Places With the Most Passive Income

While you are likely spending the bulk of your waking hours at work actively earning your paycheck, you can also get a major boost by growing your net worth passively in interest-generating savings accounts and through capital gains from the market. But residents in cities across the U.S. are not taking advantage of passive income in equal measure. We analyzed IRS data to find the places where Americans are most reaping the rewards of passive income.

To rank the places with the most passive income, we looked at two metrics for metro areas across the nation: total income and total passive income. The Data and Methodology section below explains how we put it together to create our final rankings.

Key Findings

• More income leads to more passive income - Places with more income also tend to have higher shares of passive income as a percent of all income. Across the top 25 metro areas, the average income is just under $155 billion. That figure for the bottom-25-ranked metro areas is $27.3 billion. In the bottom 25, only Riverside, California has a total income figure that crosses the $100-billion threshold.
• Wide differences - The gap between the results at the two ends of the study account for a substantial difference. In top-ranking metros like San Jose, California; Bridgeport, Connecticut; and North Port, Florida, investment income accounts for more than 20% of income. In the bottom-ranking metros, like McAllen, Texas; El Paso, Texas and Bakersfield, California, investment income accounts for 5% of income or less.

1. San Jose, CA
   
   San Jose is known as a tech hub with plenty of high-paying jobs, but its residents' wealth does not come exclusively from their employment. Our analysis of IRS tax data shows that 23.13% of total income in San Jose takes a passive form through investments.
2. Bridgeport, CT
   
   In this study, Bridgeport sees the second-highest proportion of its income coming from investments. Taxpayers here reported a combined income of about $69.4 billion, with $16 billion coming from passive sources. This translates to more than 23% of income that residents here make from investments.
3. North Port, NL
   
   Total income in North Port is not as high as it is in other metro areas that are in the top 10 on our list. But passive income does make up a significant share of the local income. On average, about 22% of income comes from passive sources like capital gains or dividends.
4. Cape Coral, FL
   
   Cape Coral residents bring in a total of almost $24 billion per year, according to IRS data. Almost $5 billion of that amount comes from passive sources like interest, dividends and capital gains. As a percentage, roughly 20% of Cape Coral residents' income is a result of passive income.
5. Miami, FL
   
   Miami actually has the highest passive income figure in the top five, reaching almost $36.5 billion. But the Magic City lands in the fifth position on our list because it also has the highest total income in the top five. Miami residents take home more than $190 billion per year, meaning their passive income is equal to 19% of total income.
6. Seattle, WA
   
   Roughly 17.54% of income in Seattle comes from passive means. In dollar terms, that equals nearly $32 billion.
7. Las Vegas, NV
   
   Las Vegas residents rely on more than luck to grow their wealth: They report income of more than $11 billion from passive sources, including interest, dividends and capital gains. That means passive sources make up roughly 17.4% of income here.
8. San Francisco, CA
   
   San Francisco residents come in number eight in our list of cities with the highest percentage of income coming from passive sources. Of the nearly $285 billion in income that they bring in, more than $49 billion comes from investments.
9. New York, NY
   
   The New York metro area is the largest one in the country by population and by total economic activity. Residents here report total income of $901 billion. $134 billion of that amount comes from passive sources and nearly equals the passive income of the top-seven-ranked metros combined.
10. Boston, MA
    
    Residents in the Boston metro area report passive income amounts similar to Miami's: a little more than $36 billion. But with a total income of $244 billion, passive income only represents 14.81% of all income in Boston.

In order to find the places with the most passive income, we looked at data for the 100 largest metro areas. We compared them across the following two metrics:

• Total income. This is income from all sources.
• Passive income. This is income from interest, qualified dividends, ordinary dividends and capital gains.

Data for both metrics comes from the IRS.

To create our rankings, we divided passive income by total income. We then ranked the resulting figures. The places where passive income made up the greatest share of income ranked highest.

Tips for Building a Passive Income Stream

• Diversify your income - Think about ways to create additional income. This can be buying a rental property, starting a side business or investing in the stock market. Having multiple streams of income can protect you from financial troubles if something happens to your main job. The more passive the income, the less you have to do in order to generate that income.
• Ask an advisor - A financial advisor can help you figure out the best way to build a passive income stream. Finding the right financial advisor that fits your needs doesn't have to be hard. Our free tool matches you with top fiduciary financial advisors in your area in five minutes. If you are ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Questions about our study? Contact us at press@smartasset.com