passive income in Malaysia

Passive Income in Malaysia: The 2020 Definitive Guide

Everybody wants passive income in Malaysia. Who wouldn’t? The idea of having residual income trickling into your bank account without fail every month is simply alluring. What many fail to realise is that, however, passive income doesn’t magically appear overnight. Oftentimes there is a some amount of hard work in the beginning that is required.

What is passive income

Passive income can simply be defined as income that is generated with little or no active effort to maintain. This means that after the initial hurdle of creating the vehicle by which the income is generated, it doesn’t require a lot of time and energy to maintain it subsequently.

Types of passive income in Malaysia

I have tried my best to categorise the different types of passive income in Malaysia to make it as simple to understand as possible. Generally, in my opinion there are only 2 major types of passive income:

  1. Income from financial investments
  2. Income from effort investments

Passive income from financial investments

Dividends from stocks

Pros: Sustainable in the long run

Cons: Considerable amount of time and effort needed to select a good company; large financial capital required upfront

In my opinion, the most sustainable way of building a passive income that can generate substantial and meaningful passive income in Malaysia is by investing in high-quality, dividend stocks of companies that have been around for a long time. Typically, these may be what we call blue-chip companies. The dividends provide some form of assured income stream for investors. However, more often than not an investment in these companies will require a big chunk of capital, so it’s only suitable if you are committed for the long haul.

Real estate investment trusts (REITs) allows you to be part owner of prime real estate and enjoy some income from rental generated. However, the income is highly dependent on the quality of the properties owned by the trust and whether the management can sustainably generate rental income from the properties in their portfolio.

Income from peer-to-peer (P2P) lending

Pros: Higher interest rate than fixed deposit

Cons: Higher risk of losing your money when the borrower defaults; large financial capital required upfront

Peer-to-peer (P2P) lending is a type of investment whereby you lend money via a platform to a business or SME’s. These businesses then pay you back monthly plus a certain interest rate. There are many approved P2P platforms approved by Securities Commission in Malaysia. As always, you should do due diligence on the borrower and lower your risk by investing the minimum amount and diversifying across many different borrowers.

Read my definitive guide on P2P lending in Malaysia

Income from managed investment schemes

Pros: Peace of mind, minimal work

Cons: Meagre returns

These are pooled investments such as unit trust funds whereby you just invest regularly or lump sum into any approved funds. Your money is then pooled together with other investors and managed professionally by a fund manager. Though it provides peace of mind whereby you can just invest and forget about it, your investment returns might be eroded by management fees.

Look for low-fee platforms that allow you to bypass agent commission such as Fundsupermart.

Rental income from properties

Pros: Excellent hedge against inflation

Cons: Large initial capital involved; risks with rental income

People will always need a place to stay. Investing in real estate or properties can potentially net you positive cash flow via rental income as well as capital gains over a very long period like 30 years. Though it is rewarding, it is one of the most difficult investment to dabble in. Not only would one need a substantial sum to put down for down payment, but there are also other pitfalls that might affect your returns such as location, interest rate and tenant issues.

Passive income online from websites

Pros: Low overhead, potentially lucrative passive income

Cons: Highly risky, if you don’t know what you’re doing

If you have some skills in digital marketing, you can earn passive income online by buying websites and just collecting the ad or commission revenue the websites generate. Think of websites as digital real estate. If you can snap up stable websites and build up a portfolio of them, it’ll be like owning prime real estate on the Internet generating revenue for you, minus all the headache of managing tenants.

Passive income from effort investment

The second type of passive income involve putting down effort in producing something of value in exchange for money. This item of value would ideally be able to generate residual income for years to come. The income can come in the form of sales revenue, royalties, advertisement fees, commissions etc.

More often that not, passive income that comes from effort investment generally are:

  1. original creative efforts
  2. comes from your own accumulated knowledge over the years

In short, you create something that others would pay money for.

Royalty income from writing books

If you have in-depth knowledge about a certain field, have built some kind of credibility in your niche or simply can churn out captivating stories time after time, writing a book can be a viable passive income stream. However, the quantum of royalty would depend on your volume of book sold. Typically, authors get paid certain percentage or per book sold. If I were to venture down this path, I would focus on writing something evergreen so the book can be reprinted again and again to ensure continuous royalty income.

Royalty from creating music

Good for people who have singing or musical talents. Create once, then gain not only active income from performance, but also passive income from royalties every time your music is played. Big caveat: you’d have to be good lah. Otherwise, you may consider uploading your singing or music onto YouTube. You might still get a following and earn considerable passive income from ad revenues.

Ad revenue from original content

YouTube is one of the largest website on the Internet right now. The traffic potential is amazing, and there is something for everyone. Turn your skills into recurring passive income by creating how-to guides, video tutorials (people love tutorials), reviews or whatever you can think of. Top Youtube creators can earn a lucrative income just by uploading good videos.

Don’t have video creation skills? No problem! You could always start blogging or creating websites like me. Same knowledge, different media format. While you’re at it, why not both?

Sales revenue from creating a course

So you have in-depth knowledge about something. What can you do to exchange that knowledge with money, besides writing a book? You could teach people. But teaching people in person is not scalable. What else can you do? Turn your teaching into video courses and sell them on education sites like Udemy. Top course creators can earn tens of thousands of dollars from good courses. Best of all, you just create once and sell the course over and over again, 24/7, even when you’re sleeping.

How to earn passive income in Malaysia

There are a few types of passive income in Malaysia as listed above, however they all share one thing in common: a significant amount of time is required on your part. It doesn’t matter whether you choose to build a passive income from financial or effort investment; both require a significant amount of time, at least initially.

Depending on the source of passive income, this initial expense of time is used for:

  1. Gaining knowledge and conducting research – especially if you want to build your passive income machine via financial investments
  2. Actively using your time to create something which you can sell

The type of passive income you need to work towards will depend heavily on your financial capability and skill sets.

How to earn passive income in Malaysia from financial investments

  1. Invest in good quality, dividend-paying stocks
  2. Invest in alternative investments like P2P
  3. Invest in unit trust funds or bonds
  4. Invest in properties – learn from experts like Faizul Ridzuan or Dr Victor Gan
  5. Buy income generating websites and maintain them

How to earn passive income in Malaysia from effort investments

  1. Write a book and publish it
  2. Teach others by creating courses and membership sites
  3. Create videos and upload them to YouTube
  4. Compose music or songs and get royalties

Best passive income in Malaysia

Is there such a thing as best passive income in Malaysia? This question is very difficult to answer.

By definition, “best” is very subjective. It really depends on what you’re willing to sacrifice.

What might be a best passive income for doctor like me might not be applicable for, say, a teacher. Simply because a teacher possesses a different skill set. A teacher may have different amounts of time at his or her disposal to create the passive income vehicle, compared to a doctor who’s always on call.

Conclusion

I hope this passive income in Malaysia guide is useful for you. It’s not rocket science, what’s needed is a healthy dose of persistence.

As usual, if you have any questions, feel free to leave a comment below!

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