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Biggest Pros and Cons of 7 Different Passive Income Strategies

What does passive income mean exactly' Because it’s treated like the financial holy grail. Everyone’s in search of its magical ability to heal all their money problems with ease. But let’s dispel the illusions. There’s always some work involved.

Ahhhhhhh, reality! It burns like FIRE!

But in all fairness there are ways to earn an income for far less work. And that’s what we’ll be discussing here. Below is a list of ways to generate income in more passive ways. Each has their own pros and cons, and some will be better suited depending on your situation. 

Rental Real Estate

Pros: Property tends to appreciate over time. And this gives rental properties a significant edge in earning passive income. Not only are you collecting rent every month, but your underlying asset is simultaneously appreciating in value. 

Additionally, through a 1031 exchange, you can sell your rental, roll the equity into a new property, and delay paying a capital gains tax. Honestly, in many ways the Government pushes us to invest in real estate with its tax incentives. You’ll be able to scale your real estate holdings over time to increase their underlying values and their ability to generate cash flow. 

Cons: A down payment alone for a rental can be extremely expensive. And if you’re looking for a property management company to handle the maintenance, that’s even more money out of your pocket. 

By the time you’ve paid the mortgage and other expenses, you may have little to nothing left over. And there will be months where the cash flow is WAY negative. Your earnings may struggle until A LOT of time goes by. And depending on the tenants you acquire, you may have to deal with disputes, damages, and evictions along the way.  

Dividend Stocks

Pros: With dividend stocks, you can outsource passive income to some of the largest, and most innovative companies in the world. In a click of a button, you become entitled to your portion of their profits. You’ll soon start receiving dividends based on the company’s payment schedule. 

Like when investing in real estate, your underlying asset (i.e. the stock) will ideally appreciate over time. And unlike real estate, your assets can be liquidated almost any time. 

Cons: Easy-liquidation, however, creates a huge con. When times are tough and investors need their capital, they start selling. This supply/demand imbalance causes periods of lower price per share, and dividend stocks are not immune to the ails of a volatile marketplace. Dividend payments are also proportional to how much equity you own, which may provide very little income.  

You can always invest more in dividend-paying companies, but this can diminish your portfolio’s diversification. Those who only buy dividend stocks can become over concentrated in a sector, and depending on market volatility, drastically reduce the value of your assets and passive income. Finally, just because a company pays a dividend doesn’t mean it’s a “good” investment. 

YouTube Channel

Pros: Once you meet YouTube’s Partner Program requirements, your channel can be monetized. And you can continue receiving passive income from ads placed on new, and pre-existing content. 

Additionally, you can have audience members make donations directly, or sign up for monthly subscriptions via websites like Patreon. It’s also possible to strike brand deals with specific advertisers for representation on your videos.

Cons: YouTube is an incredibly competitive platform, and it can be hard to break through the clutter. You’ll need to be posting a consistent basis to keep growing an audience. And there’s a technical learning curve when it comes to learning how to record and edit your content. 

Earnings on smaller channels can be very insignificant. YouTube shouldn’t be seen as a quick way to earn some cash. It’s one of the least passive ways to earn on this list, and should only be considered if you’re devoted to using the platform on an ongoing basis. 

Digital Products

Pros: Once you create a digital product (ex: ebooks and online courses), there’s very little work to do after. And in some cases, you’ll need to make few to no alterations when selling it over a longer time frame. 

Digital products have the potential to bring in serious cash. Online courses for example can be sold for hundreds to thousands of dollars. And since everything’s online, there’s no limit to who you can reach with your product or service.

Cons: Like most things online, you’ll need an audience before the bucks come in. That means creating a brand that stands out with its message and quality of content. But in an age of internet gurus, “revolutionary” products, and incessant pop ups, that’s easier said than done.

Upfront costs for digital products can be substantial. Depending on what you’re creating, you may have to pour in a considerable amount of time and money just to make something of quality. 

Affiliate Marketing

Pros: Affiliate marketing is a very passive way of generating an income. Existing companies simply leverage your audience to get their own products or services in front of new customers. 

You can incorporate affiliate marketing into systems you already have in place. For example, you can allow for related-brand placements on your business’s website. Or, if you have a YouTube channel, work with sponsors in your published content.  

Cons: Ads often have an unsavory reputation. If done poorly, the slapping of logos across your own brand can come across as disingenuous, or outright predatory. 

It’s also important to consider reputational damage that can be done by association. If a brand you’ve proudly sponsored comes under fire, your own business can be hit by the blowback. 

Peer to Peer Lending

Pros: Peer to Peer Lending (P2P lending) has a lower financial barrier of entry. And all it requires is for you to simply loan out your own money.

Operating as your own bank, you’ll use an online platform to instantly connect with borrowers. You’ll be able to see each borrower’s risk portfolio (ex: credit score), and have an opportunity to earn more on your money than you would with a traditional bank savings account. 

Cons: There are security disadvantages of peer to peer lending. Many borrowers seeking a P2P loan may be doing so because they have no viable alternative. As a result, you’ll have many people seeking your loans with poor repayment histories. 

Also, depending on the platform you use, your loans may be subject to substantial fees. So make sure to read the fine print of any platform’s terms and conditions. Additionally, getting out of loan can be a lengthy, costly, or even undoable process. 

Vending Machines 

Pros: You can get started with vending machines for only a few thousand dollars. On top of that, you’re getting a product and service rolled into one. 

Your machine may not require constant attention. And if you find an area with enough foot traffic, you could earn as much as a rental property each month!

Cons: You’ll have to find someone, or perform maintenance on the machines yourself. You’ll also need to get familiar with restocking, ordering products, entering into agreements, and researching locations for vending machines. 

Vending machines are also particularly prone to theft and damage. Additionally, given their collections in cash, you may need to keep a more watchful eye on money being skimmed off the top by those you hire to collect. 

Crafted Finance

At Crafted Finance, we love watching our clients build wealth. And one of the most rewarding ways to do so is through passive income streams. By having these alternative sources of revenue, you can relax somewhat from your day job. 

We understand how alluring ideas around passive income can be. But we’re also aware of the drawbacks, and misconceptions people have when getting involved. 

If you’re interested in exploring how to earn passive income, we’re here to help. Feel free to book a complimentary consultation call, or call us directly at (650) 336-0598 to talk through your approach.

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Kristin Harad

Marketing Coach

Step right up and meet Kristin Harad, the Marketing Coach wizard! Guiding businesses through the intricate maze of marketing, Kristin combines her smarts, pizzazz, and a hefty portfolio of wins to show she’s the real deal. Ever wonder what makes a brand pop and a strategy rock? Kristin’s your answer, lighting up the marketing world and turning potential into prowess.

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Jon Fogg

Content Creator

Jon Fogg is a dynamic and innovative content creator who has been making waves in the digital realm. With a passion for creativity and a flair for storytelling, Jon has captivated the financial world through his engaging and diverse content.

When he’s is not working on an SEO blog or case study, you’ll find him enjoying local art galleries or a phenomenal read. Friends and colleagues often commend him for his clear enthusiasm and dedication, which is evident in every project he undertakes. 

Kingston Hollman MBA

Compliance

Meet Kingston Hollman, the compliance guru everyone’s been talking about. With a sharp mind for regulatory ins and outs, Kingston is all about keeping businesses on the straight and narrow. That’s why he’s a go-to in the compliance world!

Sporting an MBA under his belt, Kingston’s not just about book smarts. He knows the fine dance between business strategy and staying in line with the rules. And guess what? He’s mastered it. Ensuring companies sail smoothly through the often-stormy waters of compliance is his game.

From the get-go, Kingston’s been crafting top-tier compliance programs, tailored just right for all sorts of industries. It’s his eye for detail and that knack for spotting the little things that make him stand out. He doesn’t just set up a system; he fosters a whole vibe of staying compliant, making sure everyone’s on board.

Jessica Martineau

Client Operations Manager

Jessica is a seasoned professional with a diverse background, bringing a decade of expertise across multiple industries. A proud graduate of SPU, her journey in the professional world is marked by significant accomplishments.

With nearly eight years dedicated to managing projects in the graphics and built environment sectors, Jessica has honed her skills as a meticulous Project Manager. This tenure has instilled in her a knack for thriving within organized structures while fostering robust client relationships, a hallmark of her professional ethos.

Her experience in the Finance industry spans almost a decade, where she has held pivotal roles as Lead Client Operations Manager and Director of Operations. Notably, her FINRA SIE Certification stands as a testament to her commitment to excellence.

Jessica’s strengths lie in cultivating enduring client connections, fueled by her passion for delivering thorough solutions. She finds joy in understanding and engaging with her colleagues, nurturing a cohesive work culture.

As a Pacific Northwest native, Jessica enjoys hiking, camping, and skiing. She loves reading, attending live music, plays, and comedy shows. Always a foodie, she delights in discovering new restaurants and revisiting old favorites, especially if there is a water view.

Most importantly, Jessica’s world revolves around her family—her amazing husband, Lee, and their two great kids. They are her inspiration and the anchor to her life outside of work.

Dionne Kelly

Executive Assistant

Let’s dive into the world of Dionne Kelly! Born in St. Kitts and with her roots deep in Barbados, Dionne’s been globe-trotting from her island homes to Canada, the USA, and Belize. Got a love for tropical spots? So does Dionne. Her passport’s got stamps that tell tales of sun, sea, and a bunch of awesome adventures.

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Oh, and did we mention she’s a foodie? Dionne’s taste buds have danced across diverse culinary landscapes, adding a sprinkle of global flavor to her persona. In the world of executive support, she’s a powerhouse, always two steps ahead and ready to make things happen. 

Joe Wride CFP®

Founder & CEO

Meet Joe Wride, the president and founder of Crafted Finance. With a knack for pension and investment management, insurance, and financial planning, Joe’s all about offering top-notch services without breaking the bank. That’s why he started Crafted Finance!

A proud Finance major from Washington State University, Joe’s got the credentials to back it up as a Chartered Life Underwriter and CERTIFIED FINANCIAL PLANNER™ Professional. Since 2009, he’s been helping individuals, families, and pension plans make sense of their finances. Joe’s even on the board of the Financial Planning Association’s Puget Sound chapter. Check out his LinkedIn profile here.

Joe gets that everyone’s got their own money story. That’s why he’s crafted a unique process to help folks of all stripes manage their finances, whether they’re flying solo, raising a family, or running a company. He’s all about learning and growing to make sure his guidance is just the right fit for his clients.

When he’s not crunching numbers, you’ll find Joe enjoying the Seattle life. He’s into skateboarding at Alki beach, biking, golfing, snowboarding, hiking, and camping. Sports fan? You bet! Joe’s a die-hard supporter of the Cougars, Mariners, Seahawks, and Sonics. But what really matters to him is family time with his wife Jessica, daughter Ocean, and dog Kanga. Joe’s excited to welcome more kiddos into their home through foster care and adoption in the future.

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