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I've had a blog for a few months now and never intended it to be passive income, yet I'm amazed at the people who actually believe that they can make a substantial amount of money this way. Case in point...my Ad Sense revenue for last month was a whopping 63 cents.
At last, I can retire from this life of crime...
Love the blog. Keep up the great work.
Granted, it would be making more ( probably ) if I was actively working on it. But I don't have to pound on the keyboard every minute of every day to keep that money coming in. It's "passive", in a sense.
On a Learn Spanish on Your Own website, I would expect to see Spanish lessons.
These little affiliate sites are probably light on maintenance, so you're approaching passive income, but I don't think the outlook is good in the long term. Eventually search engines will get smarter and discount content-less websites.
I don't intend to criticize, I just want to delineate the difference between what I was writing about in the post and other forms of earning income online.
Blogging is by far the least passive thing I've ever done. It requires even more work than most normal jobs because you have to be constantly creative and reaching out. There are no guarantees about salary or simple job requirements. I like it, though.
I had someone email me a proposal from a SEO company (It cost $1,500) and it said that they could put adsense on their site to earn big advertising dollars. It really made me laugh when I read it.
Great post by the way. Very enjoyable! What would you say are "true" passive income sources?
However, the information there is exactly the process I used to learn the language to near-fluency in a matter of a few months. I pieced together bits and pieces of the process from a few other sites, but I'd never seen it all packaged together. Of course, that has changed over the years but Google traffic has been increasing steadily since the beginning, so I don't see why it wouldn't be sustainable. It's almost 4 years old now.
I also disagree with affiliate pages crowding the internet and making information harder to sift through for beginners. The potential size of the internet is infinite and sorting it out is largely a solved problem i.e. tripling the size of the internet by adding a bunch of worthless affiliate sites will be exactly as difficult to filter as it is now. The idea that an increase in crap content makes it more difficult to find the good content is a fallacy.
There are many more websites out there that are simply one-page, key-word heavy landing pages designed to attract search engine visitors and force them through an affiliate link or an advertising link if they don't use their browser's back button to return to the search engine results.
An increase in crap is a decrease to the overall signal-to-noise ratio in search results, and it makes performing research much more frustrating. First, you can't always tell the quality or depth of a website simply by its listing in search engine results. Second, many such sites blatantly use tactics to manipulate search engine results and they can be listed highly for unrelated topics. This most definitely makes it harder to find good content because I expect that every top search result presented by Google (for example) to contain what I'm looking for if I structure my search query properly.
The proliferation of sites designed *solely* for SEO and affiliate sales add to the noise, lower the signal-to-noise ratio, and make it more difficult to find good quality, in-depth information.
Again, your site is better than I initially thought. :-)
In theory, the addition of crap sites has no influence whatsoever on search results. In practice, it does but the influence is very small and getting smaller all the time as google tweaks things. That said, there is no fundamental reason why one-page SEO sites can't provide real value to their readers. After all, a visitor presumably wouldn't have clicked on an advertisement or made a purchase in the first place if they didn't think it in their best interests.
Blogging is very hard work, I'm give you that. But, it puts you in control and gives you the opportunity to as I like to say, "Get your own customers". Real estate is also a very exciting business - IF you put in your time and find the right deals. But, I like blogging better because the startup costs and the risks are much, much lower.
I also hate searching for something and finding a one page website with nothing but links to somewhere else. They only frusturate users and decrease the value of the internet. I wish google could find a better way to filter them out.
It's really hard to truly find passive income even if you count stocks' capital gain and dividends because that'll require a lot of initial learning and continuous studies and attention to both the individual investments and the market.
As for real estate and rentals, being a landlord is no where near passive. The amount of stress and maintenance and sudden issues that come up with tenants... I have seen too much of the people I know and I will never be landlord. Not because it's a bad thing. It's still a great way for income for many people. It's just not suitable for me. Therefore, it's important for each person to know what he or she wants.
Take blogging for example.
Obviously you have to put in tons of time to build it and get to a sustaining traffic and income level, eventually you could be able to just coast by with writing a post. That takes what? All of two seconds.
In real estate if you are able to become successful, eventually you can outsource the upkeep and whatever else might be required.
But I do see what you are talking about. Many people feel they can just come in and make a quick buck. Then again it might seem like that because they enjoy it that much, and most people don't equate "enjoy" and "job".
Luke: Advertising sure makes it sound easy.
Curt: Betting in foreign exchange seems to me to be fairly active rather than passive, and only income if you manage to earn money rather than lose. But unless I misunderstand the concept of foreign exchange trading, you need to perform research and make moves at the right time. That doesn't sound passive to me. You're not lifting heavy boxes, but you are trading your time and effort.
I purposely didn't discuss investments in this article because it is a different world and active vs. passive is a different relationship. I'll explain in a future article.
Customer's Revenge: If you are completely uninvolved with management of your real estate properties, then two things happen. First, you're lucky if you are earning income on top of what you have to pay to the management firms... and as I mentioned in the article, this works best with large scale operations, to make those thin profit margins actually worthwhile. Then you're dealing with the time and effort it takes to build that empire. Hardly passive. Second, once you're totally hands-off, you're an investor, which is really where passive income sits, but you're still not in the clear.
theWild1: "That takes what? All of two seconds?" Believe me, if your posts take two seconds to write, you better have an amazing gimmick, or else you won't have much of an audience for long. I wish I could take two seconds to write a well-informed and in-depth article. Then I could increase my productivity 1,800 to 7,200 times. For a typical post, unless I'm posting a quick update, it takes at least an hour to write. Usually more. Then there's time taken to respond to emails, comments, work with advertisers on deals, network with other bloggers. I could write an entire post (and it will take at least an hour) to discuss all the time that goes into blogging. Two-second posts do not exist, not here anyway. I've tried the short update form of blogging... and it doesn't work so much in this type of blog. But even those take longer than two seconds.
Mike
Real estate CAN be reasonably passive - we currently own a residential rental property and although we collect the rent and manage it ourselves that takes less than an hour per month on average. The rent gets paid directly into our bank account by the tenants, and the most I have to do is send an email reminder if the rent hasn't been paid when expected. Although the property is 50 years old and in "original" condition, because the rent is relatively low for the area the tenants don't expect too much upkeep. Only when something actually breaks do I have to call in a plumber or electrician. Anyhow, a large potion of the total return is long term capital growth (around 80% price increase in ten years) which is definitely passive.
However, I've previously had a rental property that was tons of work - with lots of tenants who fell behind in rent and had to be chased up, lots of damage to repair between tenants, and so on. So rental properties are a bit of a lucky dip in terms of the amount of work required.
As far as truly passive income, I would say that dividends from stocks and interest from bonds/cd's are the closest to passive income. Sure, it might take you a while to research and find that nice dividend stock, but if you set up a portfolio of 50+ stocks ( or just buy several etfs) you are as close to passive income as possible.
As for interest, you simply buy a CD, a nd then jsut collect the interest. Who cares about inflation anyways :-)
I've inadvertently become a landlord with a job change and a move. Luckily, the tenant is a friend and the property is relatively new, so it hasn't been that much work. It's the tax advantages that may make me continue to rent out the house, especially since I've lost money (on paper) on the value of the house.
As for stocks and other investments, it can be passive if you trust those target retirement mutual funds. I do my own financial planning and although it takes work, I find it interesting and almost fun.
So, just because income isn't passive, if it's active but fun, or at least stress free, then it's almost as good as passive and can often be better than working at a "real job".
+ Atul
An example that many like to give is MLM (BTW: I'm NOT involved in any MLM's) - after building up your downline you sit back and reap the benefits; or so the story goes.
This is certainly true for one of my friends ... he makes $1 Mill. or so a year and doesn't even attend meetings anymore. But, what if your downline starts to deplete? The MLM's products become outmoded? The company changes their business model of goes under?
But, if I can earn $250k ++ a year doing virtually nothing - move to another country for 4 years, leaving my businesses and real-estate to others to manage and run ... kick back and write a blog about my experiences ... that's passive enough for me!
Jim
On a slight aside but related to blog income, I also had a post on ” RSS readership correlation with blog revenue “, which looked at if a blogs revenue (from all sources) is proportional to the number of readers. The articile and some comments look at high profile pf bloggers (I would classify you as one) figures but could not reach a conclusion. It would be great to get your thoughts on this.
Andy
Secondly, I have a pfblog, though I don't ever expect to make any money out of it. Its more for my own personal enjoyment than anything else. I've been keeping a financial diary for years, so its simply the electronic verson thereof. And, yes, it is 'hard work', in the sense that golf is hard work for Tiger Woods. Should anyone really expect to make much money off their blog? No, I wouldn't think so - not any more, there are too many out there. (BTW check it out - its still new, but having visitors gives my ego a boost).
But, I've gotten off topic. I wanted to add to the discussion about passive income and in particular trading (refer comment #12 from Curt). I've worked in investment banks and hedge funds. Those guys who make BIG money work very very very hard (20 hour days are not uncommon). Also, the stress kills most of them by the time they are 40. Now that seems like real hard work to me.
There are thousands of websites out there promoting trading in all sorts of instruments (http://www.forexautomoney.com/ from a simple google search - one of millions). Is this easy, passive income? Again, in my experience people who try to trade these sorts of markets for a couple of minutes a day eventually get screwed by the guy doing 20+ hours a day.
Remember, there is no such things as passive income. If someone tells you there is, they are probably trying to screw you out of a few bucks.
I have been involved in websites that made a lot of money through affiliate marketing, and I have to say that most of the time, we weren't doing any work. The mechanism for earning the money was passive. However, just like with property, you have to do maintenance to continue earning the passive income. With websites, the real-estate is the search engine positions/adwords campaign you have, which needs to be maintained. You never really achieve true passive income because you are constantly having to maintain SE positions, much like with real estate, you cannot let it fall into disrepair otherwise the income will fall.
Thanks for just telling the truth. Very refreshing.
Real estate will work long term, but you have to work it hard in the first years to get to a point where you get ahead of the numbers (value goes up, rents go up) and get to a point where you can afford to have someone else manage it. And "Professional Property Management" is a huge oxymoron -- no such thing exists. NO ONE will manage it better than the owner, but you just get to a point where it's worth more to you personally to NOT manage it, even though you could make a little more money doing it yourself. Time vs. Money. I value my time more now than I used to when I managed them myself. But with multiple properties, over time, the passive income is there.
Key advantage of real estate: None of the other sources of passive income have the TAX SHELTERING advantages of real estate. Real estate is the only investment that can provide long term appreciation, income, AND tax advantages. A substantial portion of my real estate properties will provide true, passive net income, while showing a tax loss. It's a delicate balance, but the goal is to have an overall portfolio where there is a tidy amount of monthly net income, while showing a net wash on my taxes. Uncle Sam thinks I'm poor, but only because I'm beating him at his own game, by his own IRS rules. I've got to tell you, I get huge satisfaction from that.
To each his own. But real estate is working very nicely for me. It took about 10 years of hard work, but the framework is in place for a comfortable future.
Party on. . . . .
As for the real estate part, you can outsource the drawing up of a contract. And if you have to oversee the management, you really didn't do a good job picking a management company. This overseeing should be limited to, "That's what I pay you for." and then hanging up. Overall that's less work than rebalancing a portfolio.
You've got a new reader. This post is nearly a year old - it is good to see your quality articles still bringing them in.
It is hard. I am 26 and love learning about investing. I am experimenting with Options strategies, own an investment property, and run a blog about retiring with passive income generating assets. There is a long way to go.
Residential Investment Property - It's fun. Why is this hard? Buy a property with a sizeable deposit, do it up, rent it out. Check it every 3 years and consider giving it a splash. The acquisition process is by no means passive, but after the hard yards are done it is a lot easier.
Stocks - I do not like the sound of shares. Huge capital outlay, little leverage and buy, hold and pray approach has given me the willies. Little money down, lower risk higher reward, massive leverage - I believe in options all the way! There are a lot of other share market strategies I do not yet understand but hey - I'm still at my 9 to 5 so give me time.
Blogging - My AdSense revenue is trickling into my bank account at a snails pace. There are a few affiliates dribbling funds here and there and slowly but surely my traffic is growing. I decided to write about my passions and hence not fall over in 6 months time when I found Ad revenue a joke. It is an arduous journey to the top of a blogging empire but I'm having fun.
Business - The entity behind the blog empire is something I continue to think about behind the scenes. There is definitely the potential to generate massive wealth with business principles. Like, provide your readers with a solution to their problem and charge for it. The blogging business model only seems to generate cash from affiliates and memberships. Fill me in here please!
It is all a bit of a mess but I am wading through, cutting the fat, tweaking the systems and looking to the future. Financial independence is a hard road but I am thoroughly enjoying the trek.
All the best - Johnny