The Tax Reality: FEIE Does NOT Cover Passive Income
Before we dive in, the critical tax fact: the Foreign Earned Income Exclusion only covers earned income (wages, salary, self-employment). Dividends, interest, capital gains, rental income, and royalties are NOT excludable. You can use the Foreign Tax Credit to offset US taxes if your host country also taxes this income. And certain accounts (Roth IRA) grow tax-free regardless. But plan accordingly — passive income is always taxable to the US.Related: online business guide
1. Dividend Investing
Effort: Minimal | Expected yield: 3-8% | Minimum to start: $1,000 The simplest passive income stream. Buy shares of dividend-paying companies or ETFs and collect quarterly payments.Top Dividend ETFs
| ETF | Yield | Expense Ratio | Focus |
|---|---|---|---|
| SCHD | ~3.5% | 0.06% | Quality dividend growth stocks |
| VYM | ~3.0% | 0.06% | High dividend yield |
| JEPI | ~7-8% | 0.35% | Equity income + options premium |
| JEPQ | ~9-10% | 0.35% | Nasdaq income + options premium |
| HDV | ~3.5% | 0.08% | High dividend, defensive sectors |
Portfolio Examples
- $100K invested (SCHD/VYM blend): ~$3,000-3,500/year ($250-290/month)
- $250K invested: ~$7,500-8,750/year ($625-730/month)
- $500K invested: ~$15,000-17,500/year ($1,250-1,460/month)
- $500K in JEPI/JEPQ: ~$35,000-45,000/year ($2,900-3,750/month) — enough to cover living expenses in most countries on our geographic arbitrage list
2. REITs (Real Estate Investment Trusts)
Effort: Minimal | Expected yield: 4-8% | Minimum to start: $1,000 Real estate income without being a landlord.- VNQ (Vanguard Real Estate ETF): ~3.8% yield, 0.12% expense ratio
- O (Realty Income): ~5.5% yield, monthly dividends — "the Monthly Dividend Company"
- STAG Industrial: ~4% yield, monthly dividends, industrial properties
3. Rental Property (Remote Management)
Effort: Medium | Expected yield: 6-12% cash-on-cash | Minimum to start: $30,000-60,000 (down payment) You can own US rental property while living abroad. The key is a good property manager (typically 8-12% of monthly rent). Tax note: Rental income is NOT covered by the FEIE. But you can deduct depreciation, mortgage interest, repairs, and management fees — often resulting in zero taxable income on paper.4. Digital Products
Effort: High upfront, minimal ongoing | Expected income: $100-10,000+/month | Minimum to start: $0-500 Create once, sell forever: ebooks, templates, Notion databases, Lightroom presets, design assets, online courses.- Platforms: Gumroad (10% fee), Etsy (digital downloads), Amazon KDP
- Self-hosted option: Host your own storefront on DigitalOcean with WordPress + WooCommerce for $4-12/month — keep 100% of revenue instead of paying platform fees
- Realistic income: $500-3,000/month after 6-12 months with a product library
5. Affiliate Marketing
Effort: High upfront, medium ongoing | Expected income: $500-10,000+/month | Minimum to start: $100-500 Recommend products you use, earn commissions on sales. The finance niche pays exceptionally well:- Insurance affiliates: $50-200 per signup
- Financial services: $25-500 per referral
- Software/SaaS: 20-40% recurring commissions
Related: rental property abroad guide
6. YouTube / Content Monetization
Effort: High ongoing | Expected income: $500-20,000+/month | Minimum to start: $500-2,000 Finance content on YouTube commands high CPMs ($15-40 per 1,000 views) because advertisers pay premium to reach financially-engaged audiences. A channel with 50,000 subscribers can generate $3,000-10,000/month from ads alone.7. High-Yield Savings / Treasury Bills
Effort: Zero | Expected yield: 4-5% (as of 2025-2026) | Minimum to start: $1,000 The risk-free option. With rates still elevated:- $100K in HYSA: ~$4,000-5,000/year
- $250K: ~$10,000-12,500/year ($830-1,040/month)
- T-bills: State tax exempt, slightly higher yields
8. Book/Music/Photography Royalties
Effort: High upfront, zero ongoing | Expected income: $100-5,000+/month Amazon KDP makes self-publishing accessible. Stock photography on Shutterstock/Adobe Stock generates small but consistent royalties. Music licensing through platforms like DistroKid or Artlist pays per use.9. Print-on-Demand
Effort: Medium | Expected income: $200-3,000/month | Minimum to start: $0 Design products, upload to Printful/Printify/Redbubble, they handle printing and shipping. Margins are 15-30% but it's truly passive once designs are uploaded.10. Commodity Trading (Semi-Passive)
Effort: Medium | Expected income: Variable | Minimum to start: $5,000-25,000 Not purely passive, but selling options premium on tastytrade can generate consistent monthly income. I cover this extensively in my silver and commodity trading guide. Section 1256 contracts get the favorable 26.8% blended tax rate.The Geographic Arbitrage Multiplier
Here's where it all comes together. A portfolio generating $3,000/month in passive income means:- In San Francisco: You're broke. That doesn't cover rent.
- In Austin: You're surviving, barely.
- In Medellín: You're living comfortably with $1,000+/month to spare for investing.
- In Chiang Mai: You're living well with $1,800/month going back into investments.
Building passive income is half the equation — investing it wisely is the other half. Check out our Expat Investor's Playbook to learn how to grow your portfolio from anywhere without getting caught in the PFIC tax trap.
Financial freedom isn't about earning millions — it's about your income exceeding your expenses by a comfortable margin. Move somewhere your expenses are low, build passive income streams, and let time and compounding do the rest. Disclaimer: Investment returns are not guaranteed. Past performance does not indicate future results. This is not financial advice — consult a qualified financial advisor for your specific situation.