Passive income refers to the income generated with little to no time and maintenance spent in the income-generating stream or activity. That is the reason the article focuses on the different ways to make passive income in Kenya.
Unlike active income, which is earned directly through putting in your time and energy, you can earn passive income without having to use a lot of energy or time.
Having a passive source of income is important because outside of the primary advantage of increasing your income streams, it gives you financial flexibility.
Advantages of passive income
Passive income allows you to exercise career freedom.
With money flowing in from other sources, you are likely to pursue a career that you innately enjoy, other than doing a job just for the sake of paying your bills. Career freedom will also improve your productivity since you work on things you are passionate about.
Passive incomes provide freedom of time.
Passive incomes require less time and energy input and provides a financial cushion should you lose your primary source of income through retrenchment, downsizing, or retirement.
Different Ways to Make Passive Income in Kenya
1. Real Estate
Real estate refers to land and the accompanying improvements and structures attached to it such as a rental building. This option is one of the most common investments to make passive income due to its guarantee of value appreciation and demand.
In Kenya, the real estate sector has retained at least a 10% gain annually. There are various approaches that you can use to invest in real estate. Some of these include speculating and renting.
Speculating involves purchasing or holding a real estate property for disposal when the value rises in the future. Renting involves constructing a residential or commercial real estate property for rent.
The fast-growing Kenyan population is creating a huge demand for rental houses, especially in major cities such as Nairobi. As an economic hub in the region, the demand for commercial space such as office space is also high in the country.
Alternatively, passive incomes from real estate can be derived through asset utilization. Asset utilization is an arrangement where assets that lie idle due to lack of funding can be used by able investors.
You can get into a contract with a landowner who lacks the money to develop office suites or rental apartments. For example, the landowner could give up the land to you (a developer or investor) with the promise of sharing the project’s profits in a predetermined ratio.
Leasing is also another way to make passive income through real estate. This happens when you allow investors to use your land or building for business or farming purposes.
The amount of income you make through real estate depends on some factors such as location. Investments in urban areas will make more income than those in rural areas. The quality of investments is also another determinant of the amount of income you make.
Other factors include social amenities such as security, schools, shopping malls and access to electricity, and a good road network.
3. Government Bonds
Government bonds are financial instruments issued by the government to enable it to raise money. To make this simple, there are tools the government uses to borrow money from the public. As an investor, the catch is the government pays back the money with an interest.
There are two types of government bonds. These include treasury bills and treasury bonds. The difference is that the bills are offered on a short-term basis, while the bonds have a relatively long-term.
Arguably, treasury bills and bonds are the income streams with the least risk element and their interest rates are also favorable in the long run. The first step in investing in Treasury bills and bonds is opening a Central Depository and Settlement account (CDS account). Learn more on How to Open a CDS Account in Kenya.
The minimum amount you can invest in treasury bills is 100,000 shillings while it’s 50,000 shillings for treasury bonds. However, there is a limit to the upside but you now know that the Central bank of Kenya accepts bids through the auction process.
Other than the government bonds, you can also invest in different commercial bonds on the Nairobi securities exchange. The bond market is vast and requires you to do adequate market knowledge to get the best value for money.
Some of the key factors to consider when investing in bonds include the bond tenor, risk element, minimum investment, and the rate of returns. Hence, investing in bonds is another key way how you can make passive income in Kenya.
4. Investment in Shares
Investing in shares is another way through which you can make passive income in Kenya. The country has a well-developed stock exchange market through which you can buy and sell shares. The shares market is known as the Nairobi Securities Exchange (NSE).
With over 63 listed companies, you have adequate options to invest in across various industries. The companies operate in areas such as manufacturing, finance, insurance, and telecommunication. Learn more on How to Buy and Sell Shares in Kenya.
The opportunities in the shares market include benefiting from the regular dividend payout and the share price gain. In such an investment, you make these earnings without having to do much. As an example, you can earn dividends for years without doing anything in particular.
Investing in the stock market requires thorough market research. Some of the factors to consider include the company’s management team, past performance, and political influence. Invest in those companies with good management and little political influence.
This way, you increase the chances of growing your investment over time. However, it is also critical to remember that investing in shares has a higher risk than the earlier options. This is because shares can fall in price resulting in investor losses.
5. Consultancy Services
Passive consultancy is a great and increasingly viable method of supplementing your income streams. Consultancy involves the provision of your skills at a fee to the wider demographic of people who may require the skills.
There are two types of income through consultancy. These include both active and passive income.
Consultancy opportunities are available in almost every field. Some of these areas include technology, finance, and strategy building. Consultancy can rake income through means of:
Hosting seminars/ webinars-By holding periodic seminars and webinars with people who are seeking to learn the skill you have or during company retreats, you get to offer consultancy at a fee. You also get to market your services, which will eventually widen your base of clients.
Writing a book-Authoring book on such topics as self-help, investment, and general guide books is one of the oldest forms of consultancy. Although the initial input of time and research may be wide, the author gets to earn commissions and royalties throughout their life as long as their book remains in circulation.
Online tutorials-Many consultants are earning passively by posting their skills on online platforms. This happens by either blogging, posting consultant videos, or hosting podcasts centered on your craft. In return, you earn income mostly through direct payment or monetizing your content through advertising.
6. Mutual Funds
Mutual funds are investment pools that collect funds from different individuals and organizations for investment purposes. In return, the funds pay interest to the investors while it earns a commission as a return.
Mutual funds also carry a certain amount of risk due to the chances of loss. However, they also offer higher returns than some safe investment assets such as government bonds. Hence, just like share investment, you need to do adequate market research before investing in mutual funds.
Some of the key elements to consider include investment portfolio, fund size, and past returns. A good fund has a well-balanced portfolio to hedge risks. A big fund is also an indicator of market confidence by investors.
There are several types of mutual funds that you can invest in. The type of fund will depend on your ambition and risk levels.
Some examples of the mutual funds available and operational in the Kenyan market include:
- Money market funds
- Balance fund
- Index fund
- Fixed index fund
- Managed fund
7. Fixed Banks Deposits
Investing in fixed bank deposits is another way to earn passive income in Kenya. When you fix your money with a bank, you get some interest depending on an agreed rate. This method is not only less risky but also allows planning.
The safety is in the fact that it’s rare for a bank to default on its payments. The element of planning comes in because you know exactly how much you will earn from the fixed deposit and by what date. This is different from other investments such as shares because you have no guarantee of income or share price gain.
Some of the factors you need to consider when making fixed bank deposits include the interest rate, minimum investment amount, and the duration of the investment. These factors may vary depending on the bank. Hence as an investor, you should fix where you are getting the best value.
In case you have a challenge making this decision, you should engage a financial advisor although this may come at a cost.
8. Pension Fund
Pension funds are the institutions that manage your retirement money. Mostly this happens through making monthly contributions. Among the major pension fund in the country is National Social Security Fund (NSSF).
Pension is considered a form of passive income because you generate a sizable payment without putting in any work and time to gain the earnings. While the other forms of passive incomes assure returns throughout the existence of the income-generating factor, pensions only bring returns post-retirement and into the sunset years.
To invest in a pension fund, you need to sign up with a fund and start making your monthly contributions. In return, the pension fund invests your money and pays you yearly interests depending on the investment performance.
As with the other passive income-generating schemes, it remains important that a person researches the most fiscally sound pension scheme to avoid being shortchanged through fraud and to also get the best of their pension savings.
There are other benefits you enjoy by investing in a pension fund such as tax reductions and financial training.
Conclusion on passive income in Kenya
Though passive incomes needs little to no maintenance, it requires a lot of investment in time, resources, and energy during the initial days. Hence, you should be ready to work up to the point where the investment is sustainable.
Some of these investments are also risky and could result in losses. These include investing in assets such as shares and mutual funds. This is why you need to do deep market research to minimize the chances of losses.
Whatever route you decide to take on making passive income in Kenya, if successful, it will generate for you passive income that could go a long way in achieving financial freedom.