Wednesday, May 18

Financial planners say their clients earn the most passive income from 4 sources

  • Financial planners said real estate is a top source of passive income for their clients.
  • But, they also see digital products, blogs, podcasts, and YouTube channels generating money.
  • Dividend investing is a traditional way to get passive income that works well for clients, too.
  • Read more Personal Finance Insider coverage »

Making passive income isn’t always as easy as it sounds — it takes time and money up front, and the benefits don’t come overnight. But, financial planners say it’s possible — and a worthwhile pursuit.

To find out how people are earning passive income, Insider asked several financial planners to share their clients’ top passive-income sources.

Here’s what they said.

1. House hacking and real estate

Financial planner and Facet Wealth co-founder Brent Weiss said he’s seen a significant number of his clients turn to real estate, more specifically house hacking, to generate passive income.

House hacking, or buying a home with the intention of renting out a room or separate unit within the home, is a simple way to get into real estate investing.

“The No. 1 thing we all talk about [with passive income] is real estate,” Weiss said. “But when I talk to my clients about real estate, what it takes to do it, they sometimes reconsider their overall goals.”

Oftentimes, investing in real estate can require a higher down payment than buying your own home, as well as some extra work managing tenants.

House hacking reduces those hassles while still generating income. “Probably half of my clients are now thinking about real estate differently,” he said. “All of a sudden they’re paying half their mortgage and creating additional income for their family.”

2. Dividend investing

With some shares of stocks, companies offer investors a piece of the profit, with each share earning an amount in cash periodically. While it likely won’t be monthly income, dividends can be truly passive income.

“Dividend income is definitely one major source of passive income that a lot of my clients have,” said Akeiva Ellis, a financial planner at Ballentine Partners in Boston. She’s seen this not only from her high net worth clients, but said it’s growing in popularity with her younger clients, too.

“Of course, there’s the appreciation and the capital gains that everybody is familiar with. But selecting companies that also give dividends to their shareholders on a regular basis is another part of the whole investment portfolio where you’re able to get income out of it as well,” she said.

3. YouTube channels, podcasts, websites, and apps

In addition to real estate and dividend investing, senior financial planner Andrew Westlin of Betterment saw another trend among his clients.

“Passive income sources like podcasts, websites, apps, YouTube channels generating income off of ads — those are really common sources of passive income that I’ve seen,” he told Insider.

While these types of passive income may be more inconsistent and time-intensive than other methods, they’re often enjoyable.

“What’s been really awesome is seeing clients, friends, and family members turn these ideas that are where they spend a lot of their time on, and turning it into an income stream,” he said.

4. Creating digital products for sale online

Ellis said that digital products are a common way she’s seen clients earn passive income recently.

“You see a lot of people these days starting up new business ventures where they’re selling digital products or information products,” she said.

Generally, it consists of products for sale online. “I’m seeing people creating digital products. Whether that’s a printable they sell online, or a worksheet, or a guide, or an ebook or an online course, it’s those kinds of things that people can set up once, and that requires little to no maintenance.”