I know it’s true for me and it might be for you too … passive income is one of the most sought-after financial goals for many people. It is the money that you earn without actively working for it. The idea of generating passive income is appealing because it can give you financial freedom and allow you to enjoy your life without being tied to a job. I’ve written previously about the method we used here.
However, one of the most common questions people have is, “How much passive income can I make, and how long does it take to see results?”
In this article, we will explore these questions in detail and provide you with a comprehensive guide on expected earnings and timelines for generating passive income.
What is Passive Income?
Passive income is the money you earn without actively working for it (although you might work for it initially). It is the opposite of active income, which is earned through a job or a business. Passive income can come from various sources, such as rental properties, investments, and online businesses.
Creating passive income normally requires upfront work, but once the system is set up, it can continue to generate income without much additional effort. However, the amount of passive income you can make and the time it takes to see results depends on several factors. We chat about these factors across the rest of this article.
We talk at length about passive income in this article page here.
Factors Affecting Your Passive Income
Several factors can affect your passive income, such as:
- The type of passive income stream: The type of passive income stream you choose will determine how much you can earn. Some passive income streams, such as rental properties, can generate substantial income, while others, such as online surveys, may only provide a small amount of extra cash.
- The amount of upfront investment: The amount of money you invest upfront can also impact your passive income. For example, if you invest in real estate, the more money you put in, the more you can expect to earn.
- Your direct involvement: Your level of involvement in the passive income stream can also affect your earnings. Some passive income streams require more active involvement, such as managing a rental property, while others can be completely passive, such as investing in dividend-paying stocks.
- The state of the market: The state of the market can also impact your passive income. For example, if you invest in the stock market, your earnings will depend on the performance of the market.
Now that we have a better understanding of the factors that can affect your passive income, let’s dive into the expected earnings and timelines for different passive income streams.
Real Estate Investing
Real estate investing is one of the most popular ways to generate passive income. It involves buying properties and renting them out to tenants. The amount of passive income you can earn from real estate investing depends on several factors, including the location of the property, the type of property, and the amount of rent you charge.
According to a survey conducted by Rent.com, the average rental income for a one-bedroom apartment in the United States is $1,233 per month. However, this number varies widely depending on the location. For example, in San Francisco, the average rental income for a one-bedroom apartment is $3,697 per month, while in Cleveland, it is only $702 per month.
If you own multiple rental properties, your passive income can quickly add up. However, keep in mind that real estate investing requires a significant upfront investment and ongoing management.
Expected Earnings
According to a report by Roofstock, the average rental yield for single-family homes in the United States is 8.9%. This means that if you invest $100,000 in a rental property, you can expect to earn $8,900 per year in passive income.
Timeline
The timeline for generating passive income from real estate investing depends on how quickly you can find and purchase a property, as well as how long it takes to find tenants.
It can take several months or even a year to find the right property, make necessary renovations, and find tenants. However, once the property is up and running, the passive income stream can continue for many years.
Dividend-Paying Stocks
Another popular way to generate passive income is by investing in dividend-paying stocks.
Dividend-paying stocks are shares of companies that pay out a portion of their profits to their shareholders in the form of dividends.
The amount of passive income you can earn from dividend-paying stocks depends on the number of shares you own, the dividend payout, and the stock price.
The dividend payout varies by company, but the average dividend yield for the S&P 500 is around 1.5%. This means that if you own $100,000 worth of dividend-paying stocks, you can expect to earn around $1,500 in passive income per year.
Expected Earnings
The earnings from dividend-paying stocks can vary depending on the dividend payout and the stock price. According to a report by Sure Dividend, the average annual return for the S&P 500 over the past 30 years is 9.8%. If you invest $100,000 in a dividend-paying stock that has an average dividend yield of 3%, you can expect to earn $3,000 per year in passive income.
Timeline
The timeline for generating passive income from dividend-paying stocks can vary depending on the performance of the stock market. In general, it is best to hold onto your dividend-paying stocks for the long-term to take advantage of the compounding effect of dividends.
Peer-to-Peer Lending (P2P Lending)
Peer-to-peer lending is a newer form of passive income that involves lending money to individuals or businesses through online platforms.
Peer-to-peer lending can provide higher returns than traditional savings accounts or bonds, but it also comes with higher risks.
The amount of passive income you can earn from peer-to-peer lending depends on the interest rate, the amount you lend, and the default rate. Peer-to-peer lending platforms typically offer interest rates ranging from 5% to 12%.
Expected Earnings
According to a report by LendingClub, the average net annualized return for investors on their platform is 4.71%. This means that if you invest $100,000 in peer-to-peer lending, you can expect to earn $4,710 per year in passive income.
Timeline
The timeline for generating passive income from peer-to-peer lending depends on how quickly you can lend out your money and how long it takes borrowers to repay their loans. In general, peer-to-peer lending is a long-term investment, and it can take several years to see significant returns.
So, How Much Passive Income Can You Make?
In conclusion, the amount of passive income you can make and the time it takes to see results depends on several factors, including the type of passive income stream, the amount of upfront investment, your level of involvement, and the state of the market.
Real estate investing, dividend-paying stocks, and peer-to-peer lending are three popular ways to generate passive income. The expected earnings and timeline for each passive income stream vary, but they can provide a reliable source of income over the long-term.
It is essential to do your research and understand the risks and rewards of each passive income stream before investing your money. With careful planning and a bit of luck, you can achieve your financial goals and enjoy the benefits of passive income.
Remember, all the articles here on My Passive Income Journal are written to encourage, educate and provide a no BS source of information about passive income for you – so enjoy!
Cheers
