by Danny

April 28, 2021

On your Wealth Journey understanding what passive income is and why it is so important is key to escaping the rate race and getting it right. If you continue to work for money you will always

IRS definition of passive income (activities)

  1. Trade or business activities in which you do not materially participate during the year.
    1. A trade or business activity that does not include a rental activity or rental of property that is incidental to an activity of holding the property for investment.  These are reported on Schedule C, F or in Part II or III of Schedule E.
  • Rental activities, even if you do materially participate in them, unless you are a real estate professional.
    • A rental activity is a passive activity even if you materially participated in that activity unless you materially participated as a real estate professional.
    • Real Estate Professional
      • More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
      • You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

Material Participation

  1. You participated in the activity for more than 500 hours.
  2. Your participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity.
  3. You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year.
  4. The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you did not materially participate under any of the material participation tests, other than this test. See Significant Participation Passive Activities under Recharacterization of Passive Income, later.
  5. You materially participated in the activity (other than by meeting this fifth test) for any 5 (whether or not consecutive) of the 10 immediately preceding tax years.
  6. The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor.
  7. Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year.

You did not materially participate in the activity under test (7) if you participated in the activity for 100 hours or less during the year. Your participation in managing the activity does not count in determining whether you materially participated under this test if:

  • Any person other than you received compensation for managing the activity, or
  • Any individual spent more hours during the tax year managing the activity than you did (regardless of whether the individual was compensated for the management services).

Participation.  In general, any work you do in connection with an activity in which you own an interest is treated as participation in the activity.

Work not usually performed by owners. You do not treat the work you do in connection with an activity as participation in the activity if both of the following are true.

  • The work is not work that is customarily done by the owner of that type of activity.
  • One of your main reasons for doing the work is to avoid the disallowance of any loss or credit from the activity under the passive activity rules.

Participation as an investor. You do not treat the work you do in your capacity as an investor in an activity as participation unless you are directly involved in the day-to-day management or operations of the activity. Work you do as an investor includes:

  • Studying and reviewing financial statements or reports on operations of the activity,
  • Preparing or compiling summaries or analyses of the finances or operations of the activity for your own use, and
  • Monitoring the finances or operations of the activity in a nonmanagerial capacity.

Proof of participation. You can use any reasonable method to prove your participation in an activity for the year. You do not have to keep contemporaneous daily time reports, logs, or similar documents if you can establish your participation in some other way. For example, you can show the services you performed, and the approximate number of hours spent by using an appointment book, calendar, or narrative summary.

Now that we got all the technical stuff out of the way on how to determine if you are going to qualify for passive income, Lets dive into the meat of this.

Ways to Generate Passive Income

There are two ways to get passive income, you can buy it or build it.

When buying passive income, you are looking at rental properties, dividend investing, municipal bonds, buying websites, lending money buying laundromats etc.  There is one common thing when buying passive income, you need money to do so and a decent amount of it.  You are not going to make significant strides in generating passive income with $50, $100 or $200.  This is an endeavor that you will undertake with tens of thousands of dollars, even hundreds of thousands of dollars.  Is it worth it? The hard work that you put in now will set you up for the future. 

The alternative is to build passive income.  This is the way to go if you are tight on cash and want to grow something that is ultimately your baby so to speak.  This requires a great amount of discipline and perseverance, but I would say this is the part that is the most fun.  There are blueprints out there on the internet that will walk you through building a website (you can buy websites as well), writing kindle books, creating audio books, app development, starting a podcast and a whole host of other things.

Buy It

Dividend Investing – This is probably my favorite form of passive income. Extremely passive and extremely lucrative because of capital appreciation and dividends (checks for owning stock).  The only issue that I have with dividend investing is that it is extremely capital intensive (takes a lot of money to generate decent results), and it is not for the novice.  When you are investing for dividends, you are taking on the role of an investor, so you need to shift your thinking to become an investor.  Most people do not have that type of experience and many people have a hard time understanding the stock market.  Here are some resources to understand the basics of the market and dividend investing.

To understand more on how stocks move in cycles, here is the book that you will want to read.  It is an amazing analysis on how stocks move through waves.  You can combine this with your dividend investing (depending on when the dividend is paid out) and maximize the money you make with capital appreciation and dividend investing.  This is more work, but the reward is worth it.  There are systems built on this and this exact technique is what the big boys do.  Moving large sums of money from one sector to another, from one stock to another etc., maximizing their annual return.

Municipal Bonds

This is one of my areas of expertise, I spent 2013 through 2019 working with municipal bonds and a MA (Municipal Advisor) to states, counties, local governments, special districts, special agencies.  I also worked on CFD’s (community facilities districts).  It was a fun time. 

This is how bond offerings work:

You can buy municipal bonds related to projects for cities, counties, school districts, transportation, utilities, water agencies, special districts etc.  There are a lot of municipal bonds out there to be had.

What are municipal bonds:  Municipal bonds are issued by cities, states, counties, special districts, school districts etc.… entitle the bond holder to periodic interest payments plus repayment of principal at a specified date.  The benefit of investing in municipal bonds is the tax-free status that is provides.  If you are investing in bonds in your home state, you may be eligible for a federal tax exemption as well as a state tax exemption. 

Most bonds pay on a semi-annual basis, but some will pay out monthly.  If you are trying to build a portfolio of green bonds, they are out there as well.  There are a whole host of projects that you can invest in that will satisfy your objectives and provide you with steady income.  Bonds can lose value.  If you are not planning on holding until maturity this is something that you must deal with.  Municipal bonds typically are denominated in $5,000 increments although I have seen them denominated in increments of $1,000 (rare) and as high as $100,000 (rare).  Most large brokerage firms such as Fidelity allow investing in municipal bonds.

Worthy Bonds (check them out here) (Insert referral program)

These are different from Municipal bonds as the funds are lent to businesses.  The proceeds from the bond sales are primarily loaned to growing companies who offer collateral such as inventory and accounts receivables to secure the funds.  You benefit from the interest generated on the loan.  The funds lent to the businesses help them grow and that is how they can service the loan.  There is a limit on online purchases of $50,000 that can be purchased online.  The bonds can be purchased by accredited and non-accredited investors.  You must be 18 to buy the bonds.

Amount you can invest – $10 and up!

Interest earned – 5% annually.

You can start a program where you invest the same amount monthly to take your investing and put it on autopilot.

5 types of accounts that can be opened Individual, Trust, Non-Profit, IRA and Business.  These bonds can be cashed out at any time without penalties.  This is a great option for those who want to get started investing and need a sure thing to build up confidence to continue investing.  

If you are looking to build a stable portfolio that generates income year after year, having different types of financial instruments in your portfolio is a must. The bonds are not in sync(correlated) to the stock market at all because they are privately held and not traded on an exchange. This is a paper asset and having only stocks leaves you open for large market swings.

Inventory Investment for Businesses (

This is an interesting way to earn some passive income, this is the way to go.  You are basically investing in the brands that you want to see succeed buy letting them borrow money from you and they will pay you a dividend(interest).  These companies have a proven track record of sales and is looking for more inventory to meet customer demand. (They already have customers clamoring for their product and do not have the funds to meet the supply.  This is an amazing position to be in.)  To meet demand, brands send in requests to purchase inventory, so the company has the funds to grow. As soon as the products that you helped the company sell, you earn payments.  This is extremely passive once you get it up and running.  You will know the approximate profit upfront, and you can continue to buy into different brands by purchasing inventory over and over increasing the amount of passive income you can earn.  Extremely simple and potentially lucrative.  These are short-term inventory loans.  The profit that you will receive is typically between 5-9% profit with a 4–10-month payback period.  Be careful and do the appropriate analysis when investing in this platform.  You are lending money directly to businesses and sometimes these types of loans fail.  This comes with the territory.  This is not my favorite way to invest money, but you will see results.  I prefer dividend investing directly in the stock market through a broker or purchasing muni or worth bonds over this option, but diversity is key.

Funding Circle (Invest in small businesses)

Funding Circle is like Kickfurther.  Funding Circle has been around for almost a decade so they must have gotten a few things right.  Funding Circle lends money in the US, UK, Germany, and the Netherlands currently.  Approximately $15.2 billion has been lent over that time frame.  There is a 1% servicing fee with historical annual returns of 5% to 7%.  You can invest as little as $500 in different investments across the platform which spreads the risk of any one loan failing at one time.   The hurdle for small investors is the $25,000 minimum to participate in the marketplace and the accredited investor qualification. 

Accredited Investor

  • Earned income that exceeded $200,000 (or $300,000 with a spouse) in each of the prior two years;


  • Net worth over $1 million either separate or together with a spouse (excluding the value of the person’s primary home).

The loans are paid through fixed monthly payments.  You are basically investing in a note and you will receive your share of the note depending on the amount that you invested net of the servicing fee.  Funding Circle has a feature that allows you to auto-reinvest your earnings to continue to make more money.  If you are trying to live off the money you are making this may not be a good option up front but down the road this is something to consider. Funding Circle has a more stringent criteria so a lot of the businesses here are professionally managed and ready to receive and use the funds to grow their respective businesses.

Invest in Real Estate

Realty Mogul

RealtyMogul is an online marketplace for real estate investing. They allow you to invest in institutional quality real estate investments. With RealtyMogul you need to be an accredited investor.  That rule we described above.  RealtyMogul is easy to use and straightforward to analyze the investments you are interested in.  There is an investment minimum of $5,000.  The marketplace is free to look through when gauging what investments, you want to partake in.  You can invest in equity, MogulREIT I and MogulREIT II which are LLC’s that were formed to invest in and manage a diversified portfolio of commercial real estate investments such as loans, equity in commercial real estate ventures and other real estate related assets.  You can also invest in 1031 exchanges.  A 1031 exchange is a strategy for deferring the capital gains tax from the sale of a property. By exchanging a relinquished property for like-kind real estate, owners may be able to defer their federal taxes and use the proceeds for the purchase of replacement property.  This platform will get you a little more into the technical aspect of commercial real estate than some of the other platforms.  If you want to invest in large projects, look a RealtyMogul.  I have an affinity for apartment buildings and owning them outright.  I also like to diversify a lot, so these platforms are helpful in accomplishing that goal.


Fundrise is restricted to US citizens (or permanent residents) only at this time and you must be over the age of 18 to invest.  There is a small investment advisory fee which under certain circumstances can be waived.  You will pay $1.50 advisory fee for every $1,000 you invest with Fundrise.  If you want a full fee layout, please look at the investment circular.  These investments are considered long-term investments and should be treated as such.  Fundrise overall strategy is considered a long-term play which means they pick investments based on the long-term potential of the project.  Dividends are paid on a quarterly basis while the shares in those investments grow in value over time.  Fundrise operates a bit differently than the other real estate platforms.  The value of the shares grows in value overtime and you have access to Fundrise IPO’s.  Be prepared to wait a while before the investment pays out.  With Fundrise, you are building a long-term cash flowing asset and not churning it for quick cash. I personally like Fundrise, and their website is comforting.  Pretty straight forward real estate investments. Again, I like to own property outright but if you are strapped for cash and want to get in on the game, this is the way to go.


Peerstreet big selling point is “Invest in real estate, without the hassle or expense of managing property.  Biggie said it best “Mo money, Mo problems”.  When you are investing, your level of expertise and sophistication with ascend with the types of investments you make.  That is a part of the growth process.  Now that my mini rant is out of the way, now that my many rants is out of the way, PeerStreet claim is that you no longer need to do anything but invest, I do not agree with that buy having everything in one place is not a bad way to start. With that said, I like the fact that they do provide a ton of data points for you to learn from.  All the platforms source deals and conduct their own due diligence.  PeerStreet provides a lot of data points for you to get started analyzing properties. With low minimums ($1,000) to start.  PeerStreet properties have a short term no longer than 36 months.  You can start an automatic investment process that will put you into every loam that matches your criteria. The average investment earns between 6-9%. Fees range from 0.25% to 1.00% which is always disclosed before you invest.  This is a great opportunity for someone who does not know a lot about real estate and wants to get a firsthand education on what it takes to make successful investments.  You get to look at how the large players look at properties and make investments alongside them.   With PeerStreet you are paid monthly. You are investing your funds that are lent out to purchase real estate. The way it is set up it is like a large syndicate.

Buying Websites

This is quickly becoming my favorite thing to do.  With the websites you can set up a team of writers and managers to continuously publish content and generate funds through amazon affiliates or other affiliate programs.  There are a few different websites in which you can look at what is for sale. 

FE International

Is a large website that has been featured on Bloomberg Businessweek, Forbes, Harvard Business School Financial Times Reuters, and Time Magazine.  This website sells some of the largest websites out there and have credibility for selling quality websites at decent prices.  You will pay up as the lowest price the last time I checked was around $45k for a website generating $22.5 in net profit.  These websites can grow quickly which indicates that you may be able to get your money back quickly and turn this into a successful venture. 

Human Proof Designs (“HPD”)

This site I would consider for beginners trying to get their feet wet in this space.  Most of the websites are cheaper in price than FE International (that is not an indication of quality) which is around $7.5k.  Purchasing one of these sites, this is a great way to learn the process and scale a smaller site before purchasing a larger site.  It is a great way to get your feet wet.  HPD also offers other services such as SEO services, Investor services and other services (web hosting and other technical services).

HPD SEO services offers a site manager, keyword research and guest post outreach.  HPD’s investor services allows you to purchase revenue generating sites and apply HPD’s strategies and techniques to continue to grow the site.  There were a few sites that I wanted to purchase here but they were sold.  I stalk the listings day to day to see if any fit my criteria.  There are a few more places that sell sites, but these are two that I like to look at when I am looking to make a purchase.  I have built a few different websites over the years that were great projects and fun to practice and hone my writing and evaluating techniques. More on this later.

Peer-to-Peer Lending

Prosper is good lending platform average historical returns have been around 5.4%.  Peer-to-peer lending is basically investing in personal loans.  The prospective individuals are vetted through Prospers process with credit check etc.  Typically safe, you should diversify your portfolio here as well and invest in a large amount of loans to stabilize the income that you will receive.  You may get a default here and there but having multiple loans out there will solve that problem.  Signing up for prosper is extremely easy and you do not need to be an accredited investor to start making investments here.  The minimum investment is $25. You start receiving monthly payments based on when you invest, typically the following month. The platform is extremely easy to use, and you can invest almost immediately after looking at a few metrics.  I like this platform and I will be investing to help people get on better financial footing.

Funding Circle

Funding Circle is like Prosper, you can lend money and earn a return.  Typically, 5-7% annually is the rate of return that you are looking at.  There is a 1% servicing fee. Most of these platforms will charge a servicing fee.  They must make money in as many ways as they can.  Once the platform is developed, they are basically just a conduit and that is all.  The platform is easy to navigate and user friendly.  These loans are available as fractional notes with loans.    You can start with $500 for each note.  This is just another way to diversify your portfolio.  If you are trying to maximize your earnings, this is another way to do that.

Build it!

We have looked at buying passive income which is something that you should do as part of your overall strategy.  In another article, I will be going over how you can start a company from scratch with the explicit purpose of making money.  You do not have to build anything or make anything, create software or be any sort of supersmart or special.  These techniques are tried and true and will lead to wealth.  Be on the lookout for that article soon!  I will link it here.

Anyway, back to this:

Kindle Books

I have published two books on kindle so far and the income is steady.  Research is the key when writing these types of books.  You can build up a library of 100s of books making you money every single month.  The math is simple, but it does require some investment and a lot of discipline to get done.  Let us say you publish 100 books and you are making $10 per book per month. That is $1,000 per month that you will have coming in passively. You’re thinking that are a lot of books to get published. Yeah, it is a lot of books but this is for the long run, not something that you are going to do over the short term.

If you are investing $35 per book you will end up spending roughly $3,500 total investment and publish 100 books.  This is if you are writing all the content yourself and only paying for the cover of the book to get done and the formatting.  If you can handle the formatting, this drastically reduces your cost.  Take note, doing everything yourself will prolong the process and may start to discourage you from following through on your goals.  The objective is to get the work done not to get overwhelmed and if you must pay for a couple to get done that is okay.  Remember this is not a sprint, this is a marathon.  If you can write the first few books and the content is good you will get traction and the profits from those books will pay for all the other books.  Use your money to make more money.  Once you hit the 100 books, you can start taking the money out.  The goal is to hit the income level you want before taking money out.  If you are working on a few different projects, it will become easier to support yourself with your passive income and put you on a faster path to achieve your goals.  This is a favorite way of mine and I plan on publishing more books in this space.  Fiction and Non-Fiction is great, I written two fiction books that do okay every month, I am currently looking into the fiction space, trying to build out a series of books that become consistent sellers.

Audio Books

Audio books are the audio track of your Kindle books which you can pay individuals to read your audio books professionally and get more downloads or you can do it yourself.  Personally, I would pay people to get the work done so you can focus on creating the system instead of working in the system.  You can find voice over actors from $125 to $250 per hour to get the work done.  Remember you built the book and wrote all the information; this is you investing in the system to continue to move it forward.

Create an online Course!

This is where I am currently at.  I am working on building a course on the things I have learned over the past 5-6 years of online business and more specifically amazon and how to be successful there start literally with less than $700-$1,000 including all the accessories and computing you will need.  What you are doing here is monetizing your expertise in each field no matter what that is.  The one thing that I have seen happen over the years is individuals with obscure skills make a killing teaching other people how to do what they do.  People who learn languages quickly, juggling, drawing, learning to talk backwards, fire eating and the ever popular twerking.  Individuals who have honed a skilled and mastered it are now raking in the dough by teaching other people how to do the same.  You will also have meta-entrepreneurs who are entrepreneurs who teach you about entrepreneurship itself.  This is where I am currently at. There are individuals making a good living with courses.

Start a Blog!

Starting a blog is probably one of the most challenging things that I have ever done. I like to read a lot of things and have a ton of ideas. Writing and putting it in a way people understand is where I struggle a bit. I tend to lean towards why don’t you know this already?! I love writing and I am getting accustomed to doing so in a public way. Writing and explaining my thought process has definitely helped me make things more concrete and flush out the details and has had the added benefit of making me better at what I am doing. Making money blogging is not easy, you definitely need to do your research but the sky is the limit. You can make $000’s per month very very easily. Find the right mentor and build from there. There are a few programs out there that can help you get started but I recommend Authority Hacker. Authority Hacker has a well laid out format and it gives you the how to on building a website from scratch that can earn some serious money.

App Development

Podcast – This is like teaching people how to do things related to entrepreneurship or something motivating whatever your niche maybe.  If you are trying to create a lot of content to put out there, you will want to start a blog that encapsulate all the platforms and push information everywhere.  This is a great way to get the word out about your expertise and it gives people another option to listen to you while they are driving working etc.  If you are trying to stick with what you know, you can design a blog like a course and drop snippets over different days to explain what you are doing and create content that way.  Make sure people can visualize what you are talking about.  If you are doing something that needs a visual, create a YouTube video and direct people there and strip the audio for the podcast.  That is two in one.  I would discuss the following topics because that is my expertise and experience (much more important)

  1. Dividend Investing (degree in finance with concentration in investments, MBA Finance & Accounting – been investing on and off for 12+ years and day trading as well)
  2. Write a Kindle Book (published kindle books)
  3. Purchase Municipal Bonds (spent 8 years of my career here working for States and Local Governments crafting Official Statements and working on municipal bond pricing)
  4. Creating an online Course (currently working to put my expertise to work. Also, I have found that when trying to teach someone to do something an intermediate person is better than an expert because the expert has forgotten all the small steps that is now part of their daily habits. Hopefully, me documenting this will allow me to continue to remember the small steps in between and it gives me an advantage over the long run.)

So, there you have it, the ways I would go about making money today and how to get started doing each of them.  Be on the lookout for that article I described above.  The article should help you put the pieces together.


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