When I learned about the concept of passive income, I immediately became excited about it. I read every book I could get my hands on about wealth, personal finance, real estate, and entrepreneurship. Most of these books were heavy on concepts, but light on specifics. With this in mind, I went to seminars and started mingling with people who were already doing it to find out how they started. Here are five suggestions from what I’ve learned.
1) Buy an investment property with no money down.
Pros: inexpensive, huge asset for nothing but a signature Cons: need good credit, must choose wisely, must find tenant quickly,
I was a first time homebuyer when I bought my first investment property. Banks love first-timers. They have a myriad of different programs to get buyers into their first house. Most banks will bend over backwards for them. With meager credit, I qualified for a brand new house with no money down, super-low interest rate, and $5,000 in equity, just for signing on the line. That was the fastest $5,000 I have ever made.
The catch is that first timers must buy the house as an owner-occupant, meaning the owner must intend to live in the house. This requirement, however, can be a blessing. Finding a good tenant can take some time, but if you are living in the house you won’t incur any additional expense. I lived in the house long enough to qualify myself as an owner-occupant and find a tenant to take my place. When I found a tenant, I moved into a rental apartment 1/4 the size of my house and 1/2 the monthly payment.
If you are not a first time homebuyer, there are other ways to get a property for nothing down. A creative mortgage broker can show you loans that cover the price of a home plus improvements. These brokers use creative financing to arrange a payment plan with no money down. Another method is to take over payments for an owner to get them out of a sticky situation.
It is very important to choose your property wisely. This is especially true if you have a very small margin for error in your finances. Find a good realtor who deals with a lot of investors. They will be able to help you find a property that will cash-flow immediately, meaning that the rent you receive will be enough to cover the mortgage, insurance, taxes, maintenance, vacancy fee, and all other expenses related to the property.
Don’t get sucked into the idea that you are going to make up for negative cashflow with capital gains. This is a recipe for disaster. If it doesn’t cashflow, it isn’t passive income. In fact, it’s a passive expense. There are plenty of properties out there that will cashflow, so take the time to find one.
Pros: extremely low maintenance, excellent return on investment (ROI) Cons: difficult to secure locations, requires small initial investment
Everyone has seen a gumball or candy machine in the lobby of a restaurant. Have you ever wondered who owns those machines? Most bulk candy businesses are owned by small, independent operators who have negotiated their way into another’s place of business. The vending operator either gives the owner a percentage of the revenue or promises to give a percentage to charity.
A quarter vending machine that offers three different types of candy can be bought for about $200 and the candy to fill it costs around $50. In a good location the machine can easily bring in around $25 per month. That means that you can pay off the entire asset in about six months or roll your profit into a second machine. After another six months, you can buy two more machines.
This may not seem like big money, but it is planting the seed for big money in the future. If you don’t have the money or credit for real estate, this is one way to turn a couple hundred dollars into a couple thousand.
The hard part is finding locations. You will have to learn some sales skills and utilize the power of persistence as you knock on doors. You might approach 20 different businesses before you get your first location. However, once you get a few locations, finding more will get easier.
Pros: low initial investment, huge potential Cons: must overcome negative stigmas, many scams out there
Network marketing is an industry that allows individual entrepreneurs to team up with a company to market their products or services. The idea behind network marketing is for the company to eliminate the costs of marketing, advertising, sales, and distribution, allowing the consumer to take on these responsibilities if they choose.
Many highly respected companies such as AT&T, Direct TV, Gap, Amazon.com, Google, Apple Computer, Macy’s, Nordstrom, Travelocity, and tons more have started to borrow from the concepts of network marketing. These companies have realized that the impact of their multi-million dollar advertising budget pales in comparison to the power of word-of-mouth advertising. When I noticed this trend towards the network marketing method, I dropped my “no way” attitude and decided to investigate the traditional network marketing model.
Most people have very negative feelings about network marketing because there have been a lot of bad apples in the industry, especially early on. What these people don’t realize is how far the industry has evolved. A few of these companies have learned from past mistakes and rid themselves of many of the negative aspects of old-paradigm network marketing. If you can find the right network marketing company today, it is possible to build passive income without a lot of money and still keep your friends.
Have you ever recommended a great restaurant or movie to someone? Have you ever told someone where you found a really great buy? Did the restaurant, theatre, or store ever pay you for your referral? That is precisely what the new generation of network marketing companies is doing.
The good apples offer a wide variety of great products or services at a great price, meaning that you don’t have to refer people to make it worthwhile. Selling something that is expensive and unnecessary is hard, but recommending a product or service that is better and less expensive is easy.
The way to minimize your costs with network marketing is to find a company that has products that are already on your shopping list. Then, replace the products you are already buying and you have just started a business for nothing. You might even find a way to save money.
The new generation of companies handles all the inventory, paperwork, and sales for you; all you have to do is refer people and the company does the rest. It is truly amazing how simple the process really is. What’s that you say? You don’t want to bug all of your friends and family? Not a problem, smart networkers use the internet, or other forms of creative advertising to bring prospects to them.
The big money in network marketing is made when a referral decides to make a business out of it. Most companies pay referral fees not only on your referrals, but on secondary referrals and beyond. Your efforts will be multiplied by the efforts of those you refer. Your business will soon be leveraged into a money making machine when some of their referrals decide to do it as a business, and so on.
Pros: extremely low cost, extremely low maintenance. Cons: some computer skills required, must have interesting content
The internet is entering an exciting new phase where otherwise average people are being rewarded for creating and sharing interesting content. There have been a group of internet pioneers such as Google, Revver.com, istockphoto.com, Amazon.com, and others, who have decided to share their revenue with content creators. This means that if you can come up with an interesting blog, movie clip, photo collection, flash design, podcast, or other form of easily distributable electronic content, you might be able to make passive income from it.
Amateur film-makers aren't the only ones benefiting from the internet revolution. iStockPhoto.com allows photographers to sell use of their photographs on their site. Just upload your photos and sit back and collect a check.
If you can generate traffic to your blog, you can make money with advertising or affiliate programs. This site is an example, but the king of monetizing blogs is Steve Pavlina. He has posted that his blog generates over $1000 per day. He is successful because he has great content and is unselfish. He will tell you on his site exactly how he did it and how you can also.
I love the fact that average people can be rewarded for good ideas and creative content in the internet. Creative people have a new chance to pursue the Amercan Dream.
5) Set up an Automated eBay Business
Pros: relatively easy, system already in place Cons: time spent acquiring & shipping, must find unique product sourcing
eBay is to product markets what the Nasdaq is to the stock market! If you can find a reliable, wholesale source for a product, there are over 50 million people on eBay waiting to buy it from you at retail.
It is easy to fall into the trap of turning an eBay business into a full time job, so to keep it as passive as possible you need to automate. Find a product that you can get over and over from a reliable source at wholesale. Then automate your eBay auctions with one of the hundreds of auction software programs available to you on the internet.
The software will start new auctions when the old ones end and basically do everything for you except ship the products. Eventually, one could even hire out the shipping to his kids for allowance money.
The key to a profitable eBay business is a good product source. Even though eBay is known for rock-bottom prices, it still works on market principles. For example, you could shop eBay’s “Wholesale Lots” section to find products in bulk at a discount. Then, you would turn around and sell them one by one for a profit.
I have used all five of these techniques to produce passive income. In doing so, I have been able to quit my job and work from home. You can read my income reports for a complete breakdown. I hope that my experience has provided you with some insight on how to do the same.