LIVING OFF DIVIDENDS & PASSIVE INCOME

A couple of years ago, I went to a real estate seminar and met a successful businessman. He was in his sixties and I was amazed to learn that he had more than a dozen small businesses going and was also trying to start his own bank.

Since I wanted to find out how did he manage to run so many different ventures, I offered to buy him lunch. (Incidentally, that’s a great way to cheaply pick the brains of someone who normally wouldn’t give you the time of day!)

Most of the various businesses he ran were some how interconnected and did a lot of business amongst themselves. Since they were in somewhat related fields, the management was a lot easier. For example, one of his businesses was writing newsletters for Trade Unions and another one was printing & mailing services.

Buying Cheap Domains

GoDaddy currently has a great promotion on .info domains. They’re currently selling for only $0.99 instead of the usual $9 dollars. That’s about 90% off the regular price, and I spent the past several days getting about 15 domains that I think I might be able to monetize in some form or the other.

People might feel more comfortable or might more easily remember .com domains, but if you’re targeting search engine traffic it probably shouldn’t matter very much. A lot of the domains have dashes in them (example Arts-Antiques-Artifacts.info, but again, for visitors coming from a search engine it shouldn’t matter too much.

I also got a few domains that I think are pretty cool like Discount Ipod.info, Discount Seiko Watches.info and Buy Cheap Paintball Guns.info.

Domain Parking

Finally I’m getting some traction with my passive income! After all, that’s what this blog is all about. The total for March 2008 is $2, 667.18, and I’m ecstatic to have broken the $2,500 per month barrier. If I can sustain it at $2,500 per month, thats $30,000 per year. While I’m not living in luxury, it’s definitely a great safety net to have. This represents a 11.9% jump from February’s passive income and it has been growing at a steady clip for quite a while now. Hopefully, I shouldn’t have a problem maintaining it.

Here’s the breakdown:

• Online Income: $1645.30
  • Adsense: $339.28
  • Linkworth: $456.70
  • TLA: $103.61
  • Kontera: $62.07
  • Direct Ads: $330
  • Prosper Referrals: $175
  • Amazon: $117.82
  • Domain Embarking: $60.82
• Savings Accounts: $133.10
• Real Estate Trust Deed: $0
• Direct Oil Drilling Investment: $270
• Dividends from Canroys: $517.71

Micro-lending is one of my 20 passive income streams. I currently have 45 loans on Prosper.com, lent out at an average rate of 19.55%. Even though I’ve had a few delinquencies, my capital has grown 14.5% in the 15 months I’ve been a lender. I’ve learnt a few things about lending and how to protect your principle.

Here are the Top Ten Worst reasons to lend money to borrowers:

1. You think they’re hot!
2. You feel sorry for them.
3. They have a picture of a cute kitten or puppy (or supermodel) in their profile.
4. They’re 95 and need money for medical bills.
   
5. They’re a Californian real estate investor and are willing to pay 20% interest for a remodel.
6. They need $25,000 for college and are willing to 25% interest for it.
7. They’re terminally ill and need a new fridge.

A little less than a year ago, I invested in a technology company that provides the back-end framework for porn companies. I invested via a company called AdultVest, which brings accredited investors and adult-entertainment companies together.

Last week, while in LA, I stopped by the corporate offices of AdultVest and met the founder and president, Francis Koenig. He’s a smart young guy, in his mid-thirties and is a “2nd generation hedge fund manager”. He had a very interesting office, with 500 lb bronze elephants and giraffes and various oil paintings adorning the walls.

He was very excited about some of the acquisitions they were working on. One of them was a start-up search engine that was already making $700k net profit on $2.1 million gross revenue in just its 2nd year. He had it under contract to purchase for $1.7 million of which $1 million was upfront, and the remaining was to be paid out after 12 months if the revenues didn’t drop. Pretty smart strategy!

Today gold hit $750, the highest its been in 28 years. It looks like we might break the previous intra-day high of $850 within the next few months.

There was a slew of bad news today related to the housing industry and inflation worries and both oil and gold reacted by going up. I bought into GDX today which is the gold mining index. I had bought it last year, but I sold it to buy actual gold coins.

 I’m still heavily bullish on gold and I think we’re still in the beginning stages of a rally.  Why do I think so? Because almost everyone I know ridicules my idea of gold being a good investment!!!!

I spent most of Saturday listening to an investment presentation by some oil guys from Texas and Oklahoma. I come in contact with them on a previous deal. At that time I had shown their investment presentation to my CPA (who usually turns down every investment I show him) and he was so impressed, he decided to fly out and meet them. He’s become their accountant and is investing heavily in their current deal.

Incidentally, in the previous deal where I came across the oil guys, they were also investors like me in a gas pipeline deal in Texas. It was a pretty sweet deal and we should’ve gotten cashed out with a 30% profit after a year. Unfortunately our partner, Grant Wilson III, decided to swindle us out of the profits. After spending over a year with this jackass, subsidizing his travel and living expenses he just decided that he deserved all the profits and he’s disappeared. Luckily we got all our principle back.

If you’ve ever wondered how much money the vending machine guy at your office makes, here’s an excellent post by GeniusTypes on how he got into the vending machine business.

It all started with having an open mind and buying a route from someone who had lost interest for well below what it was worth.

You’ll see this theme repeated in many successful investment stories.

Every so often you’ll see ads in the local paper about the company that sells large office-type vending machines holding a presentation. Apparently, the charge $1000 each and it takes a long time to recoup your investment. Most of the buyers give up and sell them for $100-$200 each and the second owner usually has better luck.

GeniusTypes kept his initial investment low by understanding how to value the business to begin with. He thus guaranteed his success by keeping a large margin of safety.

Yesterday, I bought some more Canadian Income Funds, also called Royalty Trusts or Canroys. As I mentioned before, I recently refinanced a property and I managed to pull some money out (totally tax-free!).

Rather than spend the money on an SUV or a big-screen TV, I opted to divide the money into 3 parts. The first 1/3rd went towards replenishing my emergency fund which was drawn down by vacancies in my rental properties. The second 1/3rd went towards future investments in summer just in case there’s a pullback in the stock market and the last 1/3rd went to building up my passive cash-flow.

Long time readers will realize that I haven’t made any effort display my net worth or any goals of net worth. That’s because I feel its a meaningless number. If I had a $1 million dollar net worth and it only generated $25,000 a year in income (like Cd’s did a few years ago) that’s pretty sad. On the other hand, if I owned a $1,000,000 car-wash that generated $125,000 that’s pretty significant.

Prosper.com has now started giving out $25 referral fees if you sign up through an affiliate link!

It doesn’t matter whether you’re a lender or a borrower, you still get the $25. Don’t know when it started but it ends on August 31st 2007.

Popularity: 3% [?]

In the wake of the commodities boom, the Canadian currency has appreciated almost 50% against the U.S. dollar since the beginning of 2002. In the last three months alone, strong economic data, inflows from mergers and acquisitions, buoyant commodity prices and above-target core inflation resulted in a rise of the Canadian dollar (CAD) of about 8%.

I’m really happy since I own a lot of Canadian Income Funds which pay out monthly dividends in Canadian dollars. So as the Loonie appreciates, my monthly dividend increases too!

Will the Loonie ever achieve parity with the US Dollar though? Some analysts are predicted it to hit $0.96 = C$1.00 which is awfully close.

What do you guys think?

Popularity: 2% [?]

I’ve been wanting to send in the paperwork for the Everbank Marketsafe Japanese REIT CD for nearly a month. Since I used my Coporation’s 401k and Profit Sharing Plan (PSP) to invest, I had to open a business account and fill out extra Trustee paperwork, in addition to supplying a copy of the original 200 page 401k & PSP documentation.

Anyway, I got it all filled out and signed by the co-Trustee (my wife) and fedexed it to Everbank. April 17th is the last date to get in on this investment.

If you think the Yen is going to appreciate against the dollar and Japanese Real Estate is going to appreciate, its worth a gamble. This CD is FDIC insured and has no downside risk! You can read more
about it at Wealth Building Lessons.

I had an afternoon lunch meeting with an LA business owner. He was trying to raise money for his “Audio Erotica” business. He figured that audio books were growing at a ferocious pace and no one was servicing the needs of Erotica fans(over half of which are female!). So he’s tied up with several synergistic partners - well known porn stars(like Jenna Jameson), a publishing house, an audio recording company and is has already created several audio erotica short-story sets. Very interesting concept! He was meeting with me because he wanted to raise some more money. He’s issuing an 11% convertible dividend and expects to double or triple the investment in 3 years. The only issue I have is with his valuation, which at $4.2 million is a tad too high. I may not invest but I believe he’ll make money in his venture.

Making Our Way has a great post on how people think they can start a personal finance blog and expect to make enough money out of it that they can quit their jobs!

Unless you getting 50,000 hits a day, thats not going to work out for you. And unless your a marketing expert, SEO guru and a great writer with interesting content, that really isn’t going to happen.

Instead you should try to make $200-$500/mo from it and consider that to be one of your multiple income streams. If you can develop a dozen income streams each paying you $500/month, you’ve set yourself up for financial freedom. It may not be enough to live luxuriously, but at least you won’t starve if you lose your job, or want to take a year off to pursue your passions.

1. Don’t lend money to people to get cars.
Anyone with a pulse can get a loan on car. If they sell the car, wreck it or it otherwise gets repossesed, their motivation to pay off the loan will drop to nil.

2. Don’t lend to people who are terminally ill or very old.
That sounds cruel but unless you’re in it for charity(and I admit, I’ve made one loan like that which surprizing hasn’t defaulted!) I suggest skipping this class of people.

3. Avoid people with a large number of delinquencies.
People who’ve had a dozen in the past 12 months are not good candidates for lending money!

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[All content is copyright of Adventures In Money Making]

Popularity: 2% [?]

I spoke to my uncle’s friend today. Apparently he had a few liquor shops and recently got into the hotel business.I’d been wondering what the numbers are in that business and I actually got some concrete numbers today.

Ideally you should pay 4 times the gross income or less. The bank requires you to only put down 20% of the purchase price. If you buy a chain (instead of running a mom & pop joint), the bookings are done through a central reservation system so its NOT a cash-based business. This means you can hire a manager or a management company to run it for you and be sure that you’re not being robbed. Normally hotels should net you atleast 15% cash on cash or better.

Sounds like pretty good numbers to me. He’s promised to include me (with my puny investment capital) in his next investment. Hopefully I will have free capital at that time.

A few weeks ago, I cursed the Canadian Finance Minister for causing my CanRoys to drop significantly overnight. I may have been premature in cursing him.

I originally bought them for the dividends that they were paying out, mostly in the 8-12% range, with the occasional one paying out 13-14%. However, the severe drop in prices caused their yields to jump proportionately to 12-17%. One of the companies I bought became a 19% yield! Even if Flaherty’s taxation of dividends became true, it would still be 4 years away and by then you would’ve gotten nearly 80% of your money back. Last week money started flowing back in Canroys. I picked up a little more on margin. The one I picked up, AAV currently gives a 17% yield. So even if I have to pay 9-10% margin interest I’m still ahead by 7%. Plus if Oil & Gas prices continue to rise which I think they will I’ll see some capital appreciation.

I spoke to one of my friends after a while. I found out that he had just purchased one of those Hilton timeshares I had mentioned in an earlier post.

He was taken in by the high pressure tactics and the temptation of exotic vacations! He’s now suffering from buyers remorse.

Like they say, “Invest in haste, repent at leisure!”.

Well if any of you are interested in spending $20,000 on a hotel room, let me know. I’m thinking of putting together my own timeshare.

We buy a small house in Nicaragua for around $120,000. Its atop a mountain next to a nature preserve with l