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The BEST Form of Passive Income in 2021

Our world has changed quite a lot in just one year. The economy, the political landscape, the apparent division of a country – it’s all so different! So much so that it has even changed the best form of passive income!

So what is the best investment today? What passive income stream is the most ripe for growth? Where should you put your money so that it yields healthy returns without your constant touch and supervision?

best form of passive incomeThe Best Form of Passive Income…No Longer

My wife and I bought a rental house in 2015 for $89,000. It rented immediately for $1,200 a month. Today, it earns $1,350 a month and we owe nothing on the property. That thing is a cash cow!

To buy that same house today, it would cost us $175,000. With rent at $1,350 a year, we’d only earn about 8% on our investment… It’s not hardly worth the money…or the hassle (since you technically do have to conjure up the tenants, cater to their needs, and check in on the investment once in a while)!

Even two years ago, I would have listed rental properties as the best form of passive income. But no longer.

Houses are just too expensive and rents haven’t risen as quickly. For most areas of the country, the numbers no longer make sense.

Best Form of Passive Income: My Top 5 Picks

Want to put your money into the absolute best form of passive income? 

How about the Top 5? 

Some of these picks won’t earn you a ton, but they’re incredibly passive and you’d be a fool not to take a minute and just do them to earn a few hundred bucks a year. 

Other picks could turn into a full time income, while doing basically nothing!

1) Pay Down Consumer Debt

I can’t help it. This has to top my list every time.

There are too many people looking up passive income ideas that have thousands of dollars in 20% interest credit card debt.

Here’s an idea. Pay off your credit card and stay out of debt for life. It’ll earn you 20% a year until the day you die.

And here’s one of the best free tools out there to help: 

Free Debt Snowball Calculator – How Soon Could You Be Debt Free?

make a passive income2) Open a High-Yield Checking Account

I opened a checking account with Lake Michigan Credit Union 10 years ago. Since then, I have earned over $4,000 on that move alone.

It’s called 3% interest.

All you have to do is:

  • set up a direct deposit there
  • check your account 4 times a month (I check via Mint and it counts)
  • use your debt card 10 times a month

I never even think about any of the above things and I’ve never missed a month of earnings.

Best form of passive income ever. Super simple and totally passive.

Related: How to Make a Passive Income With a Checking Account

health savings account3) Invest in an HSA

If you have high-deductible insurance, then you can stash money away in a Health Savings Account (HSA). 

What is a health savings account? It’s just a savings account that’s specifically for your medical needs – medicine, supplies, hospital bills, etc.

The best part is, it’s totally tax free. 

  • You pull the money from your paycheck before tax
  • It sits in the fund and has no taxable elements to it
  • And, when you withdraw it and use the money for a medical reason, you STILL don’t pay taxes on it!

That’s like making 20-30% on your money every year since you don’t ever have to pay taxes!

The second best part is, you can invest it.

I invest half of our HSA into an index fund that’s modeled after the S&P 500. The expense ratio is super low and it’s been making me money hand over fist since the pandemic started!

In 2021, you can stash away $7,200 per couple each year. It’s completely tax deductible and you’ll never regret having a bunch of money set aside for medical emergencies!

And, if those emergencies never happen, you can use the money for qualified long-term care in your retirement!

Like I said, you’ll never regret this form of passive income!

Related: 5 Things You Didn’t Know About a Health Savings Account

best form of passive income4) Rent Out Your Storage Space

Do you own a house on acreage? 

Do you have a barn or a pole building in the back that’s really doing nothing for you?

You are literally sitting on a goldmine!

In my area, boating is big. It seems like 1 out of every 5 people have one…and there’s also about 1 in every 5 people that have nowhere to put it! Lol. Everyone has a boat, but they really don’t have a good place to store it. This is where your barn comes into play… 🙂

The Potential Earnings

Let’s say you can make space for 20 boats in your barn. Each space rents for $150 a month (that’s what it is in my area anyway – yours could be different). 

Guess what that earns you per year?

$36,000!!

Well that’s a pretty solid passive income right there!

Don’t Have a Storage Building?

Okay, we don’t all have empty barns in our backyards…but maybe you have a 3rd stall garage that you really don’t need! Rent that space out for $150 a month and earn an extra $1,800 a year!

Or, if you like the idea, maybe it’s worth building yourself a pole barn out back!

Put it up for $36,000, make your money back in year 1, and then the rest is pure profits!!

Related: 25+ Passive Income Ideas

index investing5) Invest in Index Funds

Investing your money in the stock market is technically ‘portfolio income’, but it’s still passive in nature, so I’m listing it here!

Dating back to the 1920’s, the S&P 500 has earned roughly 10% per year (including dividend yields).

If you would have invested $1,000 back then (in 1920) and left it alone, just earning that 10% per year, guess how much your money would be worth today?

**drum roll**

It’d be worth $8.6 million!

Not a bad investment if you ask me. And it takes absolutely no skill, knowledge, or effort.

Of course, past returns won’t guarantee future returns, but the track record is a pretty good one! 

Related: Investment Calculator: Free Excel Download!!

The Best Form of Passive Income: My Vote

The 5 income streams above are my favorite forms of passive income, but which one tops the list? Which is the best form of passive income?

  • I’m striking #1 off the list since it should just be a no-brainer for everyone.
  • #2 is easy money, but it won’t earn you that much compared to the other options, so let’s strike that one off
  • Annnd, #3…while very useful and I’d advise everyone to stash as much into an HSA as possible, it’s not going to replace your day job and you’ll never be able to live off of it.

So, my choice is between #4 and #5 – storage spaces and index fund investing.

Since I’m a business man through and through and the storage space will yield a more definite return (plus, you have some control over the earnings), I’m going to land on #4.

In my opinion, the absolute best form of passive income is renting out your storage space. It takes little effort, the demand will always be there, and you’ll rake in the cash year after year. I know plenty of people that do this and they’ve always got money and they’re always happy! 🙂

Want to start earning passive income? What do you think about my options above? Which would you choose?

Grow Rich Money Passive Income

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

4 Comments

  1. Yeah I think your right. Real estate as a passive investment is just not possible to do without taking a huge haircut on returns. In some markets perhaps it still works out fine, but I recently was looking in our area and returns were below 5%. To do anything more would turn the activity into an active investment.

    • Right. It just doesn’t make any sense anymore. You can highly leverage yourself for a better ROI on your true dollars, but then you’re taking on all that risk! Housing will come around again as a solid investment, but just not right now.

  2. Intrigued by your idea about renting out storage space. Are there any books or web sites which would educate me further on how to build and manage this business?
    Love your blog.

    • Hi ABS. I have just met a few friends that rent out storage space. It’s almost more of a backyard business than a commercial one, which means there actually aren’t a ton of resources out there! Guess it’s time for me to write one! 🙂 Stay tuned.


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