How to generate passive income

There is one way to generate passive income and that is to own a passive income asset. There are three ways to acquire a passive income asset

  • Buy it
  • Build it yourself and sell it
  • Freemium: Build it yourself, provide a free service and then sell related services.

Generating passive income is about automating solutions to a problem. These problems  are typically

  • Real Estate
  • Financial
  • Entertainment / Infotainment / Digital products
  • Intellectual property
  • Physical products

Passive income does not mean not doing any work! The only thing passive about the passive income asset is that they require much less regular maintenance than a full-time enterprise. Most of these projects require a lot of work to set up and the workload has to be paid upfront. Learn more: What is Passive Income?

The typical passive income assets

Buy assets that create a passive income

The first model of passive income creation is to buy passive income assets. Most financial and real estate assets are bought. One can also buy the rights to other people’s creative efforts such as music or photos.

Real Estate


Intellectual property

  • Buying rights to music

Entertainment / Infotainment / Digital products

  • Buying Online Businesses
  • Buy rights to digital products

See Also: The seven habits of the passive income millionaire and 16 Passive income investments

Create solutions to problems and sell them for a fee

  1. The second model of passive income is building a passive income asset. This is a viable option if you have the time skill and money. At first hand, one would think that only “experts” can create such products. However we are all experts in something, using that expertise to start your passive income journey is the first step, the second one is to learn as much as you can on your journey.

Real Estate

Intellectual property

  • Creating your own music.
  • Selling your own digital photos

Entertainment / Infotainment / Digital products

Physical products

  • Rent Expensive equipment

Other Examples:

  • A software developer can create a plugin for WordPress that makes social media sharing easier. The basic functionality is free, the pro version has a fee.
  • A gourmet chef can create online courses on how to impress a date with a homemade meal in the form of quick entertaining videos using everyday kitchen items. This is packaged as a course and sold on Udem.
  • I once met a train engine designer who patented a special train engine braking system. Now he lives off the royalties train builders pay him.
  • eBooks on the topic of your expertise can monetize your knowledge into passive income.  On a smaller scale, simple digital products such as week planners, meal planners and schedules can be sold on Etsy.

See Also: How can I make a passive income with no money? and How to create passive income?

Freemium Model: Create solutions to problems and distributing them for free

The third model of passive income is by creating free to use products. These products are there to create leads, which you can introduce to either your own products or third-party products. Such a system would fall under the “Entertainment / Infotainment / Digital products”. Your followers or community can then be introduced to good deals on which you can earn a commission. The system of commissions is called affiliate marketing and is usually based on CPC (Cost per click) or CPA (Cost per action) or CPM.

There are different ways to become a community leader or influencer:

  • Blogs
  • Courses
  • Email courses
  • Webinars
  • YouTube videos
  • eBooks
  • Plugins
  • Software
  • Twitter accounts
  • SnapChat accounts

Quality is paramount. The internet has a lot of choices, the only way to stand out is to provide good quality and unique information sources. Quality is also determined by the community. There are communities which adore things, which yourself might consider completely out of the question. As they say, the client is always right!

The smaller the niche the easier it will be to attract and keep a community of followers. Niches that can be monetized make for excellent passive income sources. Information on how to identify and catalogue Beatles is very worthy in the botanical sense but less so in the financial sense.

This model is hard work, it takes years to build a following, gain trust by the readers. Advertisers have many channels on which to advertise and there is tough competition on all subjects.


Considering the above three models, anybody has the resources to generate a passive income source in some way or another. Once you built one why stop and that? Consider building a few more income streams until you become financially independent.

See also:

Our deep dive into the best ideas from the best passive income books


Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own these digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.

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