. To make it happen, you may have to work harder, smarter and maybe for a longer period of time than you might have imagined.

Even if you’re able to create a passive income stream (and that is not guaranteed), the ROI might be underwhelming. The passive income stream that you have the wherewithal to create may only be enough to pay your cell phone and Wi-Fi bills, not a mortgage and car note. Still, even a modest passive income stream is nothing to sneeze at. It’s just that everyone daydreams of it being so much more.

Passive income defined

Before diving in, let’s clarify the term. Passive income is a reliable, long-term revenue stream that you receive but do not work full-time to generate. Passive income is sort of like a no-show job—work 8 hours and get paid for 40 (or work 20 hours; more about that later).

The ultimate passive income stream is a trust fund. To become a beneficiary, the only work that must be done is arrange to be born into the right family and after that, you’re golden. Heck, you might be able to live off the interest (the ne plus ultra). But alas, not all trust funds are generous; most pay in the low five figures annually. Still, even a trust fund that pays $1000/ month provides a nifty little cushion that no one would refuse, not even Bezos.

Dividend-paying stocks, bonds, or mutual funds are another source of passive income. Selling advertising space on a blog or newsletter is yet another method of generating passive income. Rent received from an investment in commercial or residential property is the most popular form of passive income because it is the most profitable.

Passive income starts with active work

If generating a passive income stream is the goal, accept the fact that time, effort, a particular skill set and (often) start-up capital will be required. Those who are now collecting a reliable passive income stream had to work for it, unless they are lucky trustafarians.

A fair amount of research, the ability to interpret and apply the data, plus good luck, good timing and good investment advice are needed to reliably earn quarterly dividends on Wall Street investments that will make even a modest positive impact. Following your investments and getting a sense of when to put in a buy or sell order, or having the courage to hold when your fund is down for the third week in a row, takes a strong stomach. Even if you have a better-than-average proficiency in investing, you’ll be very lucky to regularly earn $500/ quarter in dividends and in fact, most people lose money in the stock market. Earning an extra $2000/ year is nice but does not make much difference, especially when balanced against the work required to generate it. But then again, maybe you like the adrenaline rush?

Rental property brings in a much better ROI, but getting into the game is expensive. A two-family house in many areas will cost north of $500,000 and a 10 % down payment plus closing and other costs push the price of entry beyond the reach of many. Couples and other partner groups make the business more approachable and while profits (and expenses and losses) must be split in proportion to one’s investment stake, group buying power allows for more properties to be purchased and the potential to generate a more sizeable revenue stream.

Most rental income investors start by purchasing a multi-unit building and moving into one of the apartments as they collect rents from the others. The rent received is expected to fund the property’s mortgage, taxes and estimated building maintenance budget and that is usually possible. Aspiring owners must research the rental occupancy rate and average rental price of similar buildings in their locale and balance that figure against projected expenses.

Bloggers and newsletter writers must be highly knowledgeable in their selected subject and have boots-on-the-ground experience that gives credibility and earns the trust and respect of readers. Skillful writing that informs and entertains readers is another primary must-do.

Mommy bloggers must be mothers. Food bloggers must be excellent cooks, or at least imaginative and entertaining cooks or alternatively, have the funds to regularly dine in high-end or very trendy restaurants (getting comped may be possible but to maintain credibility, it’s best to pay).

Having expertise in a topic that has better-than-average potential to draw the six-figure audience that advertisers demand makes the climb much easier. Mommy blogs, foodie blogs, travel and fashion blogs are among the most popular in the writing sector. Publishers of business blogs or newsletters trail far behind that flashy crew, I’m sorry to say. Writing a popular business book, usually in conjunction with a VIP client list, a regular column in The Wall Street Journal or some other lofty publication, or a TED Talk, gives much-needed traction.

Travel blogs are not quite a thing in the COVID era but when they were hot, the capital to fund trips to destinations that are either lavish or modest is necessary. Available time to travel is another requirement. Unless one is a flight attendant, who can take a vacation every month?

Fashion blogs require a big wardrobe investment in addition to taking a deep dive into the collections of numerous designers who are based on three continents. In the pre-pandemic era, having the connections or savvy to sneak into the season shows in New York, Paris, Tokyo, or Milan is a big plus for readership and acquiring ads.

Passive income, active maintenance

Time, effort, or money will likewise be required to sustain a passive income stream once it’s launched. Continuing to sell ad space on a blog or newsletter is predicated on maintaining, if not expanding, a big readership or ads will be pulled and passive income lost. Compelling topics must continually be presented. Three or more audience-grabbing social media accounts that are designed and continually tested for maximum audience appeal must be maintained, to promote the publication and deliver the readers to advertisers.

Investors must study the mutual funds, bonds, precious metals, commodities, or stocks that have historically produced results that beat the market (such as Index Funds). Researching companies to learn about potentially market rocking products and services that are due to be released and can be expected to have a positive impact on the company stock price is an ongoing responsibility of successful investors. At least weekly monitoring the performance of one’s portfolio goes without saying.

Rental income, while it usually produces a very good ROI, can be a real headache because one must deal with people, the tenants. Their lives and problems can become your drama. The pandemic affiliated job losses have caused millions of Americans to be unable to pay their rent on time and in full. This outcome has put thousands of small investor property owners in jeopardy regarding the big mortgage they may owe on their recently purchased property. If that weren’t enough, taxes are only going up and maintenance costs are never-ending. The real estate market, while still lucrative and reliable, is more risky of late.

Going forward

If you have a certain skill set, time and capital resources to create a passive income stream by way of a potentially lucrative activity or business proposition, do yourself a favor and develop a comprehensive strategy, in fact a business plan, to improve your chance of success. Identifying, launching and sustaining a reliable passive income stream is essentially starting a business. Considerable up-front effort and capital may be required and there are no guarantees, only management of risks.

Thanks for reading,


Photograph: Kim Clark. At the Prudential Mall in the Back Bay of Boston, someone who might be working on creating a passive income empire.

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