Don't Do These Passive Income Ideas!
In this video, I cover my least favorite "passive" income ideas from a Shopify blog post I stumbled upon.
Intro
Everyone wants passive income, but before you go out and spend a lot of time and money trying to get some, let’s talk about some methods that probably aren’t so great.
I stumbled upon this blog post on Shopify published a month ago covering 30 different passive income ideas to build long-term wealth… and well some of them seemed a bit ridiculous to me. The problem with passive income is everyone wants it, but it isn’t so easy to obtain. I’ve tried a lot of different methods over the years, so I’m hoping this video can save you a little time and money. Let’s get into it.
Dropshipping
First of all, this blog post is on Shopify’s website, so of course, their ulterior motive is to get you to start a Shopify store. I noticed most of their top ideas would lend themselves to creating an online store on Shopify, but I’ve also seen these posted elsewhere whether in YouTube videos or other articles.
This article touts dropshipping as one of the best ways to start earning even if you don’t have a lot of cash and mentions how some dropshippers make upward of $100,000 per year. At least they’re fair about the upfront time investment.
If you aren’t familiar with dropshipping, you’ve almost certainly been served ads for dropshipped products and may have even bought dropshipped products whether you knew it or not. And perhaps the most successful dropshipper of all-time is Wayfair. Because buying and holding inventory comes with high costs, Wayfair utilizes a dropship model where when a customer places an order, Wayfair purchases it from one of its 11,000 suppliers, and it gets shipped directly from the supplier to you.
So the same concept applies on a much smaller scale as well. You could find a product on AliExpress… like this card wallet phone case for $1, and then open an online store selling it for $10, and you can profit the difference.
But because this is a low-cost way to start a business (of sorts), it’s highly competitive. Finding a product that is unique with low competition, easy to market, and has good profit margins is no easy feat. It can take a lot of trial and error testing out different products and methods of advertising until you find something that works. And it’s quite possible you’ll never find success with this and instead invested a lot of time and money in launching different products only to see them all fail.
The other part I don’t like is most of these products are novelty, low quality items that will likely just end up in a landfill in 6 months. The customer overpays for something, usually waits a long time to get the product, and then the product isn’t even that good… so yeah.
And as far as the passive side of things… I think this takes quite a bit of active work to maintain, whether its adjusting your ad spend or copy, negotiating with TikTok influencers, handling customer support issues, and finding new products to launch. You could probably outsource some of this to virtual assistants, but I believe you’ll probably be putting a lot of time into this to get going, and even then, you’ll likely have to keep launching new products when sales start to decline.
Renting out your spare room
So having a vacation rental could be a great source of income if you’re fortunate enough to have a second property, but renting out a spare room in your apartment or house seems a lot less like passive income than it's made out to be. First, you have to either own your own home or have a lease agreement that allows for this – and I’ve rented a dozen different apartments in 4 different states and they all have explicitly prohibited doing this.
Then, you have to be okay with sharing your home with a stranger… or okay handing over the keys to a stranger if you’ll be out of town or can make other living arrangements while they’re there. Then, you have to clean the place beforehand, market it, handle booking inquiries, and clean after they leave. To me, this is quite literally active income. It’d be different if you have a second property with property management in place to handle the day-to-day operations. So uh, yeah, I don’t know – if you’ve rented out a room before on Airbnb, you can tell me whether or not you felt it was passive income or not, I guess.
Dividend Stocks
Dividend stocks marketed as passive income kind of annoys me… because chances are if you are looking for ways to increase your income because you don’t have a lot of extra time to devote to a side hustle of sorts, you probably don’t have enough money to invest into dividend stocks to make it worth your time.
If you aren’t familiar, a dividend is a payout of a portion of a company’s profit to stockholders.
Dividends are usually issued on a monthly, quarterly, or yearly basis and not all stocks will pay a dividend. The dividend yield – the amount they pay out – is a percentage based on the stock price. The average yield for a dividend stock is between 2 and 5 percent. So a company trading at $100 with a 3% yield, will pay out a dividend of $3. These yield amounts will fluctuate, and it is possible that a company has to suspend dividend payouts if they are under financial strain. But generally speaking, companies that do payout dividends are those that are well-established with strong financial footing.
Let’s say you’d like to earn $100 in passive income through dividend stocks. How much would you need to invest to make that happen? Let’s say you can get a dividend yield of 4%. $100 per month is $1200 per year. Divide that by 4 percent and we get $30,000 needed.
So, if you’ve got an extra $30k laying around and want to make 100 bucks per month, sure, feel free to give it a shot. In my opinion, investing in dividend stocks is better when you’re older, closer to retirement. Assuming you have a larger amount of investment capital and are looking for stability as opposed to growth, dividend stocks can be a good way to achieve that. But if you’re a spring chicken, you may be better off investing in growth stocks that focus more on growing AKA – reinvesting their money back into the company to expand instead of issuing a dividend to its shareholders.
Again, in my eyes it’s not really a valid form of passive income for the majority of people because it requires a lot of capital to create any sort of meaningful income.
Create an App
The next thing I stumbled across was to create an app. And while once upon a time this was limited to those who knew how to code, there are platforms that can allow us non-coders the ability to create a mobile app. That’s great, really. And if you have an existing business that could benefit from having an app, this is probably a good area to look into. But again, let’s assume you don’t have a business that needs an app and instead want to make the next Angry Birds or Wurdle or whatever and either have a pay-to-download business model or monetize with ads.
Most importantly, you need to first have a strong concept. If it’s a game, you need a unique angle… something that will really set it apart from the thousands of games already available. If it provides utility of some kind, you again need to make sure it hasn’t already been done and has a wide enough market to make it worth your while.
There is a lot that goes into creating an app apart from the concept as well. The user interface, graphics, marketing, etc. Getting people to download your app is difficult enough, but then having them actually actively spend time in the app – which is probably where you’ll make the most money – is also incredibly difficult. So many things are competing for our attention on our phones and many are backed by billion dollar companies with the best developers you can find.
I asked my friend who is an iPhone developer about his experience launching his own app and here’s what he told me. He spent his evenings and weekends for two months on creating the first version of the app. He estimates between 180 and 200 hours altogether. He did get his app featured in the weather category when he launched, which was pretty cool.
He then spent another 40 hours on future versions, mostly to prep for the launch of the Apple Watch. He got that featured on the front page when those devices shipped.
This app did not have a free version — instead it sold for a one-time payment of $2.
So having it featured by Apple was amazing and no easy feat. So how much did he make?
About $5,500 over a two year span. I think that is actually more successful than the vast majority of apps released. App stores are over-saturated with dozens of other apps that all do the same thing and with the same quality. In general, people don’t like to pay for apps, so competing with free versions is challenging. So really, you need to have a lot of money to promote the app, have connections with the press, or just get really lucky and get your app featured. And to top it all off, depending on where you’re located, you could make at least $200k plus benefits as a full-time iOS engineer — so maybe creating an app on the side isn’t the best use of your time.
Become an Instagram Influencer
This is maybe the worst one I’ve come across and makes me doubt this article is actually recently written. I think brands are spending less and less on Instagram lately as other forms of social media are taking over and probably converting better. Even mentioning how much The Rock makes per Instagram post is ridiculous. It gives no indication how much normal people could make, but from my own experience, it takes a lot of time and effort to build an engaged following on Instagram. Theme pages were popular for a long time, but you can only really sell to your audience so many times before they unfollow or stop converting to sales.
Back in 2015 when I had 50,000 followers on Instagram, I’d often get between $200 and $500 for a post with my photography featuring a product or service, but that was literally active income, not mailbox money, not to mention all of the time and effort it took to grow the account. And sometimes it was getting a product instead of getting paid.
So yeah, at best this is a side hustle with a relatively low chance of paying off unless you really know what you’re doing.
Final Thoughts
Look, I know I just crapped all over some ideas and maybe they work for you and if so, that’s great. Having spent the last 11 years exploring different passive income avenues, the one conclusion that I’ve come to is that it is freakin’ difficult. It becomes easier when you have more money and can invest in something that can give you solid returns with minimal management, but when you are looking for ways just to make ends meet, chances are you are going to have to actively work for it. If you are interested in some ways I’ve made passive income, I’ve made a few videos on the subject of which I’ll link one here, but even those were generally the culmination of years of developing different skill sets and failing a lot along the way.