- Financial planners say their clients earn passive income from two main sources.
- Real estate is one major way clients earn passive income, owning a variety of types of property.
- Business owners earn passive income through distributions from their company, and from dividends.
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Passive income is a goal for many, but there’s no single way to earn it.
It can come from a variety of sources, ranging from affiliate marketing to rental real estate. To find out how people make passive income, Insider asked two financial planners how they most often see their clients earning this kind of cash. They shared two key sources: real estate, and distributions and dividends.
Real estate is a common type of passive income, but not everyone is a landlord
Real estate is a popular way to make passive income.
John Bovard, a financial planner at Incline Wealth Advisors in Cincinnati, Ohio, says that his clients’ biggest passive income source is real estate.
He cites one client who owns several types of real estate. “He owns warehouses where he’s a limited partner, so he owns a small percentage of that warehouse. He owns single-family homes, multi-family homes, and he owns just raw land as well that will probably be developed at some point,” says Bovard. Some of these holdings he splits amongst a group of investors.
Real estate can be a tricky income source — it can involve some work if you choose to run it as a landlord. But, commercial properties and properties that are managed by a property manager can be much different, and much more passive.
Dividends and distributions are a powerful passive income source for business owners — but dividends aren’t limited to CEOs
Financial planner Kenneth Chavis IV of Lourd Murray in Beverly Hills, California, says that his clients mainly build wealth through business and stock ownership.
“We have a good number of business owner clients, as well as executives,” he tells Insider. “We see a pretty significant percentage of our clients’ income being passive income coming from distributions. If they own equity of a company that’s publicly traded, then [they receive] dividends, primarily.”
However, dividends aren’t only available to business owners and executives. Dividends are investment income that comes from owning shares of a company’s stock, and anyone who invests in a stock offering a dividend can receive this type of passive income. While not every stock offers dividends, those that do provide recurring income each time a dividend is made available. The more shares you own, the more you receive in dividends.