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How Passive Is Your Passive Income?

Posted on by Nirav
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I’ve been lumping in my online income with my passive income, but it isn’t really passive. It may not be very strenuous and it gives me geographic flexibility and I don’t have to show up for work every day, but there is some effort involved. Unfortunately I’m not as clever as Courtney Tuttle, who says he has a site that makes $3,500/month with no ongoing maintance. (If you’d like to buy an existing site that generates income, check out the online businesses for sale on my business & investment store). I’ve just had some limited success with Domain Parking, buts that the extent of my truly passive online income.

Simply put, my online income isn’t really passive. It’s a lot more passive than the website and seo consulting work I do by a huge margin, but its not as passive as dividneds or royalty checks.

So what are the best ways to earn really Passive Income?

1. High Dividend Stocks
There are a lot of stocks that paying quarterly or yearly dividends. Over time, the power of compounding (with a little help from inflation) can substantially increase the value of your dividends. My mother bought the Indian subsidiary of Unilever (Ticker: UL) called Hindustan Lever about 20 years ago. She’s being reinvesting most of her dividends and today her annual dividends are larger than the value of the original stock purchase. American Capital Strategies (ticker: ACAS) has been growing its dividends approximately 10% every year. According to The Dividend Investor,

If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%.

Yes, reinvesting the dividends in companies that have historically kept increasing their dividends is key. Even though you might get only 2.5% return today, eventually with the increase in stock price and rise in dividends, your annual return should be greater than 12%. This concept is very well explained in Prof. Jeremy Siegel’s excellent book, The Future for Investors, which I highly recommend.

2. Oil & Gas Royalties

While there is a lot of fraud and speculation in direct oil drilling programs, they can be very, very lucrative for investors. Charlie Munger invested about a $1,000 in such an oil drilling program in the 60s and he’s estimated that its paid out over $500,000 in royalty payments since then. Apparently it still pays out $2,000 a month. Of course, most people NEVER see these sort of returns, but for the average person, investing in Canadian Oil & Gas Royalty Funds (or Income Trusts) is the next best thing. I’ve invested quite a bit of money into both the direct oil wells and the Canadian Income Trusts (or Canroys) and the overall result has been pretty positive in both (which is in excess of 12%).

3. Royalties on Books and Patents

Royalties on Books and Intellectual Property Rights can be even more lucrative. However writing a best-selling book or creating a something thats worth patenting can extremely time consuming and expensive. For most authors and inventors, its a labor of love – something that they would pursue even if there was no monetary reward to it. But many ebook writers who sell get-rich-quick books about “making money online” are getting very wealthy. Most of these books are garbage and the only people getting rich are their authors and resellers. Not a very ethical way to make money.

4. Rental Income on Properties Bought at the Bottom of a Real Estate Cycle.

If you bought rental buy and hold property in California, Nevada, Arizona or Florida during 2005 and 2007, my heart goes out to you. A lot of smart people got suckered into buying at the top of the market and are paying for it. However, if you buy correctly, preferably at the bottom of a real estate cycle, real estate can provide excellent passive income and fantastic tax advantages as well. According to Charlie Munger at the 2008 Wesco Financial Annual Shareholder meeting, “most real estate investors don’t pay any income tax, except once every 20 years or so“. Bought correctly (that is based on value, not speculation), rental properties can provide a steady stream of cashflow that is somewhat inflation-indexed. I say somewhat, because in the short-term anything can happen, but over a long period of time, real estate is going to match the rate of inflation.

5. Investing In Timber

Similar to Canroys, there are companies that grow trees specifically for timber and pay pretty decent dividends. There are also direct tree-planting programs where you can invest a minimum of $5,000 and own a portion of a timber operation. The company does all the work for you and supposedly cuts you a check once a year after a specific time interval. The endowment funds of Harvard and Yale have apparently been investing in timber for several years now with great returns.

6. Domain Parking (or Embarking)

There are many people who buy and hold hundreds of domains (I know a guy who owns 750). They either park them with Sedo or another domain-parking service. These services stick relevant (and sometimes not-so-relevant) ads on your site. The idea is that if someone comes to the site through browser type-in traffic and clicks on an ad, you get paid a portion of this ad revenue. I had hosted several sites with Sedo and made a whopping 2 cents per month. I’ve recently been trying out a new service called Domain Embarking that is working pretty well for me.

Earn Passive Income From Domains

Posted on by Nirav
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Is it possible to earn passive income for domains? Absolutely!  It isn’t rocket science but it does involve a little bit of work. Here are the simple steps:

1. Buy a cheap domain name.

2. Decide how you’re going to monetize it. Either through ads on a niche site, affiliate sales, or domain parking.

3. Get up and actually do the work.

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 Sterling-Silver-Rings.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 Cheap iPod Batteries.info.A good domain name has highly relevant keywords in it. How do you find these relevant keywords? Try using a search tool like Keyword Elite. It’ll save you a ton of time in research.


Niche Sites

The most common way of profiting from a niche site, is creating a lot of content around a keyword or an idea and putting ads around it.  If you can create a lot of unique content around a topic and attract a lot of visitors, you should be able to easily monetize it through Google Adsense or Text-Link-Ads or LinkWorth.

One way I’m thinking of profiting from them is through building a niche store (BANS). I already have an account with Dreamhost and I can host unlimited domains with them without any extra cost. You either set up an Amazon store or an Ebay store and make referral income off the sales. That’s a great way to produce residual income if you can make it work.

If you’re facing problems installing the BANS software on Dreamhost, check out this guide: How To install BANS on Dreamhost.

These are both great ways to produce residual passive income from a few hours of work. It might take a few months ramp up, but they should both add to my passive income.

If you’d like to buy a revenue generating website check out my business and investment store.

Update: September 18th 2008

Looks like my ebay-affiliate stores should pull in over $500 this month! The income has been going up every single month, while the effort has almost dropped off! That’s a pretty nice residual income stream.

However, if you’re too lazy to create content, then you might want to consider domain parking.

Affiliate Sales

This is by far the most profitable strategy and also the most work! You figure out how to drive traffic to  a site and how to get people to part with their money either by buying a 3rd-party product or something you’ve developed yourself.  I know guys who make over $100,000 a year doing this. It isn’t exactly passive but the hourly rate is insanely high if you know what you’re doing. I know of one guy who makes the equivalent ofi $5,000 an hour from his affiliate sites.

Here’s an example of an affiliate site that sells a very interesting product. Its a system that teaches to make money selling stuff! Here’s an example of a site that sells a product they developed themsleves.

Domain Parking

Another way I’m thinking of monetizing them is through Domain Parking. Many companies offer domain parking, including Sedo, GoDaddy and even Google. However, what they usually do is just put up ad links on your site. Unless people are directly typing in the address of your site into the browser you are unlikely to see any traffic or revenue.

A better way is to use a company like Why Park? They will automatically generate content for your sites and update it on a regular basis. The resulting site with fresh content is much more likely to get indexed in the search engines and get organic traffic (that’s traffic from search engines) and thus you are more likely to actually see some revenue.

A Better Way To Earn Money From Parked Domains

Posted on by Nirav
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Until recently, domainers used to park domains with nothing but ads on them. They tried to get traffic from mis-spelt URLs or people who’d directly type a URL in the location bar. There wasn’t any content to attract the search engines, so unless they were paying to direct traffic to their site, the number of eyeballs was pretty low. However, if they did a good job of providing relevant links, the user was likely to click on them, if nothing else then atleast to get away from their site. I had several sites parked with Sedo.com and so far I’ve made $0.24 over a 2 year period! Pretty lousy way to park domains.

However, a site called Domain Embarking is trying to revolutionize the way domains are parked. Instead of putting up a site with nothing but ads, they’ve come upon an automated way to ad relevant content to your site.

Through their user-friendly dashboard, you can add your Domains (which may be registered elsewhere) and fill out 3 fields regarding keywords you’d like to target and the title. There’s a useful tool that tells you what the top searched keywords are for that title so you can modify your title to include them. There’s also a preview tool so you know what your site will look like beforehand.

Their content-generating tool automatically generates several pages worth of content for you with news clips, photos, a paragraph from wikipedia and ads from Google. Quite an innovative idea. Apparently search engines index these sites and visitors have been reported to bookmark them.

So compared to the old “spam sites” created by companies like Sedo, you get actual sites that people enjoy visiting. And if you’d like to spend more than the 60 seconds it takes to fill out the keyword and title details, you can go in advanced options and tweak some more fields and maybe add a paragraph of your own text.

Even their revenue share model is quite interesting. They keep 50% of the ad revenue and the members get the other 50%. Members earn Premiere Shares, which entitle you to a certain % of the profits. You get additional shares for each site you “embark” with them. According to their site, 1 Premiere Share entitled members to $15.11 during the last quarterly distribution. You also get Premiere Shares for referring new clients and their since service is free so you might as well get cracking!

They also provide web hosting and domain registration plans, but I prefer cheaper alternatives like 1and1.com for domain registering and Dreamhost for hosting (Use code DIVIDENDS and get free domain registration at Dreamhost).

As soon as I heard about Domain Embarking, I had to try it out. Opening an account took 1 minute and then I added my domain Cosmetic Forums, a site that I wanted to develop into a forum on plastic surgery but I’ve never had the time. Parked at Sedo, it was generating $0, it had no traffic and wasn’t even indexed. If you see the image, you’ll understand why. Lots of irrelevant ads.

Site Parked At Sedo

However, the new and improved Embarked version looks much better. There’s some static content (below the fold and thus not visible in the image below) and some dynamic images and videos that change every time you refresh the page. At the top of the page there are links to News and other pages. Click through and check it out. Its still not perfect, but considering it took only a 1 minute to create, its a thousand times better than the Sedo-parked page was.

Site Parked With Domain Embark

Now I’m satisfied with the results, I’ll be porting all my sites over to Domain Embark. Even if they don’t generate any traffic, they’ll get indexed and that will at least increase their resale value.

There is also another domain parking service called WhyPark? They charge a one time fee of $99.95 and similar to Domain Embarking, they also creates content-rich websites automatically. However, I haven’t tried it so I can’t really recommend how it works or whether its better than Domain Embarking.

Check out the investment and business store if you’d like to buy turnkey websites on various topics like real estate, cars, health, etc.

UPDATE : As of April 1st 2008, I’ve earned $60 this year, or around $20 per month. Compared to Sedo.com’s average of 1 cent per month, this is a much better result! Now that I’m making money, I can now declare that Domain Embarking’s free domain parking service is a better alternative to Sedo’s domain parking and probably even GoDaddy’s low cost domain parking. GoDaddy’s CashParking service has 2 packages ranging between $3.50 and $9.99 per month. Godaddy’s service cost is negligible for people who do domain parking in bulk quantities, but it doesn’t provide the automated text generation and so I don’t think there’s anyway to develop any sort of indexing.