How To Turn Your Side Hustle Into Passive Income

Photographed by Rachel Cabitt.

The hitch of any job, whether it pays you $100,000 to work from home, or barely enough to afford housing, is that some degree of effort (that is, working) is required to get paid. There are only so many hours in a day, however. So, if you have a bit more time and extra resources, you might find it worthwhile to set up on the side, so extra income can roll in in while you're at work.

If you're doing your best to supplement your main income with a side hustle, you might want to try to convert some of that effort into passive income. You wouldn't be the only one: According to the Tax Policy Institute, Americans as a whole earn 64% of income from a paycheck while the rest comes from other income sources such as investments and passive income.

The tricky thing with passive income is that you need to put in a combination of work, money, and time to set it up. Here are tips from David Osborn and Paul Morris, entrepreneurs, real estate investors, and the authors of Wealth Can't Wait, on the best way to get going.

What Is Passive Income?

Before you get excited at the prospect of making money off of dreams and air, remember that nothing comes free. Passive income doesn't mean doing nothing it all; it's more about receiving dividends from your work even after the initial labor intensive period of setting it up.

"My favorite description of passive income is 'mailbox money,'" Osborn explains. "What that means is you open your mailbox and you have checks in it, and they show up every month or every quarter. It's money that comes in based on efforts you've made in your past, so you don't have to continue to work hard to receive those checks."

Common forms of passive income include having equity, buying real estate (and, in some cases) renting it out, and selling your skills or knowledge. The latter may sound highly ambiguous, but it is a common way that artists earn extra cash. For example, instead of constantly taking knitwear orders, Etsy seller Brandi Harper sells the patterns to some of her most popular pieces online. Similarly, instead of constantly redoing popular paintings, Cat Coquillette, an illustrator and designer, explains that she earns monthly royalties from selling prints of her work through third-party vendors that handle "the production and manufacturing, sales, shipping, [and] returns."

Ideally, when you establish a reliable fount of passive income, your workload will diminish over time. However, in order to keep it going, some upkeep may be required periodically.

"If you're invested in a rental property, you do have to work on it once a month or once a quarter to make sure everything's flowing smoothly. Or, if you have dividend incomes, you [may] occasionally have to check the funds to see which ones are paying out the best dividends, or read the statements, and make sure you're in tune with it," Osborn adds. "If you have income from a business, you want to at least look at the tax returns once a year and make sure the books are balanced — even if you're not operating the business and you're just a partner."

Essentially, he explains, you want to maintain a degree of awareness when it comes to your passive income; little effort doesn't mean no effort.

Which Areas Should I Look Into?

The ones that interest you the most! If you're already an unofficial expert in a topic, it's much more likely that you'll enjoy researching it, and will also know where the opportunities are. For example, it would be pretty hard to start a passive income stream in a field like selling golf tools if you know nothing about golf to start. But if you're a connoisseur — say in vintage clothes or scotch — you'll already have an idea of what people are willing to spend money on.

"I know someone who looks at used golf clubs. He doesn't even look at the club; he looks at the shaft," Osborn says. "If you don't play golf, you wouldn't know that some shafts are $100 and some are $1,000. He buys that golf club, removes the shaft, and resells it or sells it with a better club head on it."

Osborn explains that this person initially put about 20 hours into the side hustle, but now all he does is spend "a couple hours a week, and he's still making several thousand dollars a month."

If you're not into sports, consider real estate. Renting by the bedroom is another outlet that Osborn and Morris promote, although it obviously requires a heftier amount of cash, not only effort, at the outset. You might not be able to own a home without having received some money from parents or other family members, or having someone to cosign a loan, but you could consider going into it with friends. Just make sure that you've set the terms in writing and have crunched the numbers hard.

"The key to real estate is to make sure your cash flow exceeds your anticipated expenses by more than you think, so you've got a little bit of a cushion for unexpected repairs that show up," Osborn says. "My target is always $200 a month in total cash flow above my principal interest, taxes, insurance, vacancies, repairs, and that whole lot."

How Do I Make Money?

Hustling online or using the internet as a conduit for your hustle are the most common routes these days. Osborn and Morris cite websites and blogs, books (audio and digital, for example), and educational courses as options. For the lattermost hustle, if you're accepted as a teacher on a site like Skillshare, Udemy, or Lynda, you'll have to create a lesson plan, engage with people who sign up, and get solid reviews in order to convert your work into a reliable source of income. However, after the initial work is done, most of your tasks thereafter will likely involve maintenance, such as updating your curriculum.

Another increasingly popular option Osborn and Morris put forth is to build a "sales funnel." To do that, you need to build a list. For instance, you might build an expert base of all the people who are interested in bird watching. One direct way to make money is to sell your database to companies interested for their own marketing purposes. (Although, you run the risk of angering people whose data you've sold.) So, another way in, Osborn suggests is to market directly to that group yourself.

"Let's say you have a list of 100,000 people who are into birds, and then you happen to find a binocular set that you really love. You would go to that binocular manufacturer and say, Hey, I want to co-market your binoculars because I love using them — and then you would send [a message] out to your 100,000 list: Check out these $100 binoculars that are awesome," Osborn says. "For every [pair] that someone buys, the company might pay you $20."

On top of that, you could write and sell an eBook for $9 that explains where to find the golden-breasted heron (or some much cooler, non-imaginary bird), and also advertise that to your list. Again, the onus is on you to do the work upfront. But, if you seek out opportunities in niche areas that you know well that have highly-interested audiences, you could become a go-to source — and get paid.

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