3 sources of passive income that aren't as easy as they might seem
I asked an expert for passive income streams to avoid, and he said to steer clear of rehabbing real estate, playing fantasy sports, and stock picking.
Insider's experts choose the best products and services to help make smart decisions with your money (here's how). In some cases, we receive a commission from our partners, however, our opinions are our own. Terms apply to offers listed on this page.After getting laid off from my full-time job in 2015, I decided to become my own boss.I started offering freelance copywriting and marketing services and was able to start bringing in income.
However, I realized that if I wanted to scale and make the same salary I'd made working for someone else, I needed to find other ways to bring in money without putting in too much work.That's when I started researching different ways to make passive income and built some side hustles, like selling digital courses, eBooks, and putting ads in my newsletters and on my website. Every year, I try to find at least one new way to bring in passive income. While some ideas require too much capital for me to consider — like investing in real estate — other ideas just seem too good to be true.I asked an expert for are sources of passive income that aren't as easy as they seem, and probably aren't worth my time or money.1.
Buying fixer uppers to flip or rentOne popular passive income stream is rental income: buying real estate and renting it out. Some people do this by buying fixer-upper properties, renovating them, and then renting them out or selling them.Certified public accountant Levon Galstyan says this route is only wise if you're skilled with a hammer and have a substantial savings account to draw from. With the extra added costs associated with renovation, he told me these types of projects can have a person spending way more than they thought before ever making any money."Home improvement programs that portray the process as simple are deceptive," he says.
"Usually, the project entails more than just painting the surface and planting some shrubs. Are your plumbing, electrical, and carpentry abilities at a hobbyist level? If so, you can find yourself in over your head."In some cases, all the work and money you might put into a renovated home could make you eventually sell the property at a loss, or even have to tack on more years of ongoing rental income before ever seeing a profit. Instead, Galstyan says the best option is to purchase a turnkey rental property if you're able, so you can hopefully start making passive income immediately.2.
Becoming a fantasy sports gamerGalstyan says know all of the facts before diving in and investing time and money into a hobby you want to turn into making passive income. For example, people might have heard stories of a person making money playing fantasy football and think it sounds easy.However, he says that the majority of fantasy sports players really lose money. Back in 2015, Sports Business Daily found that 1% of players get 91% of the money."It's fine if you enjoy playing fantasy sports with your friends if you are willing to lose some money for the game," says Galstyan.
"But avoid becoming overly obsessed with fantasy sports and believing it's a way you can make ongoing money from them."At its core, he continues, fantasy sports is not a source of passive income; it's gambling, and that's how people should treat it.3. Investing in individual stocksGalstyan says that some people believe they can invest a few hundred dollars in some hazardous stocks, and then have ample money to buy their own condo by the time they wake up the next day. But the truth is that most of the time, investing in individual stocks might make you a little bit of money — but it could also result in losing a lot of money."While some individuals have been super fortunate and managed to become rich by investing in stocks that went up overnight, this is not the case for everyone," he told me.If you want to use the stock market to make potential passive income, Galstyan recommends diversifying your portfolio, which means dividing your funds among various securities.
"You'll have other shares in your investment portfolio that will perform well when one of the stocks doesn't, so you probably won't suffer significant losses," he says. He also suggests investing in index funds, which can provide dependable and consistent returns, and are much more likely than individual equities to produce real long-term gains.Either way, he shares that you shouldn't ever invest all of your money carelessly in particular stocks — it's not a tool to help you make passive income.