If you’ve taken a good long look at your finances and have decided that you’d like to supplement your income with some passive income, congratulations are in order. More kudos to you for narrowing down on a specific number — $3000. That amounts to a mean $36,000 of extra income annually and can make the world of a difference to your current quality of life.
So how do you go about it? There are multiple ways to make passive income, primarily through online websites, real estate, investments, and trading. In this article, we’ll be looking at two major options: buying an online business and investing in real estate properties.
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Buy an online website or business
The most common-sense answer to generating passive income would be to have a business on the side that runs without much of your input. But it takes really long — years, in fact, to start a business, get it up and running to the point where you’ve established structures so you don’t need to be actively involved anymore.
What if you could just skip to that part? There are lots of places where you can buy an online business or a start-up. Investing in a business is more than just paying for it upfront and then watching the money roll in. You have to be quite careful while selecting which business to buy. The reason why you’re buying a business is that you don’t have the time, effort, or desire required to set up an e-commerce platform on your own — so the price of the website should reflect that as well.
Look for businesses that have been able to get themselves off the ground but need funding from people and entities like you to really be able to scale themselves. You ideally want to find a business that has a solid product or service, has identified a market and its target audience and customers, and is on the right track to generating sales and more revenue.
Here’s also where you get to make a vital decision: how active do you want to be? If you buy a business because you’re excited about their product, see the great potential and you think your inputs can help them grow: it’s no longer a passive investment. You’ll have to be realistic about how involved you want to be in the business that you’re buying over. If you’re involved, this becomes a passion project and you’ll be taking responsibility for the revenue that it makes… or doesn’t make.
Since we’re talking about passive investments, try to avoid passion projects, and select a business based on the facts. Take a close look at the financials for yourself, instead of believing what the seller of the website says. If they have a good record of their sales and profits and seem to be on an upward trajectory, you can be more confident of this investment.
Most of the time, you can buy an online business for 2.5 to 3 times their annual revenue. So let’s suppose that a business is making $3000 a month, which amounts to about $36,000 as annual revenue. 2.5 times that amount is $90,000 — so that is approximately the amount you should be ready to invest.
However, the business will only grow once you invest in it, so you’ll definitely be able to earn more than $3000 a month from it, provided you’ve chosen the right business. You’ll also recover your money very quickly in this method, and the expected return on investment is about 10-15% annually.
Worst case scenario, the business isn’t making you as much passive income as you expected; and you can sell it off almost immediately for the same amount you bought it for, if not more. Online businesses have great liquidity.
Here are some websites and online marketplaces from where you can buy online businesses:
Invest in real estate properties
Now that we’ve covered a new and unconventional method of generating passive income, i.e. online websites, it’s time to re-visit the most popular and well-known way of sitting pretty and earning: real estate.
No matter how big or small your investment, you can expect about 10% of your investment in returns from rent alone. Even if you subtract about 2% for maintenance, brokerage or other fees, you’ll have about 8% of the profit.
So by using some simple mathematics and working our way backward: if you want to generate about $3000 a month, that’s $36000. If $36,000 is 8% of your investment, your investment is $450,000. Of course, it’s a much bigger investment than buying an online website, but there’s significantly less risk. Real estate works: it’s tried and tested and the properties you invest in will only appreciate. You can always sell them off for profit. You very rarely get yourself into a loss, unless you make particularly bad decisions like trying to flip a house for the first time.
If $450,000 makes your head spin, you can go down the path of buying properties on a mortgage and then renting them out to pay for it. The only caveat is that it might be a while before you’re making an actual profit, and it’s not as stress-free as you’d imagine.
Another option that you can look into is Airbnb or other forms of sub-letting.
- You can buy fully-furnished properties and rent them out on Airbnb. You can easily make close to 2-3 times the amount you would with a traditional rental agreement if your property gets regularly booked out.
- You can rent a condo, or apartment and furnish it yourself as well as keep it stocked with toiletries and home essentials and then list it on Airbnb. Your investment would include the rent, the upkeep, and maintenance of the property, and your returns would still be high.
However, it’s important that your landlord agrees to you sub-letting his property. You’ll have to convince him that you’re offering him stable rent inflow, while you’re taking on the risk of unpredictable Airbnb bookings.
It’s important for you to also evaluate if you’re willing to spend that much time. Listing your property and constantly being in contact with travelers will be something you have to attend to. If you’re willing to be available to intervene in case of any issues, consider this option. You will also have to employ cleaners after each stay.
To Conclude
So there you have it: two ways in which you can generate passive income for yourself. Choosing the right way to invest your money in order to get $3000 a month is a careful decision to make, after considering what you’d be most comfortable with, how much time you’re willing to set aside, and how big of an investment you can afford to shell out.
