5 Best Passive Income Streams for the Middle Class
Written by
Jamela Adam
Edited by
Elizabeth Constantineau
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The Pew Research Center defines middle-income Americans as those whose annual household incomes are two-thirds to double the national median. With the median annual income sitting at about $74,580 in 2022, middle-income Americans would, therefore, have annual incomes between $49,720 and $149,160.
So, what exactly is passive income, and why should the middle class consider it? Stephen Roth, CFP, founder and owner of Limestone Financial Group, explained it this way: “Passive income is the opposite of earned income. Earned income is your net pay in exchange for work as an employee. Passive income is received passively and not from working in business or being involved as a material participant.”
Simply put, you earn passive income without having to put in much continuous effort. If you aspire to make more while working fewer hours, speed up your savings rate, or move beyond the middle class, consider the following five passive income streams to better your finances.
Find Someone To Split Rent With
According to January 2024 rental market data from Apartment List, the average national rent price in the U.S. has reached a whopping $1,379. In metropolitan cities like Los Angeles, San Francisco and New York, expect to shell out even more.
“So, if you’re young and single, one of the best ways to generate passive income is by finding a roommate to split rent with,” said Roth.
While you’re not technically making extra money, you’re reducing your living expenses and freeing up financial resources that you could put toward savings and investments — without doing any extra work.
Invest in Annuities With Income Riders
An annuity is a contract you purchase from an insurance company that promises a fixed stream of payments in the future. An income rider, also known as a guaranteed minimum benefit rider, is a special feature you could add on top of the basic annuity to receive at least a certain amount of payouts for as long as you live.
“Annuities with income riders provide lifelong benefits of guaranteed monthly income that can’t go down if markets drop,” said Roth.
He explained that this passive income stream works well for middle-class pre-retirees who can invest a portion of their 401(k) or IRA money using a two-bucket strategy. “Allocate one bucket for income and one bucket for growth. If your monthly income needs are being met with annuity income, you can take a longer-term approach to grow the other, which is much easier to do psychologically if you don’t need the money.”
Start an Online Business
Another passive income stream idea suggested by Jay Avigdor, president and CEO at Velocity Capital Group, is looking into a direct online business. “Many people nowadays are creating direct funnels for products in online marketplaces like Amazon and Etsy, essentially creating their own mini-storefronts to sell their products directly to customers,” he said.
Because online businesses don’t require a physical storefront, you could launch them with as little as a few hundred dollars. Of course, the initial investment required could vary depending on several factors, like the cost of your e-commerce site, inventory costs, marketing expenses, business license and permits, etc.
If you’re interested in this passive income idea but have no idea how to get started, check out our guide on how to start an e-commerce business.
Consider Airbnb Arbitrage
Airbnb rental arbitrage refers to renting properties and subletting them on the Airbnb platform. Although increasingly difficult, Avigdor believes Airbnb arbitrage has been and still is a reliable way to generate passive revenue.
“Here’s how it works: You start with purchasing a property or creating an agreement with the owner on a rental. To further automate, find a management company that can maintain the accommodation at a reasonable cost,” he explained.
Instead of purchasing a property to rent out on Airbnb, this high-leverage method allows you to passively generate revenue without a large initial investment. Roth also approves of this strategy. “I’ve seen a guy who was subletting a four-bedroom apartment in Jersey who then saved up enough to buy a foreclosure property that he now rents out as a hookah lounge, netting $500 a month,” he shared.
Provide Your Expertise as a Business
While freelancing and one-on-one coaching can be a great way to generate income, you’re exchanging your time for money. If you want to earn money in your sleep, Avigdor suggests building a brand around what you already do best and focusing on creating educational content or digital products to monetize your expertise more passively.
You can start by establishing an email list to nurture relationships with your audience. Next, offer a lead magnet, such as a free e-book or webinar, to encourage people to subscribe to your list. This could then become a valuable asset for marketing your digital products. Once you’ve built a solid marketing strategy, it’s possible to make thousands of dollars a month passively just by selling courses and digital products to your audience.
Bonus Tip: Invest Now To Reap Passive Income Later
“The true advantage of wealth is the leverage it creates. Affluent people understand leverage and use it to their advantage to stay wealthy. They view capital as working capital to work for them,” said Roth.
So, instead of splurging your disposable income on shopping sprees and luxury vacations, adopt the mindset of the rich and invest your hard-earned cash to build a passive income stream. While it may require some upfront work and investment, once established, a passive income stream can sustain itself with minimal ongoing effort for years to come.
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