I’m a big believer in passive income.
Passive income is when you set something up, whether it’s an investment, a hands-off business, or even a blog, and it provides returns without you really doing anything with it.
That isn’t to say that you don’t have to spend time. Passive income requires funding, timing, planning and nurturing. It can be risky. But it’s one of the best ways to set yourself up for your future
Investing in stocks (traditional)
Ugh, stock investment, amirite? Stocks are still the be-all end-all of traditional investment models, especially in terms of safety, returns, and money down.
Traditional stock investing requires a broker. You take your savings to a mortgage broker, whether at your bank or at an independent firm, and they’ll open a portfolio for you. If you invest enough, they’ll run it for you, give you advice, and help you along the way - for fees, of course.
If you don’t invest enough for premium broker treatment, don’t worry. Discount brokers are a great way to get started in traditional investing. You won’t get the same care and advice, but you’ll be free to make your own decisions. And your fees will be lower, too.
Specific stock strategy is a whole different game, though. There are preferred stocks and common stocks, dividend and equity-only, and much more. I’m not a broker - the best way to learn more is to do your research, and check out a qualified broker to answer any of your questions.
Investing in stocks (modern)
What industry hasn’t the internet disrupted? Maybe nature conservatories? Wagon repair?
The internet has changed everything, including stocks. Websites like WealthSimple, OptionsHouse, and WealthFront have made it easier and cheaper to manage your own portfolio, online, with fewer fees.
Some don’t even have a minimum investment amount - you can put in $10 to see how it works, and move up from there.
Check to see if your site offers investment advice. WealthSimple, for example, assigns every investor a “wealth concierge” who offers advice, runs you through decisions, and answers any questions you may have.
Investing online carries a greater risk of fraud - so always be careful. Do your research; is the site reputable? What are others saying about it? Do they tell you that investing is risk-free? Steer clear if they don’t pass the gut-check.
Equity crowdfunding is buying a tiny portion of a new business or startup and funding their expansion. It’s like regular crowdfunding, except you can earn dividends.
There are many websites out there to help, but be warned: more than 80% of startups fail.
And that’s okay. A big draw to equity crowdfunding is the ability to support a business you love.
Maybe it’s an organization in your local area, or a business that supports a cause you care about. It’s a great way to get involved in your community.
It’s also an interesting phenomenon that’s decentralized traditional investment options.
But of course, it’s not without risk.
Arguably, businesses funded by equity crowdfunding have lower success rates than those traditionally funded through venture capitalism. They likely don’t have the seasoned guidance that a venture capitalist may have, or they may have been unable to secure bank funding.
It can also take years for returns to accrue - if ever. Be fully prepared for the business to fail, and your investment with it.
Buy up domain names
Okay, so this one sounds super dot-com-y. And it is (ha!). But many people swear on the domain business. A domain you buy for $70 might be valuable to a company willing to pay 100 times that in a year or so, simply because you nabbed the right name.
The problem is that many domains have been found already by early-adopting investors. But it’s not too late. A frequent domain buyer named Mike Mann made an algorithm that will generate domain name recommendations and buy them automatically.
There’s always manual buying, too. Look for keyword-rich, simple, and SEO-friendly domains. The risk? That you’ll pay for a domain that doesn’t end up being needed for a long time. If you’re okay with that, then go for it!
Student housing or other rental property
Being a landlord isn’t easy. But it’s a great way to fund equity growth while watching an asset appreciate (in the right market).
To be a landlord, you just have to own a property that somebody wants to rent. So easy, right? You get tenants, they pay your mortgage and other bills and, hopefully, you have a little bit left over.
There are two main barriers to buying a property to rent. The first is cost; it simply costs a lot to fund a second property (and with Canada’s new mortgage deposit rules, you have to put down 20% on a second residence).
There’s the cost of maintaining a residential property too. From lawn maintenance, snow removal, to broken appliances or plumbing, you’ll be on-call to fix things as they break. In older properties or with hard use, maintenance costs can add up, and fast.
The solution? You can hire a property management firm, or simply set aside a rainy day fund for extra insurance. Make sure you only buy a property that you can afford long-term, with or without tenants.
Pre-construction condo rental
This is vastly different than buying an already-built residential property, and I’ll tell you why: it’s a triple whammy. You grow your equity for free, you watch an asset you own appreciate for free, and you can even make some money on top of your monthly costs.
Pre-construction condos are the cheapest form of new housing, and they’re cheaper the further they are away from being completed. Builders need to sell their earliest units to get the ball rolling, and that’s when the units are cheapest. You just have to get there first.
By the time it’s completed, your condo should be worth more than you mortgaged it for. Especially in Toronto’s housing market - you bought a new property, you wait for a few years, and then you’ve earned that appreciation if you sell it upon completion.
If you don’t, you get a tenant who pays your monthly mortgage costs. Since the unit is new, there will be far fewer emergency maintenance costs, which are instead folded into your monthly expenses. You slowly build your equity in the property, for free, while a tenant lives there. Rinse, repeat, retire at fifty.
Did you know that condo appreciation has consistently outperformed TSX stocks over the last 15 years? While stocks have occasionally - briefly - shown greater growth, they have also fluctuated much more, often to extreme lows. Real estate, on the other hand, has steadily appreciated around 4.6% every year since 2000. It’s one of the best investments you can make - passive or not.
Know of any other types of passive income? Have you tried one of the above? Let me know in the comments!