Make money work for you. This is typical financial advice from veteran investors, but it’s easier said than done.
Imagine making a singular investment and witnessing cash flow without lifting a finger. While passive income serves as a delightful reward for minimal effort, it’s crucial to note that constructing this income stream demands both time and patience.
If you’re poised to upgrade your income, gear up, and explore these passive income options this year.
Contents
- Property rentals or leasing a commercial space
- Real Estate Investment Trusts (REITs)
- Dividend stocks
- Mutual funds
- Peer-to-peer lending
- Government and corporate bonds
- Digital products
1. Property rentals or leasing a commercial space
If you have an extra room or space, you can start by renting it out to potential tenants looking for a job or needing to transfer to your area. Start small by renting out one-bedroom units or rooms to individuals, students, or families relocating to your city.
Be sure to check if your area already has short-term rentals since they’re popular among ex-pats looking for long-term accommodation options elsewhere. You can check some Airbnb for short-term rentals or post your apartment or space at RentPad, Lamudi, or DotProperty for long-term listings.
Leasing is more common in a commercial setting, and of course, the income is higher than short-term rentals for residents. There are no fixed prices. But everything else depends on the location and size of your property.
It’s best to consult with accountants, lawyers, and tax specialists about contracts, taxes, and other legal matters for housing rentals and leasing.
2. Real Estate Investment Trusts (REITs)
Are you interested in investing in properties without the hassle of being a landlord? Look no further than REITs (Real Estate Investment Trusts). These companies own, manage, and operate income-generating real estate properties.
As a shareholder of a REIT, you’re not just investing in individual properties but in a diversified portfolio that could limit your exposure to specific activities and risks. But you still enjoy real estate returns as the company earns from various sources such as rentals, parking fees, storage fees, and more from their tenants.
To invest in a REIT, you must open an account with a brokerage house or stock market firm. Your first step should be to check if your existing bank has a tie-up with a reputable investment brokerage.
You can do this by visiting your bank’s website and checking the list of partners. If they have one, you then contact their investor relations team to determine how you can sign up as a client.
3. Dividend stocks
Dividend stocks give you regular profits or return on investments. Instead of receiving cash, you receive more shares according to your investments. The key to any dividend stock is to find companies with solid reputations and long-term track records that regularly pay out dividends.
The number of stocks you will receive will depend on the share price and the company’s profit in a year. You can check the Dividend Aristocrats list by Standard and Poor’s for a shortlist of companies that have paid increasing dividends for 25 consecutive years or more if you plan to explore the global markets.
If your brokerage firm supports this list, it becomes simple to take advantage of good dividend stocks as they make their way through the market cycle. As such, you will get higher yields as these stocks rise in price over time due to growth and inflation.
4. Mutual funds
Mutual funds are companies that pool together individual investors’ money to expose them to stocks, bonds, or other assets. Depending on your risk appetite, you can choose from the many different types of mutual funds.
But before you get started, see if you can assess your capabilities first by looking at the following:
- How much time do you have for research and monitoring
- Investment goals (short-term vs. long-term)
- Investment horizon (how long you plan to hold on to your investments) and
- Risk tolerance (do you know what you can lose, or are you aiming for x% return on your amount of money).
Mutual funds are easy targets because they’re perfect choices for do-it-yourself investors who prefer low-cost entry points and are okay with leaving it up to fund managers to invest on their behalf.
However, hear me out on this. Investing in mutual funds comes with no guaranteed returns or capital appreciation. The fund’s performance hinges on the manager’s decisions and ever-changing market conditions, which can sometimes yield disappointing results.
5. Peer-to-Peer lending
Peer-to-peer lending uses online platforms that connect borrowers with individual or institutional investors. Small businesses and start-ups who need funds, whether for business expansion or personal use, can go here to find their financial match.
Borrowers post a campaign for the loan amount they need and the interest rate paid to lenders, if any. They don’t need to go to the bank to get the money.
For lenders, you can start for as low as ₱1,000 to get started. They can gain higher returns than traditional banking investments, making it more favorable on their side, Depending on the terms, they can also choose the project or business to invest in and receive payouts. Of course, the longer loan periods offer potential higher returns.
However, P2P lending carries the risk that lenders may not receive payments if borrowers default. Many borrowers on P2P platforms have limited or bad credit histories, increasing the risk of default. Higher interest rates and inflation also raise the probability of default in the P2P lending market.
Some of the P2P lending platforms you check are LendPH, SeedIn, and BlendPH, to name a few. Remember that it’s best to do due diligence and research about the company before putting your funds in their baskets.
6. Government and corporate bonds
Government bonds, also known as sovereign bonds, are like IOUs issued by the government to raise money for its needs. They are considered low-risk investments because they are backed by the government’s power to tax and earn money from its citizens.
On the other hand, corporate bonds are like IOUs from businesses, aiming to get money for growing or running their operations. These bonds are relatively riskier because they rely on how well the company is doing financially and if it’s making a profit.
When you purchase a bond, you lend money to the issuer, like the government or a company. In return, the issuer agrees to pay you interest at regular intervals, usually every six months, and return the initial amount on a specific date. These payments provide passive income for bond investors.
Bond income is generally higher than what you would get from a regular savings account, making it an attractive option for those who want a steady income with relatively low risk.
However, a word of caution for you here: When interest rates go up, bond prices go down, and vice versa. This can be problematic if you need to sell your bond before it matures when interest rates are rising.
Plus, some bonds may be challenging to sell quickly for a fair price, especially if they are not commonly traded. This can be concerning if you need to get your money back quickly.
7. Digital Products
Digital products generate passive income because they are created once and can be sold repeatedly without restocking or adding production costs.
Once you’ve put in the initial effort to develop the product, it can generate sales effortlessly — you’ll have a source of income that isn’t directly tied to the time you spend on it.
There is a growing demand for digital products sold online in the Philippines. These products include online courses, templates, and spreadsheets.
- Online courses cover many topics, from learning new professional skills to exploring personal hobbies.
- Templates are eye-catching presentations, user-friendly websites, or attention-grabbing marketing materials from email templates to sales copies..
- Spreadsheets can help manage budgets, organize projects, or analyze data.
These digital products are popular because they provide valuable self-education, boost productivity, and contribute to the success of businesses. One of the caveats of this passive income idea is that you need to spend more time developing the digital product in the initial stage.
Final thoughts
There you have it. Seven passive income ideas to consider this year for a radical shift to your income strategy. You can include this in your financial New Year’s resolutions.
This way, your money will work for you and hopefully bring in more than you need annually.
While the examples mentioned above all have risks and rewards, investing in these ways can help you increase your savings account balance or grow your portfolio of assets over time.
What do you think of the passive income ideas above?
If you have an extra ₱100,000, where would you invest it?
We would love to hear from you in the comments below.