Purchasing a rental property is another common way that individual generate an income stream.  It is very similar to investing, in that you take a sum of money to purchase the property, and the property returns a cash flow – rent.  You do have expenses related to this that are different from investing, such as a mortgage, utilities, property taxes, etc, which all must be taken into consideration when calculating a return on rental property.
Finally, I imagine the biggest debate with my ranking is Creating Your Own Product as the #1 passive income source. If most people have never created their own product, then it’s easy to give it a thumbs down. There won’t be much complaint about Private Equity Investing being in last place because most people are not accredited investors. But given I believe that plenty of people can create their own product if they try, pushback is inevitable because a lot of people simply don’t try!
This is mostly passive once you have it all set up, but it does take a lot of work at the beginning. Real estate investing also requires occasional maintenance. Currently, we invest in a couple of rental properties and earn about $500 profit from each per month. You can read more about my rental properties at MoneySmartLife.com: How and Why I Became a Landlord.
My e-product is currently in development, but I think it could reasonably bring in 1/25 of my income in the first year with minimal promotional effort. If it takes off, maybe 1/5 of my income. Building that up so that I could direct all the proceeds to paying down student loans is a great incentive. I need to focus there, but I also have a few other non-traditional digital products in mind. I need to test the market there before expending too much time or energy.

To create residual income, you need to create something that people will continue to buy on a regular basis long after you’ve created it. A house is a prime example of this as people will continue to pay rent for the right to live in the house. A business needs to have products that are sold over and over again rather than trading the business owner’s time for money.
The challenge I’m facing and, I know it’s a good problem, is that the SF real estate has shot up about 35% in the last couple years. I’m sure you’re experiencing the same thing! So as the net worth is rising, the yield on the total portfolio is going down. Right now, it seems the only way to increase the passive income will be to raise the rent in December and to invest some of that cash in stocks, which I’m nervous to do in this market. Current allocation:

The bottom line is, it’s smart to have multiple income streams no matter who you are. Why? Because the more ways you can earn money without compromising your integrity, the better off you’ll be. And if you’re self-employed, having multiple income streams is almost essential. Not only will you enjoy a higher income, but you won’t go broke if one stream ends out of the blue.

Personal residual income, often called discretionary income, is the amount of income or salary left over after debt payments, like car loans and mortgages, have been paid each month. For example, Jim’s take-home pay is $3,000 a month. His mortgage payment, home equity loan, and car loan are the following respective: $1,000, $250, and $200. Using a residual income calculator, Jim would calculate his RI to be $1,550 a month. This is the amount of money he has left over after his monthly debt payments are make that he can put into savings or use to purchase new assets.
Having a job is a great way to start making some cash flow, but you should use it to actually start a business. A job isn’t scalable. You only have 24 hours in a day, and you're not even going to work more than 12 hours in a day. Having access to the internet is all you need, you can see that attention is now the new way to becoming successful. The more exposure your brand gets (whether that is from posts, social media, websites, etc) the more opportunities you have to monetize off your traffic. When you have a lot of people's attention, and you create a product, you’re likely to make a sale. THIS IS SCALABLE. Anything you put out on the internet compounds, continually getting more and more traffic that gives you a chance to make a sale.
Residual income is when you continue to get paid after the work is done. This includes royalties from books, movies, or songs and also income that comes from real estate or business investments where you don’t actually have to be present to earn it. For example, Bill Gates is still making a residual income from Microsoft even though he isn’t working there anymore.
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