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- I’ve been earning passive income for years, so I know some side businesses are easier than others.
- I asked an expert for a few sources of passive income that sound easy and lucrative, but probably aren’t.
- He said to avoid real estate rehabilitation, playing fantasy sports and stock picking.
After being laid off from my full-time job in 2015, I decided to become my own boss.
I started offering freelance writing and marketing services and was able to start generating income. However, I realized that if I wanted to grow and earn the same salary I had earned working for someone else, I had to find other ways to earn money without working too hard.
That’s when I started researching different ways to generate passive income and created side businesses like selling digital courses, e-books and putting advertisements in my newsletters and on my website. Every year I try to find at least one new way to generate passive income. While some ideas require too much capital for me to consider – like investing in real estate – other ideas just sound too good to be true.
I asked an expert about passive income sources that aren’t as easy as they seem and probably aren’t worth my time or money.
1. Buy fixer rods to flip or rent
A popular passive income stream is rental income: buying real estate and renting it out. Some people do this by buying properties to renovate, renovating them, and then renting them out or selling them.
Certified Public Accountant Levon Galstyan says this path is only sensible if you’re good with a hammer and have a substantial savings account to draw on. With the added costs associated with remodeling, he told me that these types of projects can cause a person to spend a lot more than they thought they would before earning the money.
“Home improvement programs that portray the process as simple are misleading,” he says. “Usually the project is more than just painting the surface and planting shrubbery. Are your plumbing, electrical and carpentry skills at an amateur level? If so, you may find yourself above your head.”
In some cases, all the work and money you could put into a remodeled home could eventually lead to you selling the property at a loss, or even having to add more years of continuous rental income before you see a profit. Instead, Galstyan says the best option is to buy a turnkey rental property if you can, so you can hopefully start earning passive income right away.
2. Become a fantasy sports player
Galstyan says get all the facts before you dive in and invest time and money in a hobby you want to turn into passive income. For example, people may have heard stories of someone making money playing fantasy football and think it sounds easy.
However, he says the majority of fantasy sports players do lose money. In 2015, Sports Business Daily found that 1% of players received 91% of the money.
“It’s fine if you enjoy playing fantasy sports with your friends if you’re willing to lose money for gambling,” says Galstyan. “But don’t get too obsessed with fantasy sports and think it’s a way to make continuous money from them.”
At their core, he continues, fantasy sports are not a source of passive income; it’s gambling, and that’s how people should treat it.
3. Invest in individual stocks
Galstyan says some people believe they can invest a few hundred dollars in dangerous stocks and then have enough 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 can make you a little money, but it can also make you lose a lot of money.
“While some people have been very lucky and managed to get rich investing in stocks that have gone up overnight, not everyone has,” he told me. .
If you want to use the stock market to generate potential passive income, Galstyan recommends diversifying your portfolio, which means spreading your funds among different securities. “You’ll have other stocks in your investment portfolio that will do 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 reliable and consistent returns, and are much more likely than individual stocks to produce real long-term gains.
Either way, he shares that you should never invest all your money lightly in any particular stock – it’s not a tool to help you generate passive income.