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Passive Income – There Is Such a Thing – Who Want’s a Business?

Had to engage in the conversation here – Leo – says there is no such thing as passive income he argues that we all should be developing businesses not just relying on SEO to climb to the top of the rankings.

Funny how my name has got associated with passive income – as friends pointed out to Leo (and not saying  Leo isn’t a friend  – merely wrong 🙂 )  I would be in for the argument.

Not Passive Income

OK so lets step back. In the dark times pre-passive income – I used to be a highly overpaid IT consultant – I was paid a nice hourly rate by companies who wanted to upgrade or replace software. I used to work on a salary – a “safe” job right. Yup, it was –  I never got fired from a permanent job – but it was huge, huge millstone around my neck.  You see turning up 40 hours a week – even if the hours were somewhat flexible – meant that I could only travel in the holidays-  I only got 4 weeks annual leave so even with creative use of leave without pay, public holidays and anticipated leave – I could only get away for 6 weeks ever couple of years.

I could afford the travel – but I didn’t have the time – the rules around my presence at work were  my definition of hell.

Business or Passive Income ?

I looked at options – buying a franchise is a popular one around here – but it sounded like buying a job to me (told what to do – lots of bosses (clients) and high overheads (franchise fees)) – no thanks.  Plus, again – you have to be in the country to run the business.

Starting my own business – I never considered it to be frank – I  not only couldn’t sell, I didn’t want to. I didn’t want to risk my capital and the failure rate for small business in New Zealand is pretty high (and usually that takes your house too).

I started to look at other options. When I started researching my options I came across the concept that you could invest now and get paid later. I could buy property and get paid rents, I could buy shares and get paid dividends (rarely in my country but the principal is still there).

Passive Income Take 1

This was promising – I did quite a bit of research. In the end we invested in property (my partner was already in shares) – and its worked  for us and continue to do so.

Now some will argue property investment, particularly residential, free-standing, older wooden houses, in earthquake prone countries,  is not passive. They will say houses need to be maintained, tenants need to be  found, managed and got rid of.

Yup – and you can outsource the lot! Case in point – house we own in  small town New Zealand.

Passive Income - New Zealand Style

Here’s the rough figures (all NZ$ – NZ$1 = US$0.75 at the moment – but relatively it doesn’t matter).

Purchase price 2003 – $77,000

Currrent estimated value 2011 $150,000

Unrealised capital gain 6.4% a year

Original tenant left a few weeks ago – yup same tenants for 8+ years – never missed a payment – $140 to $160/week for 8 years.

Gross rental  income: $8320 or 10%  cash yield

Gross yield 16.4%/year (yup that’s why we don’t focus on shares very much).

Now the property does have expenses, we  use a property manager,  pay Council rates and insurance, and of course we borrowed the purchase price so there is mortgage interest as well – but time wise its cost us about  2 days when bought the place (one day deciding to buy the place, one day due diligence, signing papers) and now – eight years later we spent 1/2 day, inspecting the property and arranging for someone to give it a good tidy up.

Is that totally passive income? No

Is it bloody close, the way we do it  – yes.   And even we maintained and managed the properties ourselves (and plenty of larger landlords do) – we would have a business giving a us a ful-time income for a very part-time amount of effort. But we don’t that because between the two of us we are crap at DIY and are too soft to deal with ratbag tenants!

Will this property  be passive income for us for the next 10, 20, 30 years?   Should be, likely to be, unless there is a major earthquake in the region – when it won’t be a total loss – but we will probably get paid out and have to walk away at that point.   Is passive income guaranteed – nope.

So if property investment is so great – why didn’t I stick with it? Well we did – but we stopped buying – why? Risk, to make good money on property you need to gear up (borrow) – to do that you are layering  risk on risk – we got to the level of borrowing against asssets that we were comfortable with – and stopped.

Property is an as passive or active income as you design it to be.

Passive Income #2

My second attempt at passive income you are  familiar with, as documented right here. I rank websites at the top of  the SERPS and make passive income from the advertising on them.   Frankly I never started off to build a business online  – a wanted a passive, long term income – and I have that now. Some of my income is from fairly new sites, some of my income are from sites and pages that I haven’t touched for three years.  Last year I inadvertantly demonstrated that I could do little work for several months have not affect my income.

What’s long-term income though – will my websites still rank in 3 years, 5 years, 10 years? Maybe, maybe not – but every indication to date is that older sites rank and hold their rankings better than new sites. But one of the reason I have many websites is the same I reason I own 5 rental properties in smaller, cheaper places, rather than just 1 or 2 in the fairly expensive city I live in – diversification. If one of my houses is destroyed or untenanted – it hurts but its only part of my portfolio. If one of websites gets out of favour with Google or that particularly niche falls out of fashion – the others are still producing.

Now from what I am seeing – nothing much has changed on the last Google update – my sites are still ranking in the same place more or less, my Hubpages may be a little down  – but that could be coincidence/seasonal too.  February didn’t match my record January month – but I know my pattern is that once I hit a new income record it takes 3 to 4 months to match it again –  in short I am seeing nothing out of the ordinary in my business.

Leo argues that I really should build a business online – a real business with real clients – but nothing has much changed for me – my freedom is still the most important thing for me – and having to be available to clients cuts into that freedom. Having a few clients is fine (and I do) – but ramping it up seems to be just trading freedom for income – a trade I’m not really prepared to make.

Leo argues that SEO will get more and more competitive over the coming years – it could well do – though I wouldn’t overestimate the ability of corporates to adapt – pretty bloody slow in my experience. He argues that I should establish a “real” business which has real followers and therefore not be dependent on search traffic.  I know a little about this – because this blog gets “real”  visitors not just search traffic.  As far as I can tell though -the people who convert are the search traffic.

What I know is that with my silly little sites – I can make a little money – not a huge amount – sometimes $1/day – sometimes more. But even at $1/day lets look at the rate of  return:

Initial purchase of site: (all prices US$)

$8 for the domain

$10-$15 for content on the site Ti

Total: $23

Backlink articles at say $1/each – maybe 30 -90 articles – say $90

Annual profit $243 … annual costs say maybe $20…

No mortgages, no property managers, no rates, no insurance, no risk of earthquakes…

Passive Income – Is It For You? Maybe Not If …

If You Want to Make a Difference

If you want to make a difference in the world – then blogging ain’t where its at – go become a health worker, or a volunteer in a country that needs the help. An engineer bringing clean drinking water to kids in Africa, a researcher finding a cure for cancer is making a difference, me – not so much.

If You Need Money Now

As I have advised many people – if you need money this month, or next month – or even in the next 6 to 12 months – this won’t work for you – it may, but for most beginners it won’t work. It didn’t work for me – I got a job – it paid, it was a crappy job but it delivered what I needed at the time – cash.

If You Have Huge Income Requirements

I remember when I wrote about making $1000/month with Adsense – that it seemed like a lot of money (I hit that milestone almost exactly 2 years later) – $1000/month is a lot of money to me – its not enough to live on – but I could live on it if I had to – its pretty much what the NZ government pays as a pension for the over-65’s and most of  them seem to do just fine.

About US$5k /month would work just fine for me – but I see people making $10k plus in the TKA forums – frankly that’s nice – but its unlikely to ever be me – because I don’t really need the money I will probably never persue it!   If you really need to make a 6-figure salary – again I’d say get a job – just make sure you have the right skills.

29 replies on “Passive Income – There Is Such a Thing – Who Want’s a Business?”

When I read that other post over at Leo’s place I was wondering how long it would take tp respond. Good rebuttal.

I am really wondering where all the talk about SEO being dead is coming from. It almost seems to me that the ones in the know may be talking up the demise in order to weed out those who are just mucking things up by not following good SEO practices. I don’t know though.

I also have gone the residential rental route. It cost me $5000 to put one house back together after my tenants from Hell move out. That wasn’t very passive, but that it was really the only bad experience I have had in 14 years of renting. I know that adsense is not a sure bet and can change pretty quickly, but the factory in the town could shut down also and I wouldn’t have any renters either.

I do agree with Leo that diversification is important and I am trying new things on my sites, but that being said, I am not convinced that the niche model is really all that dead. Mine are doing better since the update.

A couple of years ago the reason this method was thought to be so good was that you were not stuck getting branded and posting to your blog a couple of times a day to keep your readers happy. Now it seems like this is the new hot thing.
Heaven forbid, Was Problogger right all along?

@agrande – problogger and the other a-listers never knew anything about basic SEO and kws – if they had I would have had a lot more time for them – also the regular posting schedule thing that they promote is bullshite too – after all what are all these people doing hanging in my feedburner stats when I post so randomly? You can combine both – without a doubt – but I don’t personally believe that you have to.

I was being sarcastic about Problogger, actually I never even spent any time with the so called A list. I was lucky to find people who really understood how to make money with the internet in ways other than taking advantage of other people.
I really liked the methods taught by our friends.

But my feeling lately is that many people are saying the game needs to change and actually you do need to be social to make it work now. It just really sounds like the argument is being made to start building a following or a community or whatever you want to call it. Which was what these other bloggers were spouting four or five years ago. I am probably completely off track but it just seems odd.

I really haven’t seen much of a change from the recent shuffle, except most of my stats and money are better, and I still don’t have a loyal following. 🙂

Hey Lis,

I was waiting for this ;)…Good rebuttal.

The issue I have with the notion of passive income is what it implies. It implies that there is no work involved…it is set and forget….live the high life once you have it in place….retire with a steady income. Not so fast though. The internet changes; in fact, it is in a constant state of flux. How things were ranking 8 years ago is no where close to how they are ranking now. I betcha people believed that their rankings were safe then too.

In competitive markets or in increasingly competitive markets, when someone decides that your spot could be taken away from you and goes after your spot, then it is no longer passive when you realize this. Just like you managed to slip in, others can too. This is the issue I have with passive SEARCH income. Here today, gone tomorrow. I’ve watched it happen….it happened to me several years ago.

Now, I am not saying that the sky is falling, SEO is dead, yada, yada.

What I am saying is that depending solely on a third party source for income that YOU need is a dangerous game, especially when your mortgage is riding on it, considering that there are other advertising options out there that are “almost” passive and that you can grow just the same.

Hi Leo – fancy seeing you here LOL

Frankly I don’t believe there is any form of income where you can just invest and live off the income – by that definition – some people tried it recently using “financial advisors” – they are pretty pissed off people now! Some things are more risky than others and I would put my niches sites as less risky than some financial instruments I could invest in – because the sites are a lot more under my control!

I think the issue is more how we define passive. Leo’s right that even if you put a ton of work into getting a site to rank well, there’s no guarantee that you’ll be able to let it coast from there. You might, or you might have to bust your butt to maintain your rankings (I’ve had sites go both ways).

But the cool thing about these sites is that I don’t have to actively ask for each sale. As a “day job” employee, my income is limited to the number of hours I can put in each day. And even if I were in direct sales, the income I earn would come as a direct result of me asking for it.

With an affiliate website, I don’t have to work to pursue each sale. Sure, I do work on the backend – SEO, linkbuilding, site maintenance, etc – but once the framework is in place, the sales that occur are passive.

The problem with the concept of passive income is how Robert Kiyosaki and all the gurus, as well as the MLM-ers and IM-ers, promote it – as a source of set and forget income.

Unfortunately, this is not true. You always need to monitor how things are going, even if it is just 4 hours a week or two days out of every month or whatever your chosen schedule is. And that only applies when nothing goes wrong.

But then, there is always Murphy’s Law. So you still need to take corrective action, which by all definitions means work. And yes, it is still work even if all you do is give orders to your investment advisor or property manager or outsourcer to do something. You still need to monitor the new situation and corrective action, you still need to do management-like stuff.

I will admit, though, that “passive income” activities are still a lot more scalable than working directly for someone, whether as an employee, contractor or consultant. This is why I stay in IM. Now, if only I can get enough income to saved up to go into investing, so that I can diversify my income stream, I will feel a lot safer.

Yup just got to plan because my winter holiday because my partner’s contract now has a defined end to it – he definitly can’t do his job anywhere in the world – while mine …

Love the post, Lis. I took a ding from the HubPages since I had quite a flow of income from them, but already I’m seeing that climbing back and my niche sites actually experienced a nice bump with the last update. I’m not delusional enough to think that this is completely passive income, but it certainly beats the per hour approach and as a freelance writer, I’ve had enough of working for other people! If a few hours a week from a laptop is the price for what’s called residual income, you know, I can live with that 🙂

You know the term residual income is a weird one – I see it defined in US sources as the same as passive income. In my usage – its rarely used – but when it does it means the – income you have left after paying the essentials (mortgage, rent, food etc) – aka discretionary income – weird eh?

But yeah compared to the options not too bad really!

I guess everyone has a slightly different idea of what passive income means.

The purest form is for the rich kids who just live off mum & dad, waiting to get even richer when they die.

For me, any income that comes from something I would love to do for free is passive. I don’t do the lottery, but I do dream of winning it. How would I spend my time if I had all that money, I ask myself. Then that’s what I do, and many of those things can (and do) generate income. The £250 per year that I don’t spend on lottery is passive saving.

Definitions aside, Lis, I totally disagree with “If you want to make a difference in the world – then blogging ain’t where its at”. Visitors to my gout blog know I make a difference. Many tell me so.

Keith thanks for your interesting article adding to the debate called “Where’s the passion in passive?” I must admit Keith I am not a fan of business plan’s particularly when just starting off online – frankly it took me several years before I even had a glimmer of what I was doing – as of now my business plan is pretty much is make money, hurt no one and enjoy the spoils of my earnings. Because I don’t rip off people some people think I add value on this blog – but I its pretty much an accidental side-effect I can assure you!

I’m easily accused of too much planning, and too litle action 🙂

Our backgrounds have some similarities, and I think, when you are successful in your career, you need less planning to create a successful web business – just do it.

However, Calvin recognises reality in:
“The problem with the concept of passive income is how Robert Kiyosaki and all the gurus, as well as the MLM-ers and IM-ers, promote it – as a source of set and forget income.”

I see so many leap into web business creation without a clue about what they want to do, or even why they want to do it. Escaping the 9 to 5 (7 to 7 with commuting) is a brilliant goal, but it’s not a foundation for a successful web business. How many times do you see newbies ask “I’m generating loads of traffic, but why is my AdSense income practically zero?”

Because, my son (it’s usually a male), you failed to plan.

I totally agree with you. The rentals definately won’t work as passive income source, unless you have pocket full of money, spending on your damaged property! been there, done that. This is the internet age, and winners follow the trends of winners, plug in and grow with it. This is what matters at the end of the day 🙂 Thanks for sharing Lis

Loved this post, Lissie!

I find that folks spend too much time trying to define things rather than doing things. Passive income or not, unless you were born with a silver spoon you have to do something to make money.

Some choose brick and mortar (which, in my opinion, is less stable than Google algorithm changes), and others like you and I like playing online and earning money from it.

Is it really passive? Well, is anything really passive? I can say that earning residual income online is more passive than any of the jobs I’ve had. In my many years of working, I never ever got paid more for producing less.

Last month was a record passive income month for me and I spent most of that time playing with two of my favorite blogs that don’t bring in much money at all. That means that my record passive income came from venues that I ignored.

I know too many high-paid corporate executive types that have been unemployed for more than 12 months and are having a difficult time finding work. Whether my income is passive or not, I’m loving the fit of my shoes right now and wouldn’t want to trade my sneakers for a pair of high-heeled pumps for all the money in the world.

I’m with Keith on this one. I used to do this stuff for free. Now I’m getting paid to do something I was willing to do for free. Does it get any better than that?

Hi Felicia – from a writers point of view I can see where you are coming from. I’m not really a writer though – but for me the whole thing is a bit like an interesting technical problem – its intriguing what works on sites and what doesn’t. Also I have a short attention span – so when I get bored with one site – I start a new one – my partner prefers the start-up costs on this, compared to when I used to just buy a new house or do a major renovation when I was bored 🙂 The (unwritten) rules keep changing so I don’t think Google is going to bore me anytime soon LOL

Hi Lis,

Nice post, nice argument and like most arguments like this, its a nice diversion from the humdrum of all this passive working I have to do to enjoy a steady stream of income that come both while I’m working (as in a J-O-B) and while I’m asleep (as in a B-E-D) lol!

Totally passive it ain’t, but I reckon there are few businesses you can run (and certainly NO jobs you can do) where you put in a day’s work but keep earning while you sleep. Or go away for a few weeks on holiday.

Everything is risk. Risk is everything. No one got rich by playing it safe, so its all a case of degrees. The greater the risk the greater the rewards or the fall.

Either way, whatever we do – be it take a job or start a company or work online like we do, there is always some risk. We can get sacked from a job, a company can go belly up and the Internet can implode under the weight of bogus Facebook accounts made by all the spammers trying to work that angle.

Or we can just stop worrying about the small stuff and get on with doing what we do and keep at it and never give up. Because if we never give up we can never fail!

Alternatively the only true salvation is to give all your money to me and go live in a monastery in Tibet… hare krishnaaaaaa aaaaaah aaaaah hahahahahahaha!

I take Paypal or Western Union…


Pay me now!

I want a new yacht this year.
No this month.

LOL Terry – tickets to Tibet booked – but I only use Google checkout – so sorry couldn’t send the money to you! BTW if you want a boat – check the video of the Japanese tsunami – might put you off it a bit …

While much of my income is residual (and I was thrilled in November and December to pass the previously-elusive-to-me $5k mark, much of it from work completed months and even years ago) I tell people online — and sometimes in real life– that I earn a full time income working “very part time.” To me, that sums it up.

Hey Lis, I think your real estate example is definitely passive income, but the ROI is pretty low. You’re turning a $70,000 investment into a few thousand dollars of income a year.

Your online business is huge ROI. You’ve turned a few years of work into thousands of dollars of income a *month*. But I know it’s been hard work, and you’ve worked smarter than almost anyone in this industry. I think your revenue is just going to go up, but you’re going to need to constantly innovating to keep it going and growing.

All the side benefits are amazing. You get to work from anywhere in the world, in your pajamas, with people you like. You get to work on projects that interest you, and get paid for your creativity, and not your hourly wage.

But it’s still active work.

Yeah the capital gain on the real estate is nice though – that particular one has doubled in price since we bought it! Given no money down we have “made” $70k out of thin air – sorta LOL. Mind you selling a domain for $1200 when I’d paid $15 for it wasn’t bad either! I agree though – whatever it is – its not like getting up and going to a job – yuck!

Nice post, Lissie (and I like the blog redesign too – did you DIY or outsource it?!). I think Tim Ferriss can share a lot of the blame for the misconceptions surrounding passive income, although I like his books and get a lot of inspiration from his ability to think outside the box. The problem seems to be that so many people take him literally, instead of using him as a springboard for creative ideas. The four hour work week is a catchy book title, but I put in a lot more than four hours a week on this if I average it out. Ditto to what you said about the freedom, though – I’m my own boss, I manage my own time, and if I screw up, there’s only one person to blame. Sometimes I work 40 hours; sometimes I work 0 hours. I don’t go to staff meetings; I don’t have to answer to people whose only interest is feathering their own little political nest in the organization. And as Fraser said, the ROI is fabulous in this business if you work smart.

I get tired of chasing Google around the block, but I’m like you – I’d be bored to death if I didn’t change things up frequently. I used to think I did this because I’m a writer, but in the past year I’ve been only too happy to outsource that part of the job. Now I think of myself as a visionary manager type. Do you think that would work as a book title?

Hi Lorecee – yeah I did the redesign myself – seriously it looks professional I am quite chuffed about that! I’m still using Catalyst (the Frugal upgrade) its pretty amazing how much you can do without changing theme!

Visionary Manager – that could fly – I can see bolts of lightening in the background though LOL

The idea of building passive income is something that I’ve been thinking about too and using a similar method to what you’ve been doing too. The one thing that I’d also like to do is getting a steady residual income from clients who love the service that I offer.

I read with interest the article you wrote slating the third tribe affiliate program (its how I found your site) and I’m starting a similar model at present. So much to learn…

Great post Liz, your words really ring true. I am also all about the passive income and will happily earn a bit less if it means more time and therefore more freedom. The passive income online business model is a real gem and certainly the right one for me, but its certainly not for everyone. Working on the web can often be stressful (if your rankings/earnings fluctuate widely) and can be lonely. Its great to see so many people running blogs and making internet marketing friends online to help combat this.

OK….I’m still not sure about the difference between passive and no-passive income. All I know is that I retired and wanted to produce some income without putting a lot of effort or time into it. I found a product line to sell as a drop shipper, created a shopping website, set it pretty much on auto-pilot and sat back to eat and watch The Golf Channel.
However, it’s not 100% passive, I spend many hours doing SEO work so potential customers can find me. So, I don’t think it can be called a passive income. Inheriting 10 million bucks from Dad would be passive income.

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