8 Passive Income Streams That Aren’t Worth It

Rental property
monkeybusinessimages / iStock.com

Making money with little to no effort sounds like a dream come true, doesn’t it? That’s called passive income, and it’s led many to wealthier living.

What are some ways to generate passive income? You could create and sell an online course or start a dropshipping store. You could even buy a vending machine and station it somewhere well-populated.

Passive income streams require an investment in time or money, and not every investment is created equal. Some might not return much profit and others might require more cash or sweat equity than you’re willing to put in.

While some people out there might’ve reaped some benefits from these eight passive income streams, they just might be too cumbersome for you to try.

Rental Property

An October 2022 article in “Realtor Magazine” said people under age 40 were buying properties to rent out to generate income. They’re called “rentvestors,” people who continue to reside in a rental property while earning income off the homes they actually own. Though long believed to be the way to wealth, investing in real estate isn’t for everyone.

“While real estate investing can be lucrative, managing rental properties can be demanding and time-consuming,” said Ryan Maxwell, the CEO of FirstRate Data, who has 20 years of experience in the finance industry. “Dealing with tenant issues, property maintenance and vacancies can become stressful and eat into your profits. Additionally, the initial investment required to purchase properties, along with ongoing expenses like property taxes and insurance, can make it a costly venture. Unless you have the time, resources and expertise to manage rental properties effectively, it may not be the most suitable passive income option.”

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Crowdfunding is a way for businesses to raise money for new projects or startup fees. Through crowdfunding, individual investors can be repaid with interest when the business makes money, or receive equity in the company. A return on the investment isn’t guaranteed, and crowdfunding can prove “problematic” because of a risk of defaults, said Elizabeth Pharo, an entrepreneur and founder and CEO at Divorce.com.

“Moreover, your funds can be locked in for extended periods, obstructing access when needed. The potential hazards, coupled with liquidity issues, can lessen the attractiveness of this income source,” she said.

Affiliate Marketing

With affiliate marketing, you — an “affiliate” — can earn a commission by marketing someone else’s products. However, Pharo said it’s far from a guaranteed payday.

“One passive income stream that can be more trouble than it’s worth is creating an affiliate marketing website,” Pharo said. “It’s not merely an effortless path to income generation. The setup process demands considerable effort, including the creation of a website or social media presence, forming contractual relationships with companies that offer affiliate commissions and producing enticing content to draw site visitors.

“The work doesn’t cease after the platform’s setup; persistent content updates are necessary to sustain and grow website traffic. Furthermore, the timeline to substantial cash flow could extend into months or more. The investment of time and effort often surpasses the financial returns, rendering this a less appealing option for passive income.”

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Ad Space Sales

It’s more complicated than writing a blog once and collecting passive income from selling ads on your blog site, unfortunately.

“This is not a great source of passive income, as it requires significant investments of time and money to build an audience, generate traffic and effectively monetize your blog through sponsored content and advertising campaigns,” said Kevin Shahnazari, the founder of FinlyWealth. “Furthermore, the revenue generated is usually quite low relative to the amount of time and money needed to successfully build a blog and establish a large following of readers.”

Penny Stocks

“Investing in penny stocks is a passive income stream that may not be worth pursuing, as they are low-priced stocks that come with significant risks.,” said Adam Garcia, CEO and owner of The Stock Dork. “These stocks are often associated with small, volatile companies that may lack reliable financial information, and the lack of liquidity can make it challenging to buy or sell shares at desired prices. Moreover, penny stocks are susceptible to manipulation and fraud, making them an unreliable and potentially costly passive income stream.”

Multi-Level Marketing

Multi-level marketing involves selling products to customers and recruiting other people to sell those products as well. After the up-front work is done, MLM participants hope to sit back and reap the rewards. The Federal Trade Commission warns that MLM could be a type of pyramid scheme, though.

“Although some MLMs offer legitimate products, the vast majority of participants end up losing money rather than earning a sustainable income,” Garcia said. “MLMs usually require participants to invest a significant amount of time, effort and money upfront, with the promise of exponential returns. However, the business models of many MLMs rely heavily on recruitment rather than product sales, leading to a pyramid-like structure that benefits only a small percentage of people at the top.”

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If you recorded a piece of music and think the royalties will pour in every time it’s played, don’t count on it.

“Earning passive income through royalties from books, music or artwork can be challenging,” said Doug Carey, the founder and president of WealthTrace. “It typically requires significant marketing efforts, a large audience or fan base and competition in crowded marketplaces. Only a small percentage of creative works generate substantial income.”

Peer-to-Peer Lending

Peer-to-peer lending platforms connect people who have money to invest with entrepreneurs or businesses seeking a cash infusion. Carey said it might not be the best stream of passive income.

“While peer-to-peer lending can be an attractive option to earn passive income, it carries risks,” he said. “Default rates can be high, and borrowers may fail to repay the loans. Additionally, platforms may charge fees and require active management to mitigate risks.”

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