Passive Income

As of July 20th 2009, I’ve received over $8,500 so far from Ebay. But the beauty is I didn’t actually sell anything. That’s right, Ebay sent me the money for referring buyers to their site. Since several of my fellow bloggers have asked me how to go about making money from ebay, I’ve put together this short how-to article that I hope will help you.

How Does the Ebay Affiliate Program (EPN) Work?

Back in April I built several niche sites to that specifically targeted to specific niches like gold coins, iphones and ipod batteries. Several weeks ago, I also added an “investment store” on this site that sells cheap timeshares, real estate and income-producing websites.

Ebay pays a commission based on the final sales price of the item. It usually varies between 5-10%. For items like cars and real estate, there is a flat fee which is over $100! I just received $175 from the sale of a $4,000 rental property in Ohio and another $135 from the sale of a used car. And it wasn’t any old used car, someone sold a rolls royce on ebay!

Additionally, if someone signs up as a new user, Ebay pays up to $35 (although its typically only $25). It also gives up to 75% (although 50% is more usual) of it commissions to affiliates who refer buyers. You can get more affiliate information here.

How Do You Create A Niche Site?

The toughest part of creating a niche site is identifying the niche. Ideally, you want a well-searched for niche that doesn’t have a lot of competition. For example, “discount designer doo-dahs” is a niche. But is it a good one? Good luck figuring that out on your own. However, there are a lot of tools to help you do this. Some people recommend Keyword Elite and I have it and use it. But there are several other tools, some of which require a one-time fee and others that charge a monthly subscription to use. If you already have one and are seeing good results with it, then it should be sufficient.

The niche sites aggregate the RSS feeds from Ebay for related products and display them. Luckily, I didn’t have to do the programming. In fact, creating the site is the easiest part of the whole process. I just bought the BANS (Build-A-Niche-Site) software that does everything for me. It did cost $97 but considering that I’ve made over $8,000 from ebay so far (as of July 2009), I’d say it was a pretty good investment.

Several people have told me that they were rejected or they had accounts and got banned. While its not widely understood why a lot of people have been rejected, its not too difficult to understand. If you submit thin-sites to the EPN there is a higher likelyhood of getting rejected. (A thin site is a site with no content, just affiliate links).  Always submit your flagship blog to EPN. If you’re using BANS on another store (as this blog does) make sure you’re selling related products. Note that this blogs’ store doesn’t anything that I don’t have at least 10 posts on. (Of course, I have 800 posts so finding a related product is pretty easy!). But if you’re blogging about cooking and trying to sell bicycle parts, it just doesn’t make sense. Effectively, you’ve conveyed to the EPN team your complete lack of experience in online marketing and understanding of how online traffic conversion works. Once you’ve been approved, then you can start multiple sites on different products. But make sure each site is targeted towards a specific product and make sure you understand the marketing part (which I’ve discussed below).

So make sure you have relevant content. How do you create relevant content? Either you write it, you pay someone to write it, or you use a tool to aggregate other people’s tweets or posts. Make sure you don’t just outright steal content – that will not only result in bad karma, you will also get flagged by the search engines for duplicate content!  One tool I’ve seen been used on sites that Google has not banned (de-indexed) is WPanswers.  It’s only $29.99 and comes with a 30 day no questions asked money back guarantee. I just bought it and I’ll let you know if I see any adverse effects from it.

Buying A Cheap Domain With Cheap Hosting

I also had to pay for domain names, but Godaddy had a 99 cent sale on domains so that wasn’t much of a cost. I also use 1 & 1 for domain name registration because they sometimes have specials. I usually go with whichever is cheaper, although 1&1 does offer free domain privacy for which Godaddy charges an extra $9.99 a year. However, Godaddy’s interface is significantly easier to use and their customer service is pretty stellar, so there’s some definite value in that, especially if you’re new to the online world. ( Also,  .org sites are usually much cheaper at 1&1 than Godaddy and may have better street cred than .info sites. )

I also use my own hosting. I like Dreamhost a lot and highly recommend it. It’s incredibly easy to install and update the sites. I’ve been using them for 4 years and they also have an affiliate program which pays out 100% of the first years hosting (sometimes 175%!) for new referrals. (Use code “PassiveIncome” for a decent discount). For $120/year you get 1 free domain registration and unlimited hosting. HostGator is another well-respected hosting company and many people with BANS sites use them too. Their affiliate program is also supposed to be excellent, but I wouldn’t know!

Marketing Your Niche Site

The most important part about making money online is the online marketing of your newly created sites. If you’re like most newbies and you build several sites thinking that you’ll automatically get traffic, you’ll be very disappointed. You need to understand how to create content that attracts search engine traffic (also called organic traffic). Again, Keyword Elite will help you with this. Its a pretty good tool and the videos on the landing page are worth a watch if you don’t know anything about harnessing the power of internet traffic. Another key factor that is often overlooked is building back-links to your site. I have personally gone to hundreds of blogs and left real, relevant comments on them with links back to my site. Some of them are nofollow links, but I don’t think it really matters. I believe all links matter, its just that nofollow and links from low-quality sites matter less than than links from a top quality site.  However, a cool way to get a lot of social media love is through a Social Bookmarking Automation Tool.  I highly, highly recommend this tool and it is in fact the one I use the most often. Most of my sites rank very well on various search engines for certain keywords and I get excellent organic traffic. As you can see from the Ebay affiliate sales figures, the conversion rates are pretty high.

Here’s another tool I highly recommend. I tells you what keywords you rank for and what your position is in the search engines. Its incredibly useful, especially when you see someone new bump you from your spot on Google. You can use this (along with some other tools) to see if its a fluke or they’re actually planning to take over your position!

If you’re still floundering, you need a guide with step by step instructions. The 9 Step Make Money Online Guide is an excellent resource written by the creators of BANS software. You should definitely read it if you’re new or if you have sites that aren’t generating much income.

Here are my earnings below:

Ebay-build-a-niche-store-earnings

As you can see from the image, the traffic (in blue) and the earnings (in yellow) have been increasing over the past year. As I’ve becoming more focused in my selection of keywords and as my search engine rankings have improved, the conversion of the traffic has gotten a lot better too.

While it took some initial effort to set up the stores and market them online, I haven’t done anything for at over 6 weeks. Making nearly $1,000/month from several sites that don’t require much effort is really cool. Finally some residual income that’s really passive! So don’t give up! It might take a few months to see any fruits of your labor but it will be well worth it!

I’ll post my monthly passive income update sometime this week.

Finally got some time to add up all the passive income for the month of August. While June was a record breaking month with over $3,300 in passive income, July and August have been pretty lackluster in comparison. July’s income was $2,115.61 and August’s total was hardly any better with $2,134.57.

Maybe I can use the same excuse that government statistians use when talking about the economy and blame on seasonal variations! But the fact is that revenue dropped due to 2 main reasons. I pre-sold annual advertising in June that rightly should have been ammortized over the year (according to Generally Accepted Accounting Principles). Also, since I was busy with my move to Los Angeles, I didn’t really have time to look for advertisers or respond in a timely fashion to those that contacted me.

But the good news is that traffic to the site didn’t drop off, and apart from direct advertisers, revenue that was dependent on traffic remained almost constant. And of course, my dividend income was pretty stable despite the recent large drop in equity prices and the strengthening dollar which caused a 5-8% drop in the value of my foreign dividends.

Here’s the breakdown:

A reader emailed me a few days ago asking what’s the best way to start generating online income. I told him to start blogging about something he was passionate about. That way, he’d be able to keep up his motivation during the initial few months when he probably wouldn’t be making any money. Once he had written a few dozen articles or posts, he should start seeing some search engine traffic. If you’re in a highly competitive niche, you’ll need to make sure you have a lot of other sites linking back to you. Do a search for creating a back-link campaign to find out how to do this.

Once you see search engine traffic you should include ads in your site.  I include ads from Comission Junction, Adsense, Linkworth, Text-Link-Ads, ADSDAQ and Kontera. While individually they aren’t significant amounts, the income is consistent and together it all ads up.

Amazon affiliate income has dropped a lot since the beginning of this year. Not sure if this is seasonal since there are more sales between Thanksgiving and Christmas, but I’ve finally gotten around to adding an affiliate link prominently on the site and I expect this to have a positive effect. How much of a positive effect remains to be seen.

The affiliate income from Ebay has been growing steadily. It’s up nearly 7-fold in the past 5 months. Last month I added a storefront on this website which focuses on business, cheap real estate, gold coins and other income producing ventures and this has already started producing referrals. Some of the other sites are .info sites that I bought for $0.99 from GoDaddy and they were created using BANS. For a little more info on how to generate passive income from sites, look at the 2nd half of this post (look for the section on Niche Sites).

RevResponse did well last month, partly due to a $50 bonus. They basically provide free publications and white papers on various topics ranging from finance and banking to search engine optimization and car detailing. Check out the Free Financial Magazines link. Bloggers might also want to check out the Sales & Marketing articles too. Mature programmers might remember a famous programming magazine called Dr. Dobb’s Journal. Well, it’s available for free too. And the best part is I get paid for providing my readers with free useful information! Yes, you can  money selling magazines! (well, technically you’re giving them away).

A lot of oil and gold stocks have been beaten down recently. My portfolio of Canroys wasn’t spared either, but I’m not going to panic and sell them right now. I’m getting a decent amount of dividends each month and I’m happy to keep on holding them for a while. We’ve seen some pretty bizzare events in the financial markets lately and I’m sure not going to panic after everyone else already has (the time to panic is before everyone else!).

Anyway, its time to wind up this post. I have the last 6 hours of Math camp tomorrow! It’s a lot more fun than I thought it would be!

A few of my readers have emailed me asking when I’m going to post the Passive Income numbers for June. Apologies for the delay; I’m going to be starting my full-time MBA at UCLA pretty soon and I’ve had to look for apartments in Los Angeles so I’ve been pretty busy since the beginning of this month.

As reported earlier, April was a been a record breaking month for me with total “passive” income amounting to $2,811.42. I haven’t posted May’s break-down but it was a lot lower at $2,330.00.

However, June’s income has broken all previous records and was a whopping $3,354.51! I’ve finally attained my goal of $3,000/month in passive (or semi-passive) income. Let’s hope I can maintain it!

This is a strong 19.6% jump against my previous monthly high in April. Since I’ve been neglecting my sites this month, I expect July income to again drop significantly. But the number of sites that I’ve created is increasing every month, so hopefully it’ll all balance out eventually.

Here’s the breakdown:

The biggest jump in income came from direct advertisements and from the oil drilling programs. I expect both to dip next month.

Adsense, Linkworth, Text-Link-Ads, ADSDAQ and Kontera have been consistent earners for me. It really isn’t a lot of income but its consistent and together it all ads up.

Amazon affiliate income hasn’t really taken off and to be honest I haven’t really been doing anything to boost it. Hopefully, I’ll be able to devote more time to this.

The affiliate income from Ebay has been growing steadily. My Discount iPod-iPhone and Gold Coin Store have started seeing some traffic. These sites are .info sites that I bought for $0.99 from GoDaddy and it was created using BANS. For a little more info on how to generate passive income from sites, look at the 2nd half of this post.

In March, I made $60 from Domain Embarking, a site that helps you earn money from parked domains. Since they only pay out quarterly, I was supposed to get a payment in the end of June, but they got booted from the Google Adsense program (for unknown reasons) and suspended all payments until end of September. Apparently I’ve made another $63.15 with them, but until I see the next payment, I’m ignoring it. Until then, I’ll continue to use their services as its a great way to create automated content, traffic and boost page ranking. Members can now place their own adsense or affiliate ads on the pages of sites parked with Domain Embarking. Make sure you at least put up your affiliate ads.

I’m not sure if Prosper is still handing out $25 signup bonuses to new lenders and but I do know that the referral program is changing. I may no longer get any money from referrals, so thats one income stream that is likely to dry up. But I’ll still keep investing through the site. Here’s a good post on How Not To Bid On Prosper.

To help make up for Prosper’s anticipated drop, a new program RevResponse has been added. They basically provide free publications and white papers on various topics ranging from finance and banking to search engine optimization and car detailing. Check out the Free Financial Magazines link. Bloggers might also want to check out the Sales & Marketing articles too. Old School programmers might remember Dr. Dobb’s Journal. Well, it’s available for free too. And the best part is I get paid for providing my readers with free useful information! So if you’ve ever wondered if you can make money selling magazines, here’s your chance to find out without getting off out of your chair. They’re also paying $50 for writing a 200 word post about them this month, so you should definitely join immediately if you’re a blogger.

I also made around $1,099 from some oil investments and other dividends. Some of the stocks pay over 10% in annual dividends. In the past 2 weeks the market has taken a beating and there are a lot of stellar companies paying over 4% annual yield. Some of them are Verizon(VZ), General Electric (GE) and Pfizer (PFE). Even stocks like McDonalds (MCD) are yielding 2.6% which is more than you get in your savings account!

Last month I bought a few more domains like Hobby Rubber Stamps and Invasion TV from GoDaddy. GoDaddy currently has a promotion – .com domain purchases for only $6.99 and .info domains for only 99 cents. I’ll try a few ways to monetize these domains over the next few months and hopefully they’ll add to my passive income as well.

I have multiple streams of both online & offline income. As I’ve mentioned before, having small amounts of income from various companies provides diversity and risk management. Occasionally, one of them will drop off (like adsense went from $400 a month to $150), and not being too concentrated in it prevents your passive income totally disappearing.

I’ll end with a quote from last months post:

Having any sort side income that sufficiently large to allow you to pay the rent and put food on the top is a great stress reliever. It also provides you F*** YOU money, in case you don’t see eye-to-eye with your boss or you feel that your job is sucking the life out of you! For stubborn and opinionated people, having F-U money is awesome!

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. Please let me know how you’re all doing.

I was so busy in May that I completely forgot to post April’s passive income summary. On the bright side, April was a been a record breaking month for me with total “passive” income amounting to $2,811.42. On the flip side, I’ve been so busy, I haven’t been paying attention to my sites and May’s income will probably be lower.

If you recall, the income for March 2008 was $2, 667.18, so this is $144 jump is a 5.4% increase. However, one of my stocks is a Japanese REIT, and it paid out a quarterly dividend amounting to about $230, so the $140 increase isn’t a real increase – it’s going to disappear for May. Besides, the jump from February to March’s passive income was 11.9%, so this isn’t as good. (In case your wondering why I’ve invested in a Japanese REIT, here’s a good posts on why Japan’s real estate is a good investment.)

But so long as I can sustain it over $2,500 per month, I’ll be happy. Especially since I’m going to pursue my MBA full-time and I won’t be able to work.

Here’s the breakdown:

A new addition this month is the affiliate income I made from Ebay. In the past I’ve bought A LOT of gold coins on ebay. Since most of the gold coins are of a specific type, and I like to automate repetitive tasks, I used to have searches emailed to me on a regular basis. However, since I also like to try and monetize everything, I decided to set up a store to serve as both a place to aggregate my favorite searches and generate some affiliate income. Here’s my gold coin site, aptly called French Gold Coins. Check out the coins under the Recommended list – these are my favorite coins. The site is a .info site that I bought for $0.99 from GoDaddy and it was created using BANS. For a little more info, look at the 2nd half of this post. I also set up a site to aggregate news pertinent to Gold and Gold Coins, as another example of how to automate repetitive tasks.

Last month I mentioned that my Adsense revenue was dropping since I was being smart-priced. In an attempt to prevent that I modified the way Adsense shows up on the site – only search engine traffic sees Adsense now. Other traffic gets shown ADSAQ ads, which is helping compensate for Adsense’s lost revenue. February’s Adsense income was over $400 and has been dropping ever since. But I think I’ve figured out the issues and expect it to be pretty much constant at this level, or maybe slightly higher.

On the other hand, Linkworth has done really well on my sites. March’s income was almost double of February’s and as expected, April’s income was even higher. I’m very happy with their service and I strongly endorse it. It’s a good addition to Adsense, since it doesn’t conflict with their TOS (terms of service) and its always a good idea to have multiple streams of income. Incidentally, the only decent book EVER written by Robert G. Allen is Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth!. All of his other books are crap, but surprisingly, this is one of my favorites!

Text-Link-Ads is also doing moderately okay although its taking more time than Linkworth. I think you may 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, for the obvious reason that it’s generating more revenue for me. 😀

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.

In March, I made $60 from Domain Embarking, a site that helps you earn money from parked domains. Since they only pay out quarterly, I didn’t make squat from them, but I’ve added a couple more sites and have had a couple of people sign up using the affiliate link so I expect to make a little bit more in the next cycle. I expect to make more than enough money to pay for the registration fees and my hosting for all my sites through the income generated through Domain Embarking.

Prosper is still handing out $25 signup bonuses to new lenders and that program generated $175 in April. My total proper account value is now $2995 of which $800 is cash. I’ve been so busy I haven’t had time to invest that amount. I have my own criteria for investing in loans and it usually narrows my universe of investment-grade loans to under 20 at any given time. Of that half will ask loans for real estate projects which I don’t do and eventually they’re only 3 borrowers who I’ll think are worthy of lending money to. Here’s a good post on How Not To Bid On Prosper.

I also made around $1,151 from some oil investments and other 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.

I also made about $128 in interest from savings and CDs. My gut feeling is that the Federal Reserve will probably keep the interest rates steady for the rest of the summer. However, even if they do drop the rates (I don’t think we’re going to see a rate hike for a year or two) it won’t make a very significant difference in my income. And I’ll probably be spending that money while I’m in college so I don’t have any expectations from it anyway.

I have some minimal expenses for domains and hosting. I pay about $119.40 for annual hosting on Dream Host. I had several periods of downtime last month and they did credit my account with an extra month. I like that they have one click installation 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, although I have heard it has improved. 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 $60 for domain registrations which I usually register with 1 and 1. At $6.99, they’re pretty cheap. However I did go and register a bunch of domains for 99 cents so next year I’ll probably be paying close to $175. On a monthly basis, these costs will work out to roughly $25 (or they will once the domains go full price). GoDaddy currently has a promotion – .com domain transfers for only $6.99 and .info domains for only 99 cents.

As you can see, I have multiple streams of both online & offline income. My online income is generated from 10 different companies. The other income is produced from the dividends of about 10 different stocks and 3 oil investments. Having diversity is very important. Periodically, one of them will taper off (like adsense did), and not being too concentrated in it prevents your passive income totally disappearing.

Having any sort side income that sufficiently large to allow you to pay the rent and put food on the top is a great stress reliever. It also provides you F*** YOU money, in case you don’t see eye-to-eye with your boss or you feel that your job is sucking the life out of you! For stubborn and opinionated people, having F-U money is awesome!

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.

Please let me know how you’re all doing.

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.

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.

Since this is tax season and this site is dedicated to earning passive income, I thought I should post something about the taxation of passive income. From the IRS’s point of view passive income is any income that you get without having to to materially participate in. Examples of passive income include rental properties and partnership returns.

Unlike earned income, passive income has great tax benefits. Earned income is subject to self-employment tax which is just over 15.5% (if you’re W2 employee, your employer pays half of this). Your passive income isn’t subject to this tax. If you own rental property, you also claim depreciation. Depreciation is the replacement cost of equipment used in a business and is spread out over its useful life. For residential real estate, the IRS deems the useful life to be 27.5 years. However, the useful life of a house could well exceed 60 years. This results in you being able to claim a tax loss which doesn’t really result in any loss to you. Because of this, depreciation losses are sometimes termed as phantom losses.

Let me give an example. Suppose you buy a rental property for $325,000. The tax bill says the land is worth $50,000 and the improvements (everything else thats built on the land) are worth the remaining $275,000. Based on the IRS’s straight-line depreciation method of deducting the cost of the improvements over 27.5 years, you get to claim $10,000 a year in depreciation. Assuming you have a mortgage of $275,000 at 5%, you’ll pay about $13,750 in mortgage interest payments. Assuming the property tax rate is 1.5% (its about 1.25% in California, 0.07% in Utah, 3% in Texas and a whopping 6% in New York) and the insurance and miscellaneous expenses are another 0.5%, you’ll be paying another $6000/year. In all you have actual expenses worth 19,750 per year plus depreciation loss of $10,000 bringing your grand total to $29,750. If you’re getting $1750 per month in rent, that works out to $21,000 worth of rental income. Since your actual costs are $19,750, you’re making a profit of $1,250. However, according to IRS passive income rules, you’re technically making a $8,750 loss!

Not only do you not pay taxes on your $1,250 worth of rental income, but you also get to deduct the $8,750 phantom loss from your regular earned income! In a 30% tax bracket, thats a $3,000 tax saving! You can deduct upto $25,000 worth of passive income losses on your taxes every year! If you have more losses, you can carry these forward until you can offset them against passive gains (like the sale of the property).

The flip side to this rule is the depreciation recapture rule which means you need to add back in the depreciation losses when you sell the property. However, this can be somewhat avoided by the use of a 1031 exchange (also called a Starker exchange).

Note that there are many nuances to this grossly simplified example so please don’t flame me, especially if you’re a qualified tax professional.

Qualified stock dividends are also another form of passive income that attract favorable tax rates. Instead of being taxed as ordinary income, the maximum tax rate is now 15% for most people. In fact, if your tax rate is 10% or less, you’ll pay only 5% income tax on your qualified dividends! There are certain restrictions that come with these lower taxations. The corporation issuing the dividends must be a domestic US corporation or a qualified foreign company. There is also a holding period of 60 day before the ex-dividend date and 59 days after the ex-dividend date.

What I term as passive income from my websites does not necessarily match the IRS’s definition of passive income. It is ordinary income and is thus subject to ordinary income tax. So I channel that income through a corporation. This is a form of income splitting. By creating a separate tax entity, I reduce the effective tax burden. I use that corporation to pay necessary and customary expenses required for the generation of this income, like my internet & phone service, computer equipment, investment newsletters, etc. Whatever is left after expenses, is taxable income. For US corporations that make $50,000 or less in profit, the tax rate is 15%. There is also question of double taxation for corporations (both the corporation and the shareholders have to pay taxes on the income that is distributed), but for now that doesn’t affect me. I’ll worry about it when it becomes an issue.

The income I get from direct oil well drilling programs is also taxable but it comes with depletion credits. As a result, 15% of the income is tax-free.

The IRS definitely gives a lot of tax benefits to passively earned income. If you have to work for your income and get paid as a W2 employee, you have the least number of tax breaks and will usually pay the highest taxes. Creating passive income streams is not only a better alternative to working, but you even get favorable tax treatment. If you’re looking for ways to generate passive income, make sure you read all the passive income posts. and check out my investment store.

Note: I am not a tax professional, nor do I play on on TV! Please consult your tax adviser before you make any financial decisions. If you’re subject to exemption phase-outs or AMT this advice may not apply to you.

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.

I’ve finally broken the $2,000/month in passive income! Passive income for February 2008 was $2,383.55. Not bad considering I wasn’t even in the country!

Here’s the breakdown:

  • Online Income: $$1399.29
  • Savings Accounts: $138.43
  • Real Estate Trust Deed: $0
  • Direct Oil Drilling Investment: $277
  • Dividends from Canroys: $509.11
  • Other Dividends: $59.72

As usual, I ignored any income from Prosper loans. I did however include the $100 in referrals fees. If you’ve been thinking of lending or borrowing money on Prosper, now is a good time to do it. They’re still offering a $25 incentive to new members.

Canadian government takes its 15% tax on the dividends from Canroys, so the income is after-tax. You get a tax credit for this amount in the US so there’s no double taxation.

I’m also getting affiliate referral income from Linkworth.com. For every person that signs up, they give 5% of the income they earn for life! The $200 that I got in February was actually the income I earned in January. For February, I’ve actually earned $410.98, of which most of it is referrral income. But since I won’t get paid until March, I’m going to count that next month. Linkworth will probably be the largest income stream next month. Its a great way to boost your site’s revenue.

The Kontera income dropped 44% from last month. I haven’t spent much time analyzing that so I’m not sure what happend. Overall traffic is up so I’d expect the kontera revenue to also increase, but the opposite occurred. I guess it is correlated with the type of posts. I’ve seen that posts related to gold do very well for PayPerClick advertising.

As I mentioned last month, my real estate trust deed has defaulted. Luckily, the oil drilling programs have started to kick-in and have almost replaced that income.

Overall, I’m quite pleased with the results. Hopefully, I’ll be able to break the $3,000/month barrier pretty soon.

I’ve been traveling for the past month so this post is a little late. I had already posted my online income which was $778. I finally got a chance to add up my monthly dividend income from my stocks, Canroys, CDs and savings accounts.

The grand total for January was $764.10 from a dozen different stocks. Its lower than it was for December because some of my stocks pay out quarterly dividends. But overall, the amount of dividends is trending up due to the Dividend Reinvestment Program (DRIP).

A DRIP allows you to re-invest your dividends back into the stock. You don’t have to pay a brokerage fee for this, so if you don’t need the income its a good way to put your make back to work. Not only that, but many companies will actually give a discounted share price on stock purchases made through DRIPs.

If the company doesn’t have a DRIP, your brokerage company should be able to set up automatic dividend re-investment for you. Unless you’re getting a few thousand dollars a month in dividends, this is a cheap way to reinvest your money. According to Prof. Jeremy Seigel’s excellent book The Future for Investors, you should avoid trendy growth stocks in favor of stable companies with sustainable cashflows which is returned in the form of dividends. Using historic data, he also proves that the reinvestment of such dividends is the true source of superior stock returns.

Added in this $764.10 is the $31 in interest payments that I received from my Prosper loans. In addition to the $31, I also received another $158 in principle repayments.

I was also receiving about $300/month from investments in various commercial real estate projects that were diversified by being in different projects in various states. Unfortunately, I’ve been informed that the funding for commercial lending has taken a severe hit and the developers are unable to refinance to cash me out. This means, that my money is going to be tied up for a while. I’ll get more info when I get back, but I caution everyone against lending money for any sort of real estate projects. This also includes borrowers on Prosper who are lending for real estate investments or related projects. I was hoping to put this money to good use to buy more Canroys, some of which are yielding 15% right now. Thats not likely to happen soon. 🙁

I had stayed away from investing in trust deeds on residential properties thinking that they would have a higher likely of default. But in the past few months we’ve seen that subprime mess has caused the market to lose faith in the credit rating system. This has caused lending for everything to dry up, including municipal bonds, which has prompted Buffett to offer to buy these AAA rated bonds at a discount and thus “rescue” the borrowers. Unfortunately, its also negatively impacted commercial developers.

Hopefully I can get my principle back from the developers. If not, my loan will convert to an equity stake in the project and it’ll probably be a long time until I get cashed out. Let’s see how this pans out.