Passive Income Ideas, Between Myth and Reality.

November 22, 2023 Abdallah Alaili

I have decided to write this article to respond to the huge amount of disinformation concerning the topic of passive income. Sending people on a wild goose chase behind the holy grail represented by “passive income”, is a disservice to them. Indeed, the vast majority of content about passive income, holds no real value, and does not offer a critical analysis of the various ways this income is earned.

If you do a simple search about earning passive income, you will hundreds of sites offering many examples of how to make a passive income, you would find titles like: 99 passive income ideas. The major problem with almost all these blogs is that they fail to distinguish between passive income and side hustle. Furthermore most of these blog creators, did not test the passive income streams, and are simply regurgitating what they read somewhere, hence they have no idea of the amount of money earned or work required.

Since 2004 i have been involved in internet projects. I have launched numerous projects, and tried various passive income ways, below i will resume my observation and analysis.

First, let’s define passive income, what is passive income ?

Passive income is money that you can earn with little to no ongoing effort. Unlike active income, which you earn by trading your time and skills for money (Example of an active income: a regular job), passive income comes from sources that require minimal day-to-day involvement once set up.
The idea is to set up income streams that continue to generate money over time, even when you’re not actively working on them.

Passive income should follow these main conditions to really qualify :

Set up and forget / or minimal requirement: As the name imply, the income should be passive, you should not spend much time (if any) on this beyond the initial setup. Otherwise it simply becomes a job.
Recurring: The income should be recurring. Money landing in your accounts without the need of creating an action each time. Recurring might be monthly, weekly, daily, or even yearly, as long as it is something that will happen regularly.
Independent of you: Ideally, passive income, should be independent and should not require your attention. In a way, you should be making money while sleeping, while on vacation, and so on.

Passive income VS. Investment or Business !

It can get confusing to distinguish passive income from entrepreneurship and investing sometimes. Let’s try to analyse when entrepreneurship can or can not be considered passive income. And when investing can or can not be considered passive income.

Often, an investor, is taking risks investing. This risk taking has a different dynamics and can not be considered passive income. Investments can grow in value and can drop in value as well.

Dividend Stocks: Owning shares in companies that pay dividends. Can be seen as a passive income, but it should not be the case if we take the fact that the price of the stock fluctuates, hence the investment can drop in value even after paying dividends, and thus lead to a net loss.
Peer-to-Peer Lending: Lending money to individuals or businesses online. This is not passive income, because it is taking risks with your money. Many borrowers who apply for P2P loans possess low credit ratings that do not allow them to obtain a conventional loan from a bank. Therefore, a lender should be aware of the default probability of his/her counterparty.
Invest in a Business as a Silent Partner: Providing capital to a business and getting a share of the profits. Again, in this case, there are risks that can see the business fail and your money disappear. Thus not a passive income.
Invest in a High-Yield Savings Account: Earn interest on your savings with minimal risk. But again, not passive income but rather an investment.
Invest in Bonds: Earn interest on bonds over time. However, here, again there are some risks involved, including: Default Risk, Interest Rate Risk, Inflation Risk, Reinvestment Risk, Liquidity Risk, and Call Risk

An entrepreneur, or more precisely a business person has employees handling the work, this can not be considered passive income either, because entrepreneurship also has risks, and even though the entrepreneur/boss is not working, the employees are, and being a boss is not a simple task.

Passive income is mostly a personal goal, It is also hard to distinguish between the personal passive income, that most people chase after, and the enterprise passive income.
An example of an enterprise passive income, is a company that get royalties for songs, movies, and so on, enterprise passive income is not passive income, because it does not fill the conditions. It is just a business model that rely on royalties.

Types and Examples of Passive income.

I. Content Creation – passive income from sales, royalties or ad revenue.

Create a YouTube / TikTok Channel: Earning money through ads and sponsorships.
License Your Photography / Stock Photography: Selling the rights to use your photos, or earn money when your photos are downloaded.
License Your Artwork: If you’re an artist, license your artwork for use in various products.
License Your Designs: If you’re a graphic designer, license your designs for use in merchandise.
Create a Niche Blog: Earn money through ads, sponsorships, and affiliate marketing.
Create a Podcast: Earn money through sponsorships, ads, and listener donations.
License Your Music: Earn money when your music is used in various media.
Write a Song or Jingle: Earn royalties when your music is used in commercials, movies, or other media.

The biggest issue with content based passive income, is the amount of competition, and hence the percentage of success. The percentage of success in creating a passive income based on creating content is very low these days. I will say even less than 0.1%. All you have to do is check the amount of youtubers and tiktokers that do not earn a significant income VS those who earn. Blogs are not better, this blog for example, have existed for 10 years and have almost 600 articles, yet barely made a couple hundred dollars in advertising revenue in 10 years! There is a huge competition when it comes to content, whatever the platform is, whatever the content is.

From books, to youtube channels, to blog, podcasts, music and even OnlyFans, there are a lot of competition, and the top 0.1% get all the revenue. Furthermore, in such a competitive space, it is no longer setup and forget, you will need to continue creating and advertising and promoting.

To give you a more concrete example: As of 2023 YouTube has 113.9 million channels , 91.1% of these channels do not have the required 1000 subscriber to be able to monetise the channel. From the remaining 8.9% a certain percentage does not have the required 4000 valid public watch hours on long-form videos. Thus, we can expect that only 3-4% of channels can be monetised (after removing channels that post copyrighted content). These 3-4% of channels can earn anything between $1 to $ 54 millions (Mr. Beast). But given that each 1 million views roughly brings $1000, how much can you really earn, is a good question ?
You would probably need at least 100 000 subscribers (top 0.3%) to get any serious views on your videos (99.7% of channels are under 100k subscribers, 98.2% are under 10k subscribers).

II. Product Creation Income – revenue from sales, royalties or ad revenue.

Create and Sell Digital Products: E-books, printables, or software.
Write a Book: Royalties from book sales.
Create an Online Course: You create a course and earn money when people enrol.
Create an App: Income from app sales or ads.
Create a Mobile App: Develop an app and earn money through in-app purchases or ads.
Create a Mobile Game: Develop a game and earn money through downloads, ads, or in-app purchases.
License Your Software: If you’re a programmer, license your software for ongoing use.

Product creation is a bit less competitive than the content creation, but it is still pretty competitive, and the chance of making any revenue in my opinion should be under 1%. It is a bit less crowded than content, but still quite crowded. To give you a couple examples: Apple’s App Store has 1.76 million apps and 460,000 games, Google’s Play Store has 3.59 million apps! Amazon releases way over 1.4 million self-published books through its Kindle Direct Publishing every year.
Creating the product will require quite a lot of work, and it will also require proper advertising afterwards.

III. Passive Business Income – revenue from sales, rental.

Rental Properties: Earning income from tenants, it can be renting a house, apartment, a room or even a parking spot. This is a valid passive income.
Rental Cars, Boats and Campervans: Earning income from renting a car, boat, campervan or other. This is a valid passive income.
Automated Online Business: Setting up a business that runs with minimal daily involvement.
Create a Subscription Box Service: Curate and sell subscription boxes. Not an optimal passive income, because will require a lot of work.
Automated Dropshipping Business: Selling products without dealing with inventory or shipping. This is mostly based on fulfilment by Amazon, however there are also some risks here as well, first being finding the right product, and often other sellers will start selling the same products you are selling (sometimes even Amazon itself), and profits will go crashing. Also this require quite a lot of work and advertising.
Automatic Vending Machines: Owning and placing vending machines that generate income. Valid passive income, however location location location.
ATM Machines: Owning and placing ATM machines that generate income. Valid passive income, but again location is very important.
Self Service Laundry: A bit bigger than the other ideas, but can still be passive with little involvement. Valid passive income, but again location is very important.
Retro Arcade : Pay to play arcade machine, can provide passive income with little involvement. Valid passive income, but again location is very important.
Create a Subscription-Based Website: Charge users a monthly fee for access to premium content or services. Can be a valid passive income, as it does requires an initial setup, then it is automatic.

IV. Affiliate Income – revenue from affiliate links sales.

Automated Affiliate Marketing with a Blog: Create a blog that generates income through affiliate marketing. You Earn a commission for promoting other people’s products. Unlike the ads for low/average traffic blogs, referral actually bring in revenue,
Automated Affiliate Websites: Like with blogs, but here more dedicated by building niche websites.

Fact Checking Passive Income Ideas!

I have seen many articles about passive income, many on prestigious sites, however, these articles are usually content with objectives. For example a shopify article wants to convince you that a passive income comes through opening an online shop (can’t get more obvious), and lists the many ways you can earn a passive income. I have decided to write down what is wrong with most of the ideas i found online, and singled out good ones.

Create a print-on-demand store: Print on demand means basically merch, you signup to a white label platform 1 2 3, you create designs that you can sell on various while label products, with no involvement afterwards by you. That’s basically an amazing way to earn money without having to do anything, but you need to have an audience first. This would work with influencers who already have a fan base. Otherwise, you can still make it work with smart designs and a lot of advertising, but then it won’t really be passive anymore. Passive Income: Yes/No. Unless you are famous, this is a side hustle, that require promotion (except: if your design goes viral).
Sell handmade goods: Another one of these Shopify genius ideas! How can making handmade goods be considered a passive income! Passive Income: No. This is a side hustle.
Become a social media influencer: This shows just how disconnected from reality these content writers are. It is like telling someone become famous! If it was that easy, many would have done it already. Passive Income: No. This is a lot of hustle and a lottery ticket.
Invest in the stock market: Explained above, most investing can not be seen as passive income. Passive Income: No.
Earn while shopping online: This means either get discounts and cashbacks (which is not even earning money), or do the shopping for other which is an actual job. Passive Income: No. This is a lot of hustle.
Open a High-Yield Savings Account: Earning around 5% on your money yearly is not a bad deal, but remember you are blocking money, and inflation is going up. Passive Income: Yes – Great Passive Income Idea: No.
Invest In a Business: Passive Income: No. This is Investing, the business might do well and provide returns or do bad and lead to loss.
Become a Peer-to-Peer (P2P) Lender: Passive Income: No. This is high risk Investing, due to possibility of default.
Buy a Rental Property: Buying a property that you can rent, or renting an existing property. Passive Income: Yes – Great Passive Income Idea: Yes.
Invest in Crowdfunded Real Estate: There are special site for real estate crowdfunding investing. However this is usually available for accredited investors only. Passive Income: Yes – Great Passive Income Idea: No/ limited.
Invest in Index Funds or Dividend Stocks: Passive Income: No. This is Investing.
Invest with an Automated Advisor: Passive Income: No. This is Investing.
Start a Retirement Account: Passive Income: Yes – Great Passive Income Idea: No.
Join an Affiliate Program: Passive Income: Depends on how you promote the program – Great Passive Income Idea: Yes.
Rent Out Your Car: Passive Income: Yes – Great Passive Income Idea: No, because you may need your car while it is being used by someone else! There is possibility of accidents, scratches, and a long list of issues that are better addressed by professional car rental services. Success possibility: Very low.
Advertise on Your Car: Passive Income: Yes – Great Passive Income Idea: No, because you’ll earn peanuts, if you manage to find interested advertisers (how can they trust you will keep the ad? ).
Rent Your Parking Space: Passive Income: Yes – Great Passive Income Idea: Yes.
Rent Storage Space: Passive Income: Yes – Great Passive Income Idea: No, There are a lot of issues, better addressed by already existing professional storage space services.
Invest in Real Estate Investment Trusts (REITs): Passive Income: Yes/No. This is Investing, can be risky depending on platform.
Rent Your Bike: Passive Income: Yes – Great Passive Income Idea: No, a lot of issues (like bike theft), also, there are already professional bike rental services. Success possibility: Very low.
Airbnb or Rent Out a Room: Passive Income: Yes – Great Passive Income Idea: Yes.
Pet Sit in Your Home: Passive Income: NO – This is a side hustle.
House Sit for Someone: Passive Income: NO – This is a side hustle.
Buy and Sell Domain Names: Passive Income: NO – This is a side hustle.
Rent Your Tools: Passive Income: Yes – Great Passive Income Idea: No, there are already professional rental services. Success possibility: Very low.
Invest in Royalties: Passive Income: NO – This is an investment, and has a high risk.
Purchase a Billboard: Passive Income: Yes – Great Passive Income Idea: Yes.
Purchase/ create a Blog: Passive Income: Not really – This is a side hustle due to the need of continuous content creation.
Create an Online Course: Passive Income: Yes – Great Passive Income Idea: Yes/No, too much competition.
Sell Digital Products: Passive Income: Yes – Great Passive Income Idea: Yes/No, too much competition, but depends on product.
License Your Photos: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Create a Mobile App: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Sell a Product: Passive Income: No – That’s a side hustle.
License Your Music: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Self-Publish a Book: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Sell Blank Books: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Create Greeting Cards: Passive Income: Yes – Great Passive Income Idea: If you create interesting designs.
Dropshipping: Passive Income: Yes – Great Passive Income Idea: Yes, but you need to be careful with product selection & Competition.
Start a Blog: Passive Income: No. That’s a side hustle, that often does not even pay off.
Start a YouTube Channel: Passive Income: No. That’s a side hustle, with a 0.3% success rate.
Publish an Ebook: Passive Income: Yes – Great Passive Income Idea: No, too much competition.
Create a Podcast: Passive Income: No. That’s a side hustle, with a low success rate.
Start an ATM Business: Passive Income: Yes. Great Passive Income Idea: Yes.
Start a Vending Machine Business: Passive Income: Yes. Great Passive Income Idea: Yes.
Record audiobooks: You need to be careful with copyright. Passive Income: Yes. Great Passive Income Idea: Yes if you can monetise it, or if you can get a royalty to voice a book in demand.
Build and sell spreadsheets: Data can be valuable, however you need to have a buyer in mind. Passive Income: Yes. Great Passive Income Idea: Yes if you can monetise it.