Becoming a lawyer is difficult. It takes four years of undergraduate education, three years of law school, and passing the notoriously difficult bar exam. For those that make it, the reward is a high salary – according to U.S. News, the median wage for a lawyer in 2020 was $127,000 annually – and a grueling work schedule. These two factors combined leave lawyers in a unique position when it comes to personal finance – they are highly compensated, but have little time to dedicate to assembling and growing an investment portfolio.
To help with this issue, we are going to present 12 passive income ideas for lawyers. For each, we will describe what it is, how it earns passive income, and the risks and benefits of allocating capital to it. By the end, the goal is for readers to identify one or two ideas that are good fit for their own personal investment preferences.
At First National Realty Partners, we are a private equity commercial real estate investment firm that specializes in the acquisition and management of grocery store anchored retail centers. In a typical investment structure, we handle the hard work of finding, underwriting, and financing a commercial property while our investors – some of whom are lawyers – benefit from passive income and tax advantages. If you are an accredited investor and would like to learn more about our current investment opportunities, click here.
Pre-Investment Considerations
Although lawyers tend to be higher earners on the whole, it doesn’t necessarily mean that they are all wealthy. Each individual has a unique set of financial circumstances and return objectives that they bring to a potential investment. As a result, it is important that they consider a number of things prior to allocating capital to one of the strategies listed below:
- Risk Tolerance: All investments involve some degree of risk. At the low end, something like a US Treasury Bond is considered to be extremely safe while, at the high end, something like cryptocurrency is considered to be speculative. In order to identify suitable investment opportunities, each individual investor must determine what level of risk they are comfortable with.
- Return Objectives: Risk and return are correlated. Investors who have a low risk tolerance will likely have to be comfortable with lower returns. Investors with a higher risk tolerance may be able to achieve higher, but more variable, returns.
- Time Horizon: Some investments – like stocks or bonds – have a high degree of liquidity while others – like commercial rental property require a longer term hold. As a general rule, investment profits are made over the long term, but each investor may have their own desired time horizon and should choose investments that are consistent with it.
- Debt Load: Law school is expensive and many aspiring lawyers take out student loans to pay for it. As a general rule of thumb, it is a best practice to concentrate on reducing debt before allocating capital to an investment or passive income strategy.
- Emergency Fund: Even after debt is paid down, it is a good idea for investors to build up an emergency fund with three to six months worth of living expenses. This fund acts as a layer of protection against unforeseen financial shocks such as a job loss or major medical expense.
In the list below, none of the ideas are objectively better than the others. But, some may be a more suitable fit given an individual investor’s preferences. So, before pursuing any one of them, investors should give consideration to the above factors and choose the most suitable option. If necessary, it can make sense to work with a financial advisor to gain additional insight into the types of passive income that are possible.
Idea #1: Private Equity Real Estate
A private equity firm is one that invests in the privately held equity of other companies, including those that own real estate. For those looking to develop a passive income stream, a private equity investment is typically structured so the firm handles the hard work of finding, underwriting, financing, and managing a commercial property while investors provide capital and receive dividends on a periodic basis.
The benefit of this approach is that lawyers are able to use their assets to develop a source of extra income while leveraging the relationships and expertise of the private equity firm to gain fractional ownership of institutional quality real estate assets.
The downside of this approach is that it is only available to investors who meet certain income and net worth requirements. In addition, it can require a lengthy holding period of 5+ years and fees charged by the private equity firm can eat into potential profits.
Idea #2: Online Courses
Lawyers are experts in the law. This type of expertise lends itself well to the creation of online courses as a side hustle to create passive income. For example, lawyers could create courses on how to prepare for the bar exam or on how to get into the best law schools. These courses could be hosted on a proprietary e-learning platform like udemy or on a YouTube channel. Income is earned from the sale of the courses or from advertising and affiliate marketing links.
The major benefit of this approach is that it scales well. In other words, the course only needs to be created once and then it can be sold hundreds or thousands of times with little incremental effort.
The downside is that it can be incredibly time consuming to create, market, and support an online course. In addition, it requires specific expertise to market and sell the course to potential students.
Idea #3: Direct Real Estate Investments
In a direct real estate investment, an investor or group of investors purchases a property directly and rents the space in it to tenants. If there is any money left over after the rental income has been used to pay for operating expenses, it can result in positive cash flow for the owner(s).
The benefit of this approach is that the owner(s) have complete control over which property is purchased and in major management decisions. In addition, they don’t have to split profits with anyone else and reap certain tax benefits from ownership.
The downside of a direct real estate investment is that commercial properties are expensive, which means that this option may only be available to the most well funded individual investors. In addition, limited resources mean limited opportunities for diversification, and it can be a full time job to manage the property – busy lawyers may not have the time to do it.
Idea #4: Investing in REITs
Real Estate Investment Trusts – REITs for short – are companies that own, operate, or finance commercial real estate. All investors have an opportunity to purchase the shares of publicly traded REITs, which produce passive income through periodic distributions. For example, STOR Capital is a popular REIT that invests in single tenant, net leased properties in the US and pays an annual dividend of 5.0%. A $10,000 investment in this REIT would produce $500 in passive income annually.
The benefit of this approach is that publicly traded REITs are highly liquid, have low minimum investments, low fees, and diversified portfolios (e.g. STOR owns ~2,800 properties nationwide).
The downside of a REIT purchase is that individual investors have no say in which properties their capital is used to purchase and the price movements of REIT shares can get caught up in negative sentiment that does not reflect the reality of the underlying property portfolio.
Idea #5: Blogging
A blog is an online diary of sorts and creating one with high quality content, in a popular niche, can produce extra cash that can help lawyers achieve financial freedom.
The benefit of this approach is that there are minimal startup costs and there are multiple avenues for monetization. For example, bloggers could earn commission through an affiliate program with amazon, could promote their blog on social media, or could earn paid speaking gigs.
The downside of a blog is that it isn’t completely passive – it can take a lot of work to generate new content. In addition, it can take a long time to build an audience large enough to make a blog a material source of passive income.
Idea #6: Dividend Stocks
Some companies – usually larger, more established ones – have a business model that actively seeks to return capital to their shareholders in the form of periodic dividends. Buying dividend stocks can produce passive income from the dividends paid on a quarterly basis. For example, Ford Motor Corp. is a popular dividend paying stock that has an annual yield of 2.24%.
The benefit of investing in dividend stocks is that the companies that pay dividends are large, stable, corporations that tend to be much less volatile than the stocks of small businesses. In addition, they are liquid and require a low minimum investment.
The major downside of a dividend paying stock is that dividends alone aren’t usually enough to be a material source of passive income. It would take $1M dollars worth of Ford stock to produce $22,400 of dividend income. In addition, the stock market can be volatile and dividend income can be offset by losses in the share price.
Idea #7: Podcasting
A podcast is an audio program that is created and delivered to smartphones at scale. Often, they specialize in a specific topic – like the law – and can be created in whatever time frame the creator prefers (daily, weekly, monthly, etc).
The major benefit of a podcast is that they can be distributed at significant scale and across platforms (iOS, Android, etc.) and they can be created with a small upfront investment. In addition, they are wildly popular and those that break through can easily have six-figure revenue streams.
The downside of a podcast is that the competition is stiff and it can take a lot of resources to move beyond a niche audience. In addition, they can be very time consuming to produce, edit, and distribute on a regular basis. Lawyers may not have time to do this.
Idea #8: High Yield Savings Account(s)
A high yield savings account is a specific type of bank account that pays a higher than normal amount of interest. They earn passive income from the interest paid on deposits.
The benefit of a high yield savings account is that they are relatively safe, FDIC Insured up to a certain balance, and can pay interest on a monthly basis.
But, a high-yield savings account does not pay enough interest to really amount to a material stream of income. For example, the high-yield savings account offered by American Express – a popular option – pays just .50% annually. In addition, there may be a limit to the number of withdrawals that an account holder may make each month.
Idea #9: YouTube
YouTube is a video streaming platform that allows users to create and upload their own content. Those that are able to produce content that gets a lot of traffic can sell ads against their videos to earn passive income.
The benefit of this approach is that YouTube has a nearly unlimited reach and the earning potential can be significant.
The downside of creating a YouTube channel is that, like a blog or podcast, it is not completely passive. It takes time and effort to create content, edit videos, and promote the channel. In addition, this is a very competitive space and law is a relatively niche topic.
Idea #10: Alternative Cash Flow Investing
Alternative cash flow investing is a broad term that encompasses a strategy that seeks to allocate capital to income producing investments that aren’t in traditional asset classes like stocks, bonds, mutual funds, or real estate. Examples of alternative assets could include things like fine art, wine, or buying and selling domain names on the internet.
The benefit of this approach is that there may not be as much competition and developing expertise in a niche market can prove to be very profitable.
The downside is that lack of competition can also mean lack of liquidity. Alternative investments can be tough to sell or can involve high transaction fees that cut into profits.
Idea #11: Write an EBook
An “electronic book” or e-book for short is a short book, usually on a specific topic, that is written to be sold for informational or educational purposes. Lawyers can earn passive income from selling them online as a digital product.
The benefit of writing an e-book is that it only has to be written once, can be self-published on a number of platforms, and can be sold at scale.
The downside of an e-book is that it can be difficult to find an audience, the marketing costs can be high, and it takes a lot of work to write the book in the first place.
Idea #12: Peer to Peer Lending
Peer to peer lending is exactly what it sounds like. It occurs when someone with money to lend provides it to someone who needs to borrow money for some purpose. Often, this type of transaction is enabled by a technology platform like LendingClub.
The benefit of peer to peer lending is that lenders can earn high rates of interest, receive regular payments, and can diversify their lending portfolio across many different types and sizes of loans.
The major downside to peer to peer lending is that these are typically unsecured loans so there is little to no recourse to the borrower in the event of default.
A Few More Ideas
In addition to the above, there are a few more ways that lawyers can potentially make extra money:
- Airbnb: If there is extra room in the house or if there is a secondary property, it can be rented on Airbnb or a similar platform to earn passive income.
- Sell Stuff: For those that are handy, they could make things and sell them on Etsy, Ebay, or similar platforms.
- Car Rentals: Lawyers with an extra car can rent it out on a website like Turo
- Side Hustles: If the law firm allows it, lawyers can take on side projects that can be earned through a website like UpWork. Granted, this is more active income than passive, but it can be an easy way to earn a few extra dollars for those that want to do so.
Why Lawyers Should Consider Creating a Passive Income Source
As described in the introduction, lawyers are in a unique financial position. They tend to be high earners, but have little time to devote to non-work interests like financial planning. So, to help secure their financial future, a passive income source is a good idea because it allows lawyers to earn extra money without having to dedicate much time to get it.
Interested In Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.
If you are an Accredited Real Estate Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information.
