It’s sound financial sense to have more than one stream of income. This will act as a buffer if anything goes wrong with your dominant income stream, and it’s also an opportunity to save more money.
By setting up a passive stream of income, you’ll earn more each month without having to dedicate too much extra time. We look at unique ventures you should consider.
Tip: Make sure your savings are working for you by placing them in a unit trust.
The regular suspects: Property, start-ups, and investments
According to Reagan Mitchell, managing director of WealthyMe, in the current economic climate, it is risky to only have one source of income.
“There’s always a risk of being retrenched or having your income reduced. Having passive income streams provides you with income diversification,” says Mitchell.
"It gives you extra layers of financial protection for the what-if, and it has the potential to free you up from your 9-5 job and set you on a path to follow your deepest passion,” he adds.
According to Grant Smee, property entrepreneur and managing director at Only Realty, owning property is a tried-and-tested method of generating passive income.
There are several ways to harness property so that it earns you a reliable passive income. He outlines the following go-to options:
- Buy to let: This is the most common route to take. Here, buyers purchase a home with the intention of renting it out to cover the bond.
- Short-term letting: Airbnb has raised a few eyebrows over the years as it’s unregulated and has been subject to security issues, but it can be lucrative if handled correctly.
- Rent to rent: We don’t see this often, but it may pick up with many struggling to afford homes and others struggling to find tenants. Here, tenants enter into a contractual agreement with their landlord to reduce their rental by sub-letting to another tenant.
- Develop to rent: This is lucrative but requires a lot of capital. The developer generally develops at 70% of the sale price so there certainly is money to be made.
- Commercial multi-let: The commercial property sector, which was once an attractive area for investment, has shown extreme vulnerability. Smee does, however, believe that there will be opportunities in future to reinvent the commercial sector.
Besides property, the two other main categories of passive income include start-up businesses and capital investments. To find out more about these, and to learn about the ins and outs of passive income, have a look at this article.
Four outside-the-box ideas to earn passive income
Mitchell recommends considering the following four ventures as alternatives to creating passive income through property, start-up businesses, and capital investments.
1. Write a piece of software
Most of us are now familiar with the term 4th industrial revolution, where almost all monotonous tasks are automated by a string of computer algorithms. There are countless problems we can solve in our societies using software.
You could come up with a software solution to solve some of these issues and sell your software as a service, thereby creating ongoing passive annuity. Remember, it will require effort to support and maintain the software.
2. Rent out appliances
South Africa attracts many students and employees from other countries who come to study or work with no intention of staying here permanently.
These individuals would more than likely rent an apartment. Depending on the length of time they stay, they might not want to own appliances, but rather rent.
You would need to invest money to buy appliances and develop a value proposition for your target market and then use social media as a means of advertising. On a small scale, this could be a good passive income stream.
3. Ride sharing
There are ride sharing companies that allow you to lease your vehicle to a registered driver. These companies manage the fleet on your behalf and pay you a passive income for taking the risk.
In essence, you are renting out a vehicle without the hassle of managing drivers. This is a good option for people who have a greater appetite for risk.
4. Self-Storage facilities
South Africa’s economic woes have left many people half-salaried and even jobless. As a result, many families have been forced to downsize to try to save costs.
This creates an opportunity for entrepreneurs to provide self-storage facilities to store excess furniture for these families who are downgrading. Setting up facilities may require a sizeable investment.
Mitchell says that it’s possible – and recommended – to create passive income streams. But bear in mind that, more often than not, a great deal of effort is required to build these.
These are only some ideas to create a passive income, and if you consider your personal skills and resources, you’re bound to find a venture that’s right for you.
You can use our budget calculator today to see how a second stream of income can benefit your overall budget.