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7 Best Passive Income Investments for Early Retirement

Rich Fettke


Summary: In this article, you’ll learn several passive income investments for early retirement. Whether you want to retire at 50 or plan on enjoying an even earlier retirement, one thing is certain … you have to be prepared. While you might be able to make your fortune before retirement, more than likely, you’ll want to invest in opportunities that generate passive income.

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Passive income refers to money that is derived from an enterprise, limited partnership, rental property, or other source you choose to invest in, but are not actively involved. Unlike active income, passive income is treated a bit differently by the IRS, which is why so many retirees rely on it to a) achieve early retirement, and b) enjoy a comfortable lifestyle throughout retirement. Throughout this post, you will learn seven unique ways to generate passive income starting now, and later in retirement.

Passive Income Investment Idea #1 – Invest in Buy and Hold Real Estate

Investing in “buy and hold” real estate, means that you will be leveraging a long term investment strategy. This strategy will allow you to purchase a property (or multiple properties), to lease and earn passive monthly income. You might decide to eventually sell the properties, but holding onto residential or commercial spaces for a longer period of time results in a much higher return on investment.

How To Generate Passive Income with Buy & Hold Real Estate?

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If you want to generate a substantial amount of passive income via buy and hold real estate, then consider working with an investment counselor. Additionally, it’s important to note that there are several strategies that can be implemented for buy and hold real estate.

Working with highly qualified and experienced property managers can help identify investment opportunities that meet the follow criteria:

  • Growing and / or established neighborhoods.
  • City and suburbs with strong real estate markets.
  • Areas that experience high move-in rates, as well as a strong job market.

As part of a buy and hold investment strategy, you can choose to leverage a turnkey rental fund. A turnkey fund will focus on buying and holding residential (and occasionally commercial) properties that need rehabilitation before they are leased out. These properties are typically in need of minor upgrades that will transform them into high cash flow properties.

By focusing on properties that need a little bit of work, in most cases you can buy the asset for lower than the asking price. Alternatively, you could focus on more traditional turnkey properties that will be move-in ready, with a property management company in place. The second type of property is usually rented in a timely fashion, which will save money in the long run, while providing almost immediate passive income.

Other buy and hold strategies include:

  • Vacation Rental Property. Invest in a vacation property that offsets some of the costs of home ownership by bringing in rental income.
  • Multi-family Property. Purchase a property with 2 – 4+ units and rent it out for rental income.
  • Apartment Building. Purchase a property that has 5+ units and creates monthly rental income, as well as other income such as vending or parking revenue.
  • Commercial Real Estate. Purchase a property that is used for business purposes, such as an office building, retail store, or hotel.

Passive Income Investment Idea #2 – Invest in a Real Estate Syndication

Generating passive income via a real estate syndication will require you to explore your financial goals, as well as your investment strategy. First, most syndications are only open to accredited investors. As such, if you are interested in a real estate syndication, you’ll be expected to meet certain financial requirements.

Most syndications are created for larger scale projects that seek to pool together investor resources to build commercial buildings, apartment complexes, wellness centers, and other land development opportunities.

How To Generate Passive Income with Syndications?

The right real estate syndication will offer several potential benefits to its investors. However, as within any investment, there are potential risks. It’s important to understand a) the benefits, b) the risks, and c) how the risks will be mitigated before deciding to invest in a real estate syndication.

A few benefits of a real estate syndication include:

  1. Pooling Money to Invest in Larger Properties. By pooling funds, investors are able to invest in larger properties, which creates the opportunity for expanded and more diverse real estate portfolios to generate passive income. Investors have the opportunity to enjoy the financial benefits often associated with larger commercial and residential properties.
  2. Opportunity for Greater Investment Return. One of the greatest appeals of a real estate syndication is that it can provide a greater return on investment. The rate of return will depend on the following factors:
    • The type of syndication;
    • The project that is being built;
    • The area where the project is being built; and
    • The investor status (i.e. secured debt, unsecured debt, preferred equity, or simple equity investor). To learn more about these factors, speak with your investment consultant.
  3. Diversification of Risk / Passive Investing. Investing in a real estate syndication is considered a “passive investment;” as such, there are several benefits. These benefits include:
    • Enjoying the tax benefits that passive income often generates;
    • Little to no time commitment associated with the investment (thanks to the assigned syndication manager); and
    • Financial risks are usually distributed amongst the investors.

Again, if you’re considering this type of investment, seek the advice of an investment counselor, or download this helpful handbook.

Passive Income Investment Idea #3 – Invest in a Real Estate Fund

Real Estate funds offer the chance to diversify your investment portfolio with select long-term strategies.

Generally speaking, there are three types of funds:

  • Mortgage funds that trade in commercial or residential mortgages;
  • Equity funds that operate, own, and trade in residential or commercial real estate assets;
  • Hybrid funds that are a combination of equity and mortgage funds.

The funds will typically invest in a variety of real estate opportunities to find the ideal balance of associated risks and projected returns. The majority of funds will generate revenue via property rents and / or any revenue that is associated with the interest generated from mortgage loans (that are provided by the fund).

How To Generate Passive Income with Real Estate Funds?

One of the easiest ways to generate passive income from a real estate fund, is to invest in a “buy and hold fund.” Typically these types of funds have the following characteristics and benefits:

  • They are considered a truly passive investment that typically has a predetermined rate of return.
  • They often have a minimum investment of $50,000, and don’t allow investors to purchase half-shares.
  • They often have financial requirements for real estate investors, such as: accredited Investors who have at least $25,000 in liquid assets to invest, and / or sophisticated investors who have at least $25,000 in liquid assets to invest; and / or self directed IRA investors with at least $25,000 in their IRA.

The right real estate funds will focus on properties in the strongest growth and cash flow neighborhoods. If necessary, the properties will be renovated to meet the highest quality standards.

Additionally, the properties will be managed by highly experienced and qualified local property managers to ensure that a positive monthly income is generated. This type of investment fund is particularly interesting to real estate investors who aren’t able to make all cash offers, but still want to diversify their portfolios by investing in competitive markets. To learn more about the advantages of investing in the right real estate fund, contact an investment consultant or learn more in our investing handbook.

Passive Income Investment Idea #4 – Invest in Dividend Stocks

Dividend stocks are one of the most sought after investment assets for new (and savvy) investors interested in generating passive income. In fact, learning how to create passive income with dividend stocks is as easy as choosing the right companies to invest in. As the companies earn money, they pay investors back via dividends. This money can then be collected as cash or reinvested to purchase additional shares.

How To Generate Passive Income with Dividend Stocks?

Generating passive income from dividend stocks requires a “cash payment” option. This means, as your investment company earns money, you’re paid a portion of the earnings via cash deposits into your investment / brokerage account.

Next, decide if you want a high risk dividend stock, which can produce a higher dividend, or a lower risk stock that will produce a smaller cash dividend. If you’re still not sure about dividend stocks, you can choose stocks that have a “dividend aristocrat label,” which means that they have consistently offered higher dividends over the preceding 25 years.

Passive Income Investment Idea #5 – Peer-To-Peer Lending

Peer-to-Peer lending (P2P) is a relatively new industry that offers the opportunity for investors to add passive income to their investment portfolios by lending money to peers (i.e. people they know, or don’t personally know).

There are several platforms that simplify the lending process to offer a wider variety of lending opportunities for investors. For examples, some platforms allow lenders to loan money to non-accredited investors. While, other platforms create the opportunity for crowdfunding, whereby there are specific policies regarding who can and can’t participate, based on financial credentials.

How To Generate Passive Income with Peer-To-Peer Lending?

Generating passive income with peer-to-peer lending will require your own due diligence to generate a positive return. Like many other investment strategies, the higher the risk, the more you stand to earn.

Low risk loans usually have lower interest rates, which means you can still earn passive income while the loan is paid back. On the other hand, a higher risk loan, has 5 to 12 percent interest rates.

If you can add a guarantee to a peer-to-peer loan, and are willing to take on some risk, you can generate passive income by funding a loan to an individual or business.

Passive Income Investment Idea #6 – Invest in Index Funds

Index funds are mutual funds that are tied to a specific market. When it comes to generating passive income, these funds offer several advantages over other investments. Namely, index funds are passively managed, securities are included, and have inherently lower management costs. Additionally, the low turnover rate of an index fund often makes it a more effective tax choice for many investors.

How To Generate Passive Income with Index Funds?

Unlike other investment assets, index funds aren’t designed to “beat the market.” Instead, index funds are passively managed and meant to earn income by choosing a variety of companies that balance out potential risks in favor of positive returns. By choosing a variety of companies, you can reduce risk, increase diversification, and generate passive income at a lower cost.

Passive Income Idea #7 – Invest in Private Equity

Historically, private equity (along with real estate) has been one of the best performing investment assets for long term strategies. Until recent regulations were passed, private equity was typically reserved for wealthy investors. Now, private equity has expanded its reach so that accredited investors are able to directly invest in private companies.

How To Generate Passive Income with Private Equity?

Passive income is earned from private equity funds when investor capital is used to buy and simultaneously add value to companies. This value can be defined as increasing sales or cutting costs.

When the company is sold (ideally for more than it was purchased for), the investors earn passive income. Private equity firms and funds tend to build diverse portfolios to reduce risk, limit losses, and generate higher incomes for investors. Through due diligence and research, you can select a private equity firm that meets your passive income investment goals.

The Bottom Line

The above seven passive income investments can, not only diversify your investment portfolio, but also generate passive income on both a monthly and yearly basis. Choosing the right investment strategies, and assets, is easier with the help of a trusted investment team. To learn more about how real estate assets can create passive income, schedule a complimentary strategy session today.

For more information, check out our article on, How to Create Passive Income with No Money.

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