How to Make Residual Income

Mike Kelly

Residual income, also known as passive income, is one of the most popular ways to make a living or supplement your income. In order to make residual income, you need to find a service or product that you can offer to customers in a way that is infinitely scalable. For example, if you work as personal trainer, there are only so many clients you can work with in a day. Each client you work with pays you, and you don’t get paid unless you are working with a client. That is not passive income. That’s active income.

To create a passive or residual income business model as a personal trainer, you would need to create something like an exercise video. Customers could buy this video online through a website. There’s not really any limit on how many people could purchase this video. And, even when you’re busy leading personal training sessions, customers may still be visiting your website and buying copies of the video. This way, you can make money from the video even when you aren’t directly working on it.

These five examples include selling information products, buying rental properties, investing in stocks that pay dividends, blogging, and selling stock photos.

What is Residual Income?

As defined above, passive income is income earned after an initial task is completed. This type of income has contributed to the success of many business owners and is rapidly growing in popularity, thanks to the internet. Websites such as Shopify and Amazon Print on Demand have ushered in a new era of business owners. It’s now easier than ever to open an online store and start collecting passive income.

Think about how nice it would be to come back from a week-long vacation and find that your online storefront has made a few hundred dollars. And the best thing about passive income is that once you learn how to set up one source, it becomes much easier to set up multiple sources.

Residual Income Ideas

There are many ways to make passive income. Typically, once you find a niche that you are successful in, you want to stay in that niche and continue to create more income streams. So, for example, you may be successful running an online storefront that drop-ships running shoes. Your next endeavor should be to create another online storefront that drop-ships hiking shoes. You probably wouldn’t want to get into something like property renting or eBook sales. Once you find a niche, stick to it. So, for example, you may have found success buying a house and renting it out. You’re next venture should be to buy another property, maybe this time a condo, to rent out. You wouldn’t want to get into something like eBook sales or dividend stock buying.

Information Products

Information products have become a huge factor in the passive income industry. It’s now easier than ever to gain access to and distribute information. Because of this, anyone who is willing to put in a decent amount of advance work can pool a large source of information, compile it into a more digestible format, and then distribute it.

For example, say you are a CPA with a lot of experience in small business finances. You probably already have enough knowledge to fill a book with useful information that small business owners could use to help them manage their finances. The up-front labor would be writing the book and then having it designed to look marketable. From there, you want to choose a source that you can distribute your book through in exchange for money. We’ll cover this in more depth soon.

But let’s say you don’t have a wealth of knowledge that seems marketable. Perhaps you’re fresh out of college and you don’t have much first-hand knowledge or experience that you can pull from. Well, you’re in luck. A lot of information products are based on existing sources of information. The creators of these products will pull from tens or even hundreds of sources of information and distill those sources down into a much more digestible form.

For example, perhaps you’ve noticed that there’s a demand for learning how to cook French cuisine, but most people complain that there’s too much conflicting information and that the information is very difficult to understand. While you have a knack for cooking, you may not be an expert. However, you could start your own passive income source by going through every single book and video on the subject of French cuisine.

After simply doing just that, you will probably know more than 80% of the people who are interested in learning how to cook French cuisine. From there, you can develop your own methodology for cooking French cuisine. Refine it in your own kitchen, and then document that methodology. One thing you want to be sure of is that you always give credit to the experts you learn from. If you’re using Julia Child’s method for cooking duck, then be sure to give generous credit to her. Not only is this the ethical thing to do, but also it can build credibility for you. Chances are your name has very little weight in the French culinary circle, but Julia’s name has all kinds of street cred.

“But won’t people see this as a rip off because I’m just sharing other people’s ideas?”

No, not at all. People will see this as a convenient way for them to get started learning French cuisine. Instead of their having to go through all of those French cookbooks to find the best methods, they can just go to your book.

“But won’t that take business away from those experts?”

Hardly. Your information product on French cuisine will serve as a conduit for people who want to learn more. For example, if they really like Julia Child’s method for cooking duck that you share in your book, then they are more likely to be enticed to go buy one of Julia’s books. Remember, you’re combing through tens to hundreds of resources and putting your own twist on the techniques that you learn.

Once you have an idea for your information product, you want to figure out the best medium to deliver it. Typically, the three choices are book format, video format, and e-learning platform.

There are two things to consider when choosing your format: What are you most comfortable with, and what do your customers want? If you have a background in video and editing, then you probably want to lean closer toward that for your medium. Unless, of course, you’re delivering a product that just doesn’t do well in video format. For example, self-help information products are usually delivered in book format or audio format because people are insecure about others seeing them watch a self-help video.

Property Rental

Investment in rental properties is one of the oldest methods for passive and residual income in this list. You might be turned off by the idea of property rental because you think that you need to be a skilled handyman who is going to flip houses. But that’s not really passive income. The labor that you put into fixing the house is directly connected to selling it. And, once you sell the house, you no longer get continuing income. You could start a house-flipping business where you hire contractors to do the renovations for you, but that’s a little off-topic.

With property rental, you purchase a property and then collect money renting it out to other people. This can include vacation rentals, apartments, housing rentals, commercial property, and even rental property for college students living off-campus.

Best of all, you don’t need to be a handyman to maintain the property. You can pay for the services of a property management company. This company will handle the maintenance and repairs on the property. You only pay for the property, the insurance, taxes, and maintenance.

And this is where things can get a little complicated. Most properties that are going to be worth renting cost tens to thousands of dollars. Sure, you might get lucky and buy something very cheap at auction, but chances are it’ll need a lot of touch-ups, if not a full-on renovation. You’re probably looking at about $100,000 to buy a rental property.

If you’re in good financial standing and you understand the property market, a bank should be able to give you a loan at a decent rate. What you want to look for is property that is positive gearing, or positive earning. This is property that is going to earn you money after you have accounted for your monthly payment on the loan, the taxes, the insurance, and the maintenance costs of the property. For example, you have to pay $1,000 a month on your loan. Your taxes, insurance, and maintenance fees combined cost $500. When you rent the property out for $2,000 a month, this leaves you with a passive income of $500 at the end of each month.

Of course, there are some drawbacks and things you should be aware of with positive earning property. Mainly that it’s more of a short-term strategy. Fluctuations in property prices can cause your passive income to dip or disappear on certain property. That’s why some property investors only own these types of property for several years and then they sell them off when the property market starts to dip.

You may be looking at property investment and thinking that it’s reserved for people with top hats and monocles. But that’s not the case. There are plenty of programs that let you invest in property for as little as five dollars. Rich Uncles is one such company. Other companies require larger up-front investments, but they’re under $1,000. These include Fundrise and Realty Mogul.

Dividend Stocks

Much like how people think the best way to make money with property investment is with buying and flipping homes, people often think that the best way to make money with stocks is buying low and selling high. But that’s not really passive or residual income.

If you want to make residual income with the stock market, you need to buy stocks that pay dividends. When a company becomes profitable, it can use that profit in several different ways. It can buy back company stock that has been sold, so it owns more of its own company. It can put those profits back into the company, so that the company grows. Or it can give back a small percentage of profits to its shareholders.

The small profits that are paid back to shareholders are called dividends. Not every company offers dividends to their shareholders. In order to make passive or residual income with dividend stocks, you’ll first need to find and invest in companies that pay a dividend.

It’s best to start by looking for companies that have been posting profits for a couple of years, but also have a low stock price. So, let’s say you invest in a small tech company that has been posting profits for a few years. The stock price is $10 a share. The company announces that it will be paying dividends at $1 a share. You buy 80 shares. You’ll receive $80 a year in dividends from this stock. If the stock price goes up, you’ll still own your 80 shares. The company may announce that it’s going to increase the size of the dividend to $3 a share. You’ll now get $240 a year in dividends from this company.

It’s also important to know that companies can change their dividend payouts or stop them at almost any time. So, if a company is struggling financially because of a natural disaster, the company’s leadership may determine that they’re not going to pay out dividends that year. This of course jeopardizes the company because stockholders who were receiving dividends may pull out their investments.

Blogging

There can be big money to be made in blogging. And that’s not just limited to your standard WordPress site with written content. YouTube channels are becoming a huge market for passive and residual income as well.

There are several ways that you can make money if you own a popular blog or YouTube channel. The first is by selling products, particularly your own. In the above section, we talked about information products. After you put in all that work learning about a subject, you’re now in a prime position to create an awesome blog. Naturally, people who arrive at your blog to learn about French cuisine also probably will be interested in buying your French cuisine cookbook.

But you’re not limited to just information products, or even to your own products. You might develop additional products, such as cutting boards or knives, that complement your French cuisine recipes. You could sell these on your blog, or you could become an affiliate and sell other people’s products on your blog.

Remember all those cookbooks that you read through when learning how to become a master of French cuisine? Your readers are probably interested in those books as well. A quick way to cash in on the sale of those books is by becoming an Amazon affiliate.

When you become an Amazon affiliate, you get a small percentage of the sales that you contribute to on Amazon. So, let’s say you’re writing about Julia Childs’ duck recipe on your blog. You give credit to Julia Childs and you also link to her book on Amazon. When a reader clicks through that link and goes to Amazon and buys the book, you get about 5% of that sale.

So, if the book sells for $20, you’ll end up with $1. That’s not bad, but it’s also not great. Unless you sell 100 of those books in a month. And maybe 100 copies of Gordon Ramsay’s cookbook as well. Add in an all-clad chef series stainless steel kitchen set for $700. You see where this is going.

Amazon isn’t the only website that has affiliates. Smaller companies may be willing to give you up to 50% of a sale that is generated by traffic coming from your website. These businesses are usually selling—you guessed it—information products. They can afford this affiliate fee, given that information products are usually 90% profit for every sale.

Another way that you can make money with your blog is with advertising. If you have enough traffic coming to your website, ad companies may be willing to pay you to place ads on your site. They can pay you based on the number of people who click the ad or simply the number of people who see the ad. Either way, with all of these options, you’ll be able to make money while you sleep.

Selling Stock Photos

We’ve covered how to make money with stocks and now let’s talk about making money with stock photos. (See what I did there?) With the emergence of content marketing, the need for visual content has grown significantly. Most content producers turn to stock photography websites to fulfill their needs. You probably won’t make a living selling stock photography, but, if you love taking photos, you could maybe earn a couple hundred a month with this. Here’s how:

Sign up for several stock photo websites as a contributor. You need to submit a portfolio to be accepted. Don’t submit overly artsy photographs. Instead, deliver an array of subjects that would work as stock photography.

Upon being accepted, you’ll be allowed to submit more photos to sell through the site. But understand that everything you submit may be rejected by the stock photo site. Eventually, you will develop a better feel for what gets accepted and what gets rejected.

As you continue to contribute to the website, you will start to see what sells. This is when you begin to earn royalties on your photos. Candid settings with models in work environments and technology-themed photos typically do well.

You also want to tag your photos correctly, so they are easier for customers to find in the search function. It’s up to you to think of how a photo can really be used. For example, you might take a photo of a yield sign. You obviously tag this photo as “yield sign.” But you also want to think of other ways that people might use this photo. For example, people may use it metaphorically to represent holding off or holding back on something. Those terms would also make for good tags on this photo.

Finally, you don’t need to drop big bucks on a high-end camera. Most stock photographers use their smartphones and natural lighting.

If you love snapping photos and you have an eye for photography, then a residual or passive income stream from stock photography might be for you. But if you’re thinking about quitting your day job to be stock photographer, then you may want to reconsider.

Residual income is becoming one of the most popular ways to supplement your income or even make a living. It’s important to pick an industry that you’re familiar with and enjoy. People often mistake residual income streams as “set it and forget it” or “get rich quick” schemes. The truth is that they usually require a large upfront investment of either time or money. Once that investment is made, however, you’re likely to find yourself reaping the financial rewards.

2 Responses to "How to Make Residual Income"

    • Nelson Coy | September 11, 2019 at 1:47 pm

      Very valuable information for someone considering starting a home-based business.

      • Chloe Silverman | September 12, 2019 at 8:50 am

        We are glad you enjoyed this article! Thanks for the comment, Nelson!

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