What is Passive Income? What Types are There?

Passive Income Definition:
There is a lot of confusion and misleading information about passive income. In general, it’s income derived from sources that generate revenue and profits with little or no continuing effort on your part, typically after an upfront investment of time and money. The IRS treats only two types of income as passive; income from rental activity, and from business activity in which you don’t participate in any measurable way. And remember; even this isn’t entirely accurate because owning real estate can be LOTS of work. For the ways in which to receive some of these passive sources of income, check out our Passive Income and Alternative Investment Ideas page.

The Passive Income Fallacy (mostly)

The term “passive income” is used a great deal in reference to making money online, Internet marketing, and the creation of online businesses. There are lots of opportunities in these areas but for the most part they are not that passive. Usually an online business or an online marketing strategy requires quite a bit of knowledge, start-up effort, and ongoing maintenance. Don’t let that deter you; passive income from business activity is definitely possible, but with few exceptions be ready to work for it.

Truly Passive vs. Highly Efficient

It’s definitely possible to create an online business where most of the day to day work is automated, especially over time. But we should call that what it is…a very efficient online business. For most online revenue sources you will still play a material role in the operations; even if it’s only to manage the process of outsourcing work to others. There are, however, entrepreneurs who have outsourced and automated so well that they just occasionally check in; and if that’s your goal start with that end in mind as you plan your sources of “passive” or “online” income.

Types of Traditional Passive Income

Typically you’ll invest money after doing a bit of research with the goal of generating returns over a long period of time.

Stocks, Bonds, Mutual Funds, ETFs
Notes, IOUs, Venture Funding
Limited Liability Partnerships
Rental Properties (if managed by a service company)
Resaleable Collectible Fine Art
Royalties from Creative or Intellectual Property

Types of Internet Marketing Passive Income

For these revenue sources there is lots of upfront work with the hope of achieving a passive income stream in the future.

Memberships and Subscriptions
Information and Consulting Products
Affiliate and Performance Marketing
There are many more ways to earn online…see our other resources on this topic below

Interested in Owning an Online Business?

After you browse the types of passive income above visit our Best Business Ideas, Types of Online Income, and Types of Online Business Models pages for lots of useful and thought provoking information.

Words of Wisdom

If you don’t find a way to make money while you sleep, you will work until you die.
Someone is sitting in the shade today because someone planted a tree a long time ago.

-Warren Buffett

Truly Interesting Related Resources You Might Want to Skim

Passive Income & Alternative Investment Ideas
Buying A Business- What We Look For and How We Do It
Best Small Business Ideas
Internet Business Model Types Explained
Internet Revenue Sources Explained