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4 Ways to Build a Passive Income Stream Online

Kayleigh Kulp

After selling his two businesses, Steven Dudley took three months off to find his second act. That search became his calling, eventually creating an online course designed to help entrepreneurs plot their future paths as well.

"I created an online course specifically to help entrepreneurs to discover who they are and where they want to go next," says Dudley, who lives in the U.K. "It has been extremely effective for my customers. Not only does it work, but it is creating me a fantastic stream of passive revenue."

The course took him a lot of time and it costs him about $3,000 annually for the high-quality software used to create it. But his course, Journey Map, makes nearly $2,000 per month in passive income that Dudley doesn't have to spend a lot of time on to maintain.

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"It was not easy. It took time, hard work and a little money, but now in hindsight it is 100 percent worth it," Dudley says.

It seems the idea of creating passive income streams online is in a boom, partly due to millennials who wish to retire at an earlier age than previous generations, says Jonha Richman, partner at JJ Richman, a global investment firm. The rise of online platforms like YouTube have made it easier than ever to try your hand at an online venture. Podcasts about passive income, such as "Smart Passive Income" or "The Side Hustle Show" have become immensely popular.

However, investing in passive income streams isn't as easy as it looks. Most online passive income strategies, such as e-commerce, are effective and profitable only after you have built up a substantial following. And they take a lot of time, and sometimes, money, to make them work , unlike passive investing in low-cost index and other funds in the stock market.

And to truly allow passive income to make a difference in your life, it's got to work for you through investing and growing it to a level that lasts even after your side hustle may come to end. The following are a few ways you earn passive income outside of the traditional markets, and how to smartly use it to get ahead for the future.

Online courses and educational materials. If you have knowledge in a specific area and are comfortable creating videos and lessons, an online course can be a profitable way to produce passive income online, says Alexandra Zelenko, a marketing and technical writer at DDI Development, which delivers web and mobile solutions for businesses.

"People will pay to learn what you know about programming or designing, how to be a better public speaker, and or how to increase sales. How you design, develop and create your e-course will depend on what you teach, how you teach, and the best way for your readers to learn" Zelenko says. Sure, you'll spend some time and money developing your course on platforms such as Udemy.com or Teachable.com, but once you've created it, there's minimal upkeep.

Occupational therapist Sarah Stromsdorfer founded occupational therapy site MyOTSpot.com three years ago as an online educational resources for occupational therapy students and professionals. She worked on it every weekend, and her site now makes enough income for her to work as an occupational therapist part-time. She believes it will be another year before her site makes enough money for a full-time living of about $4,000 per month. In addition to the digital products she also makes money from ads and online book sales.

The advantage to pulling down this passive income, rather than W2 income from a job, is that you can take advantage of tax-efficient self-employed retirement accounts such as an individual 401(k), says David W. Barnett, owner of Grand Arbor Advisors in Fort Worth, Texas. This could be $5,500 per year or $6,500 if you're older than 50, with tax-deferred income, he says.

"There are other tax-deferred retirement accounts such as the SEP-IRA that offer even more capacity to save now and pay taxes later," he says.

Use Amazon.com to your advantage. The e-commerce giant has created several ways for individuals to make money with its platform, says Tashema Lindsey, author of "Level Up With Amazon: 50 Ways to Make Money With Amazon Regardless of Age, Skill, or Location."

You can upload a T-shirt design with Amazon Merch and earn a percentage of each sale. If you choose to outsource the design, there are sites like Fiverr and Upwork with freelancers that can provide designs as low as $5 and up. Or you can buy pre-packaged designs from companies such as Design4Dollars and Merch Ready Designs, Lindsey says. Amazon.com also allows you to stream your own video game, talk shows, and other creations for income.

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ACX, an online marketplace operated by Audible, an Amazon subsidiary, allows you to do voice-over or narrator work for audiobooks and earn passive income. Some people choose to be paid upfront to narrate an audiobook but in a royalty share deal, the narrator would earn 50 percent of the royalties on the sale of the audiobook, Lindsey says.

You can earn royalties from online books sold on the Kindle Publishing Platform, and even create comic books through Amazon-owned ComiXology. That's not to mention you can build Alexa skills, sell computer software, Android apps and more. These income sources are not likely to be used to fund the "base family budget," offering a great opportunity to save, Barnett says. That means directing those monies not into a personal account, but auto-drafting them into an investment account.

Dropship merchandise on an e-commerce site. Nicholas Kinports says he earns about $5,000 in profit per week from his online business, LonelyBrand.com, which dropships products from China.

Because the site dropships products, meaning that his site sends orders to a warehouse for processing, it is largely passive now. That is, now that he has built years of organic search traffic and visitors to the site. He now gets about 75,000 page views monthly.

"I used to be in advertising and transitioned from that over the course of a year. It wasn't instant and involved a lot of hard work, but is now pretty much on rails," he says. Once your passive income business is on autopilot, you can improve your returns by putting some money back into the business to help it grow, Barnett says.

"You may want to accumulate for a while so that you can make a capital acquisition for the business, or you may want to direct some current earnings into additional marketing," he says. "Be strategic in your approach."

Kinports is now focusing on developing his own products to sell, rather than just dropshipping others.

"I see a ton of e-books, courses, and gurus in the market, but I can say that anybody who knows how to do this and has built a sustainable income isn't writing books or courses, they are busy finding ways to improve their business as the growth potential is limitless," he says.

Affiliate marketing. If you have a blog or website, you can earn a commission when visitors click on a link, or purchase something you advertise or recommend on your website, either on Amazon or another participating vendor. The cost to maintain your blog should be about $10 for the domain name, plus about $100 annually for hosting, says Michael Alexis, growth marketer and consultant in New York.

"You can write long, detailed articles with product reviews on niche topics. If you write useful articles on niche topics then you should rank on Google and some people will find your posts," he says. "Then, signup for affiliate programs that you can link to in those articles."

For example, if you write a blog post about the best headphones of 2018, link to Amazon.com for each of your recommendations, and someone clicks on your link and makes a purchase, you'll earn a fee, says Nate Masterson, chief marketing officer of MapleHolistics.com.

"To make things even sweeter, many affiliate links have extended cookies, meaning that you can still earn cash if the person makes a purchase later on," he says.

You need to have a substantial following in order for you to get enough clicks to make this profitable. Kinports spent seven years writing content to get visitors, and two years working on affiliate marketing, before his site started bringing in real cash. He spent up to $5,000 out of pocket for server upgrades, coding, and development.

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While you wait for your big break, you can use your affiliate marketing cash to join forces with others who could help make the most of the extra change:

"If you have extra earnings that you want to invest, but you're concerned that the amounts are not large enough for efficient investing, think about partnering with others like you," Barnett says. "Investment clubs enable smaller investors to pool money together and make investments they simply couldn't do individually."

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