alternate investments

Tesla just pre-sold a whopping 325,000 Tesla Model 3s.

Yup, excited buyers gave the company $325 million in an interest-free loan for a car they haven’t seen, or who’s factory still hasn’t been built yet.

Image of Tesla Model 3 in steel grey

The excitement is understandable.

And it’s remarkable that a car company with no advertising, and no dealers can get people to stand in line for hours to buy a car that won’t be ready for over a year. Most of the people in line will have to wait 2 years, and probably won’t receive the $7,500 tax credit for electric cars either.

The key component to the car is the battery. Tesla is still building the gigawatt battery plant in Nevada, and is expected to be a large consumer of global Lithium ion production.

By the time Elon Musk’s prediction of rolling out 500,000 cars rolls around, it will most likely absorb the entire world’s annual Lithium production!

Unsurprisingly, prices for Lithium has soared, doubling this year.

Lithium carbonate spot price chart

This chart from the Economist shows prices up 3 fold from the long-term average of $5,000 per tonne. There are also rumors out of China that prices might double again from here.

If Tesla is absorbing the entire global production what are the other electric car manufacturers going to do, not to mention the makers of power tools, household appliances and rechargeable batteries, that all use Lithium ion as well.

Sounds likes it’s time for a short-term speculation in Lithium exploration/production companies!

While gambling on these sort of things rarely work out, if you’re so inclined, you might want to check out Global X’s Lithium ETF, which invests in the full lithium cycle, from mining and refining the metal, through battery production.

The fund isn’t exactly cheap, with a 0.77% expense ratio, and it owns 25 different companies, with Tesla (TSLA) being one of them. Also, two companies consist of 28% of the fund – FMC Corp and Sociedad Quimica Y Minera De Chile (or The Chemical and Mining Company of Chile, cutely called SQM).

According to Morningstar analysis, FMC is undervalued by about 20%, and SQM is overvalued by 25%. While valuations are highly subjective, Morningstar is a good quality resource at a cheap price.

I’ll probably pass on this fund, despite the fact that it’s an interesting opportunity.

A UK-based chocolate manufacturer, Hotel Chocolat, has come up with a novel way to raise capital for expansion. Instead of borrowing money from banks or issuing regular corporate debt, it has decided to raise about $7.5 million USD by issuing “chocolate bonds“. Instead of a regular dividend payment (well technically it’s a coupon payment and not a dividend), these bonds will pay dividends in chocolates!

hotel-chocolat-box-of-chocolates

In order to be eligible, you need to be a member of their “Tasting Club”, which already has 100,000 members. For an investment of $2,890 USD or $5,760 USD, you can get a juicy annual dividend of 6.72% or 7.29% delivered to your doorstep every other month.

If you’ve ever been to high-end confectionery, you’ll know they charge a couple of dollars for each piece of candy.  So spending a few thousand quid might not be such a bad investment. Especially since bank yields aren’t very impressive right now. At least it guarantees you won’t have to spring for chocolate for three years, even if the rest of your portfolio tanks!

I wouldn’t be surprised a chain of British gyms are next in line to offer special “weight-loss bonds”, with special dividend rates for people who bought the chocolate bonds!

But the real question is whether Inland Revenue will be accepting their tax payment in chocolate too?

According to Robert Zoellick, World Bank President  and former Goldman Sachs head and US Secretary of State, you shouldn’t take the US Dollar’s reserve currency status for granted. Swelling government deficits and the strength of emerging countries is weakening the demand for the dollar. Time to head for the exits?

So how should you diversify out of the dollar?

According to Zoellick, the Euro and the Chinese Yuan are good alternatives (source: BusinessWeek). But a lot of people think that investing in a basket of currencies is a better approach. In the short-term, currency volatility is unpredictable since exchange rates are more likely to be impacted by government policy than fundamentals. In the long term, all fiat currencies devalue and buying gold and silver is probably a better bet. But if you really want to park your savings in cash, consider a currency that has stronger fundamentals the the US dollar, the British pound and euro.

Until 2000, the Swiss Central Bank had a legal requirement to hold 40% of its reserves in gold. This requirement has been relaxed to around 20%, but in terms of volatility the Swiss franc is still one of the most stable currencies. You can purchase the Swiss franc via the Currencyshares ETF (FXF) quite easily.

The Canadian dollar (FXC) and the Australian dollar (FXA) are two more strong currencies. The governments are both fiscally conservative and have, until recently, been running surpluses instead of multi-trillion dollar deficits. They’re also commodity based economies, rich in natural resources with strong ties to the rest of the world. In a situation of high inflation, commodity-based currencies should hold up better than the US dollar.

With China being Jim Rogers’ favorite place, the Chinese yuan (or remnimbi) is a another alternative. As their internal economy grows, maintaining a stronger currency will make imports of raw materials cheaper. Of course, this is probably several years in to the future but with millions of Chinese rising out of poverty, its a likely scenario. Also, China has publicly said that they’re looking to diversify out of the dollar and are considering buying gold as one option. You can invest in Chinese yuan through Everbank.

Disclosures: I own gold, silver, Australian CurrencyShares ETF (FXA),  and a basket of currencies CD with Everbank.

What Every Investor Needs To Know About Tax Liens!

Today’s guest post comes via Blunt Money, an Arizona-based wife and mother, who’s had experience with being divorced, unemployment, under-employed, employed and self-employed!

What are Tax Liens?

Tax liens are liens placed against real estate to secure the debt from unpaid taxes. They are first liens, which means that they (in theory) must be repaid before any other debts that the property might be collateral for. Like everything else regarding tax liens and investments, there are a few exceptions to this — nothing is guaranteed.

The process of investing in tax liens and the amount of interest you can earn from them varies from county to county, so it’s best to get specifics on the exact requirements from the particular county you’re interested in.

My experience is with buying them in Maricopa County, Arizona. Here, the auction is held online once a year in February. The highest you are allowed to bid is 16% interest, and the lowest is 0% interest. If you win the bid and the tax lien is repaid, you earn the amount of interest you bid that was charged during the time you held the lien. If the tax lien is not repaid within 3 years, you have the right to start foreclosure proceedings.

This means that there are two basic ways to think about tax liens: either you hope to end up with the property itself eventually, or you hope to receive interest when the liens are redeemed. I try to split the difference — I look for good properties that I believe would be worth owning if I ended up with them, and I also try to earn a better interest rate on them than I could receive elsewhere. I’ve had several liens o ver the years, all in the 5-7% range. One set of liens got close to being eligible for foreclosure, but was paid off a few months before that date. The rest have all been repaid fairly quickly, usually in under a year or two, which is more typical.

Do Your Research Before You Buy

If you want to increase the probability of you owning the property if the lien is not repaid (and if you want to increase the chances of actually being repaid) you also need to pay the subtaxes on the property for subsequent years. This is handled by calling up the county and arranging to make payment for them once they have become delinquent.

Investing in tax liens requires a commitment because you could end up owning 3 liens at a time on a single property, and you need to watch to see if the current year’s taxes become delinquent. The liens that I’ve purchased have ranged from about $400 to $1500 each, but they go for a very wide range of amounts.

The most important thing when investing in tax liens is to do your due diligence before bidding on a property’s lien. This is a time consuming part of the process, but it’s critical. Be certain of exactly WHAT You are bidding on. Dangers include ending up the owner of a property that requires you to pay for toxic cleanup, or (not quite as bad) ending up the owner of a worthless piece of property that you can’t sell. There’s also the ever-present investment danger of losing your entire investment.

As far as due diligence goes, the satellite view in Google maps is a good starting point. For properties that look interesting beyond that point, I then check the county assessor’s site to find out the property owner’s name. I also generally take a look at the county recorder’s site to see what other properties they may own, and to get an idea of the owner’s general financial shape. I try to judge the odds; and bid lower on liens I feel I’m more likely to end up with the properties on, and higher on liens that look likely to be repaid. Anything that looks bad, has problems, or that I just have a bad feeling about gets eliminated at this point. The next step is to drive out to the remaining properties. I do basic things like make sure that they’re still standing, look decent and are in a decent neighborhood, etc. (Talking to the owners is a no-no.) The last step I take before bidding is to check PACER to make sure that the owners have not started bankruptcy proceedings, as not getting repaid in that situation is also a danger.

From that point out, it’s just a matter of following the bidding proceedings and being certain that I don’t go over budget if I should win all of my bids.

See this page to buy tax liens or learn more about investing in tax lien certificates.

[AffomaticEbay]Tax Lien[/AffomaticEbay]

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.

I also learned that he had small interests in a dozen more businesses. He had cultivated great relationships over the years and whenever one of his friends needed advice on starting a new project, he would get the right people involved and help get them up and running. In return get a minority ownership stake in them, but then he moved on to other ventures. He also got a seat on the board of directors, so he had involvement in the general direction of the business but his actual time commitment was pretty small after the initial push.

I’ve always thought that was a great model to follow, especially for someone like myself with a short attention span! Not only do you not have to work a whole lot, but if have enough of these going, they provide economic diversity and lower your financial risk.

Recently I’ve partnered with some friends to create WebStigma, a  San Diego web development and web design company that focuses on business strategy and online marketing.

[Webstigma: san diego seo]

Between us, we have experience with creating business and social networking websites, creating online business development plans and strategies, web-based applications and providing search engine optimization and marketing solutions.

If you’re interested in hiring us, mention that you’re a reader of “Living Off Dividends & Passive Income” and we’ll give you a 10% discount. Use the contact page on the Webstigma site to get a quote. No project is too small or too large for us!

And the best part is that my partners know I’m going to be studying for my MBA full-time and are OK with me working only part-time.

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.

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
  • Savings Accounts: $133.10
  • Real Estate Trust Deed: $0
  • Direct Oil Drilling Investment: $270
  • Dividends from Canroys: $517.71
  • Other Dividends: $113.38

The adsense revenue dropped from last month. It looks like I was smart-priced. Every other day my revenue would drop to a third of the regular amount, despite getting more traffic. Very strange, but if it keeps up, I expect April’s adsense revenue to drop even lower. I’ve rearranged some of the ads and substituted Adsdaq to try and compensate for this loss of revenue. Adsdaq is similar to adsense except that you state your eCPM (cost per 1000 impressions) price. If they can find an advertiser at that price, they’ll display their ads, else they’ll display an alternative ad code, which in my case is adsense.

On the other hand, Linkworth has done really well on my sites. March’s income was almost double of February’s and I expect April’s income to be atleast $150 higher. I’m very happy with their service and I strongly endorse it. It took a while to start getting income, but it looks like a winner so far.

Text-Link-Ads is also doing moderately okay although its taking more time than Linkworth. Note that you’re not allowed to use both of them on the same site, so see which one works better for you. Between the two, my favorite is currently Linkworth.

Amazon affiliate income has started to pick up and hopefully it will continue as I learn more about affiliate marketing and try out different techniques to boost it.

Surprizingly, I found out that I had earned ~$60 from Domain Embarking, a site that helps you earn money from parked domains. I had a few sites that were parked with Sedo.com. In over 2 years, I make about 24 cents with Sedo, but with Domain Embarking, now I’m making some money atleast. To be fair, the $60 was earnings for the year till date, so it could have been only $20 for March. I’ll find out how it does in April to get a better idea. Regardless, its still a whole lot better than the $0.01 per month I was making with Sedo.

Prosper is still handing out $25 signup bonuses to new lenders. When lenders who sign up through my link and fund their account, I get $25 too. That’s how I made the $175 in referral fees. I also made around $30-$35 last month in prosper loans but since they usually issue a statement around the 5th of the month, i’ll exclude that income. I usually get around $180-200 every month from the loans, of which 70% is return of principle. Calculating it manually is just too tedious.

I also made around $1,000 from my other investments and dividends. Some of the stocks pay over 10% in annual dividends. Two of the oil investments are paying 15-18%. The third oil investment is currently barely producing, but that seems like it will improve over the next few months and boost that portion of my income too. Also, as the price of oil stays around $100 per barrel, the monthly payout (which is typically delayed by 3 months) will increase a little bit.

The Federal Reserve will probably continue to keep dropping interest rates so my savings interest will probably keep dropping. Luckily its a small portion of my income so the $6 drop from last month isn’t very significant.

While I made this income, I also had some expenses that I should disclose as well.  I pay about $119.40 for annual hosting on Dream Host. It’s awesome and I strongly recommend it. They have one click install for wordpress, php forum software, mysql databases and other stuff. I’ve used GoDaddy in the past and I didn’t like their interface at all. Dream Host is a lot easier to use in my opinion. If you use coupon code “PassiveIncome” you’ll get $19.40 off the annual fee or you can use “Dividends” to get free domain registration. I also pay around $40 for domain registrations which I usually register with 1 and 1. At $6.99, they’re pretty cheap. On a monthly basis, these costs work out to less than $14.

I’ve also signed up with an automated article submission tool called Jetspinner that lets you create multiple unique versions of the same article for submission to article directories. This is a great method to created targeted backlinks to your site.  Jetspinner is free but its sister product Jetsubmitter costs $17 per month and automates the account creation and article submission to 500+ directories.

I also spend between $300-500 a year on financial articles, books, magazines and newsletters which works out to about $20-40 per month. So in all, my expenses are about $60 on average per month.

Having a side income that sufficiently large to allow you to pay the rent and put food on the top is a great stress reliever. As you can see, I have multiple streams of diverse income. If one of them drops off (like maybe adsense), my passive income doesn’t just totally disappear.

I hope I’ve inspired all of you to try and boost your passive income or maybe add new sources to increase your current income streams. Let me know how you’re all doing.

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. While I won’t explain how to lend money on prosper, I will explain how not to lend money!!

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.
  8. They look like they’re 65 and are smoking in their photograph.
  9. They make $200,000 a year and need to borrow $5,000.
  10. They’re buying a business and want borrow the 20% down-payment.

So far I’ve had a really good experience with micro-lending on Prosper. Prosper also has a new tool that automatically calculates the estimated chance of loss based on several criteria like the the borrowers credit and number of delinquencies. That gives you a good idea of what minimum interest to charge to overcome your losses.

If you’re interested in signing up, Prosper is offering a $25 incentive to new lenders.

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!

He thinks that with some marketing effort, they should be able to increase the revenues and profit ten fold and take it public. Typically, adult entertainment companies that are public sell for a P-E ratio between 4 and 9. Assuming a 5 fold increase in revenue and PE of 4, thats a 20 times increase in valuation, which Koenig thinks they can achieve in under 3 years. Pretty impressive if he accomplishes that.

I’ll be following their progress pretty closely. Lets see how it works out.

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!!!!

Typically, the average person does his investing by looking through the rear-view miror. He invests in whatever was hot last year or the last few years. I fell prey to that investing mindset early on in my investing adventures. I saw that tech stocks had done phenomenally over the past few years and in late 1999 I dumped all my savings (and some money I borrowed off my credit cards) into the high-flyers and subsequently lost all my money. I later found out that successful investing entails “anticipating the anticipations of others”, to quote John Maynard Keynes.

Once the popular media starts hyping up gold, then the average person will want to get in on it.

In a few years, when my friends start asking me about gold and how to buy, I’ll know its time to get out!

Till, then I’m a gold bull. I’ll take a shiny piece of yellow metal over a green piece of paper with a promise on it anyday!