3 Ways to Earn Passive Income

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Passive income is the dream, isn't it? You just get money for doing nothing…and it keeps coming forever. Most of us never really reach a point where passive income can allow us to stop working, but it can often provide a nice supplemental income for people who are interested in letting their money work for them.

The Internet is full of weird fake ways to make passive income, including get-rich-quick schemes involving automated drop-shipped goods and super systems you can learn all about in this book that's only $19.95.

Well, I'm here with even more ways to earn passive income with the money you already have. In another article, I covered dividend stocks, CDs, and high-yield savings accounts (HYSAs), but I'll cover some new ground here. Let's begin.

1. Professionally managed rental property

A lot of people like to talk about rental properties as passive income, and that's really very misleading. Most rentals are a ton of work. Most landlords find their own properties, they do their own repairs, they hire their own contractors, they find their own tenants, they do their own paperwork, they evict those tenants themselves should things go wrong. It's just an endless hassle.

That's why I don't recommend that. Even with all my years in the real estate industry, I'd never own a rental property that I managed myself because I know myself -- and I'm not that guy. However, there are lots of great professional property managers who can handle your rental units for you, turning them into all but passive investments. You may have to make small decisions, but all the big stuff is handled, and often for way less than you'd expect.

Remember, even if you're only breaking even in the first years of ownership, your property should be expected to appreciate in value, and rents will increase over time. Like dividend stocks, rental units can be a double win if you budget for them properly.

2. Investing in bonds

Bonds are highly underrated investments as far as I'm concerned. They're similar to certificates of deposit , in that the interest rate is set from the get-go, and you don't have to worry about it varying over time. But they're easier to liquidate, like a high-yield savings account. Although bonds are not without risk, they are fairly low risk, and often carry very low fees.

A bond is basically a little loan you make to a company or government entity. So, you might buy bonds for a new municipal pier in Miami, or a Treasury bond for general purpose government spending. Right now, the rates on short-term Treasury bonds are about 5%, just like CDs and HYSAs, but these investments come with a couple of twists.

First, it's possible to lose your investment in a bond, although generally government bonds are extremely safe because if the government collapses, you'll likely have bigger problems.

Secondly, bonds can be resold on the bond market if there's something about your bond that becomes particularly attractive before its maturity date. For example, let's say you bought a bond with a 5.25% interest rate, but it's six months later and new bonds are only paying 4.25%. You might be able to sell your bond at a profit on a secondary bond market, having earned the interest to this point, while returning all of your initial investment, too.

But even if you don't, you've still got that interest to look forward to. Bonds are cool that way.

Bonds compound differently depending on the type you get, but Treasury bonds simply pay you flat interest every six months. You can do whatever you want with it, including buying more bonds. If you invested $10,000 in a Treasury bond with a 5% interest rate, you'd get $250 every six months, which you could then roll into higher-risk investments that have higher rewards. Or just buy something cool like a bunch of light-up pens or a desktop zen garden.

3. Money market accounts

Money market accounts (MMAs) are a sort of managed savings account that grows as interest is earned. Although their interest is earned daily, it's only compounded monthly, so from the consumer side, money market accounts look very much like savings accounts with more rules.

But unlike a savings account, your money market account will allow you to directly access funds with checks or debit cards, making them a more liquid option for many savers. Like HYSAs, you'll also be looking at a variable interest rate and automatic reinvestment (the interest is added to your money market account rather than being paid to you, like with a bond).

Although you can draw money directly from an MMA, there are rules on how much you can take out and how many transactions you can perform each month. Check the fine print on your account to find out the exact details, as this varies widely from bank to bank. So, you can't really use it as a checking account -- you have to treat it just like another savings vehicle that's slightly less bound up. Rates for MMAs today are also around 5%, depending on the bank and your deposit amount.

Choose yourself, choose passive income

Although it may seem a bit lazy to choose passive income vehicles, it's really just saying yes to self-care. You don't have to work hard all the time; sometimes your money can just work hard for you. Take advantage of bonds, money market accounts, and even managed rental properties. You deserve it.

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