You should not believe all the hype you are seeing around passive income. It is just as much a myth as it is a reality.
Let us start with the myth.
Passive income has almost become an obsession in the finance world. Besides the popular pyramid schemes like Aim Global promising a passive Kshs. 5,000 per week, there is an increasing number of articles online with titles such as “10 ways to make money in Kenya while you sleep” and “101 ideas for passive income in Kenya”. These articles are popular because people click on them with the hope of creating a passive income stream for themselves. Readership for these articles is very high.
So, what exactly is passive income?
Now, strictly speaking, passive income is supposed to earn with no work involved. This is considering the fact that the origin of the concept of passive income is in real estate where it denotes income from rental properties. The owner of real estate does not actively work for the money earned.
However, in the modern context, passive income is being used to refer to almost anything outside the conventional day-to-day work.
The most common ideas of passive income in Kenya include farming, blogging adverts, writing e-books, Airbnb, multi-level marketing and YouTube adverts. There are myriad others but these top the lists floating around.
The truth is that none of these is “passive” in a real sense. Each income source listed above requires a lot of work to earn any income let alone any passive income.
Let’s assume you have a full-time 9-to-5 job in Nairobi.
- Growing crops or keeping livestock somewhere in rural Kenya is extremely difficult because you need faithful farmhands and close monitoring to avoid losses. You may need to make several trips to your farm in a month just to keep things running.
- Blogging is a full-time job. You may think you will blog on the side but for a blog to generate income via ads, it needs several articles in a day and these need to be freshly written to suit the readership.
- E-books are a good bet on passive income but going by Amazon Kindle’s top titles sold, you have to sit and write really good content. This will obviously take time – lots of time – and a couple of tries before you nail the right topic that will sell indefinitely and earn you money way into the future.
- Airbnb is the closest you can get to dealing with rental properties if you are not a landlord or an agent. While it seems like an easy thing to do it needs constant attention as you need to negotiate with the building’s landlord to be allowed to do it, market the room/apartment, track bookings and check guests in, clean up after guests etc. It is like running a mini-hotel; you earn money but put in the effort.
- Multi-level marketing is the worst of all passive income ideas. People have lost more than they put into the likes of Aim Global and its counterparts selling herbal products because it is usually a well-orchestrated scam. There is absolutely no chance that it could turn into passive income, especially in Kenya.
- Earning from YouTube vlogs/videos is also very labour-intensive, maybe more than blogging and e-books. In Kenya particularly, YouTube pays peanuts for clicks and so you have to rely on brand sponsorships. It gets worse because there are fewer brands sponsoring digital content and a lot of channels chasing after these brands. On top of this, creating content that people will watch consistently is not a passive thing.
Overall, you should have an idea of why passive income, at least based on the hype floating around, is a myth. A dream being sold to the desperate reader.
Now to the real passive income.
If you have looked at popular stories by investors like Chris Kirubi you will realize that actual passive income is how they became rich. They have built self-sustaining businesses including real estate empires and own stocks in almost all successful companies locally and internationally. Kirubi obviously does not need to be involved in the day-to-day running of his companies for him to earn an income.
So, what are the choices of passive income for an average Kenyan?
Going back to the definition, the origin of the term passive income is a rental property. Income from the rental property was historically synonymous with passive income.
Own a rental property
The immediate choice is building the property, regardless of how small, and renting it out. It sounds like very generic advice but it is the fastest route to truly passive income. Rent is paid monthly and without fail as long as the building is in good condition for the tenants.
Buy stocks
Another good example is the income you get from earning stocks. Buying Safaricom shares will earn you passively as long as their prices go up. Stocks could be a bit volatile but for someone who knows their way around their market, it could be a good way to get a paycheck while doing absolutely nothing. And it may be easier than you think. Equity shares for instance almost doubled between years 2018 to 2020 and Kenya Airways shares more than doubled in a few months in the first quarter of 2020.
Little to No Effort
There are other ideas for building real passive income and while they vary, the ideal case is that they should be earning with very little to no effort. Not what Kenyans commonly refer to as a “Side hustle” as explained above.
Passive income versus Active income
Admittedly, most people compare passive income and active income at the lower tiers of income and this makes active income seem more desirable and rational. However, when it comes to a lifetime perspective of income, passive incomes could turn into multi-million-shilling revenue sources that can be passed down the generational line.
Worth mentioning also is the fact that you can transition from active income to passive income through saving and investing over time. If you put your savings into an investment that generates income even with your continuous input, then eventually you can hire people and detach from the business and let it run itself. The money from such an investment can then grow to be high enough to substitute your active income.
