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Looking for truly passive income

John

Contributor
Sep 18, 2007
147
24
23
I own an Internet business that's doing very well. I'd like to diversify into one non-internet related area that brings in cashflow. I'm looking to build up 5-10k/month of non-internet income -- enough to live off of if the Internet business ever goes south. I have a decent amount of cash on hand, so capital shouldn't be a problem.

My main requirement is that my new investment can't take up much (preferably none) of my time on an ongoing basis. My time is best spent working on growing my online business, and I get a much better return on my time doing that than I would trying to muddle into some new area. I have more money than time now and I'm trying to learn better ways of getting my money to work for me without requiring my involvement.

I'm looking into several possibilities and I'm hoping that all of you can help me figure out the pros and cons of each, or possibly suggest new possibilities. I've listed my initial ideas below, along with my initial thoughts on each. I don't have experience with any of these areas, so I may be way off-base. Please don't hesitate to correct me if needed.

--Residential rental real estate - Seems like a good income earner with potential for appreciation. The problem is that it seems that it would take up a lot of my time on a regular basis dealing with problems. Even if I hired a property management company I'd still need to keep tabs and manage the managers some. I believe I might be able to make the management more simple and streamlined if I bought a single apartment building instead of multiple single family homes scattered all over the place. Any thoughts on this? How much time do those of you with rental properties run by property management companies end up spending on managing them and dealing with problems? Can residential real estate income ever be truly passive?

--Commercial rental property - Seems like it would require less management and give me less headaches than residential. Is this the case?

--Passive paper investments - Tax free municipal bonds look pretty good to me. From my research it looks like it should be fairly easy to get the equivalent of a 7% yield (when taking tax savings into account). Although they offer a smaller return than my other options they're safer, and require less of my time to manage. The downside is that at only a 7% return I'll have to tie up a lot more cash to hit my target cashflow than I would with other options. It seems to me that this much cash could possibly be put to better use elsewhere. Anyone else here investing in Municipal bonds? What kind of rates are you able to get and how much planing and maintenance does it take to keep your portfolio optimized?
Any other thoughts on stable income producing paper assets that I should check out?

--Other possibilities? Bring them on!
 

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JScott

Legendary Contributor
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Speedway Pass
Aug 24, 2007
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First, if you would otherwise not be investing the cash you have, then the 7% isn't a bad return. It's safe, requires no time investment, and if you have enough free cash sitting around, it will meet your passive income requirements.

That said, with a little time investment, you could likely generate a better return. Some thoughts...

- As for real estate, I'm not yet an investor, but I've spent a good bit of time researching REI the past several months. And the first thing I've learned is that you really do need to spend a good bit of time researching REI over several months before you set out on that path, especially if you plan to be hands-off. Of course, multi-unit properties will benefit from economies of scale, both financially and from an efficiency standpoint, so if you're truly looking to be hands-off, and if you have the cash, a large multi-unit residential property (greater than 50 units) may be a good choice. At that scale, you should easily be able to afford good PM or on-site management, and other than verifying the books every month or two and checking out the properties once or twice a year, there wouldn't be much work. Of course, the upfront work involved learning REI inside and out, finding the property(s) that you want to buy, buying them, and finding a *really* great PM who can carry out the plan you have for the property(s). I've heard a lot of horror stories about bad property management, so that may be where you spend a lot of time doing due diligence.

- Become a passive RE investor. Find someone you trust who invests, has a good reputation, a solid history of making money in RE, and offer to be a hands-off equity partner. Someone who has a history of good deals and is looking to scale up may appreciate the injection of cash, and it's a win-win. The time/effort involved here is the due diligence on the person/people who will be investing your money if you don't already know them and their business well. Also, if you're a control freak, it may be tough to not be involved.

- Become an angel investor. Find someone who is looking to start a business, and who has a good plan, and invest. Obviously there are risks with business investing, but if you find a relatively low-risk investment (retail franchise, for example) and someone you believe has the talent to succeed, it may be a good investment.

- Can you use the money to help scale your Internet business? Perhaps better technology? Better marketing? Or some other way to increase total ROI on your core business using an injection of cash?

- You could do some hard money lending. Don't know a lot about it, but I imagine you could probably make > 7% with not too much risk. I'm sure there are plenty of resources out there that could give more details around this option.

Just some thoughts off the top of my head...
 

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
28
NJ/MD
- You could do some hard money lending. Don't know a lot about it, but I imagine you could probably make > 7% with not too much risk. I'm sure there are plenty of resources out there that could give more details around this option.
I've seen some site that's like an online hard money lending classified listing service. I'm sure someone here knows what that site is, but I don't remember it. It seems like that's more small scale, though.
 

JesseO

Contributor
Jul 25, 2007
548
31
33
Phoenix, AZ
Call me narrow minded, but I think the best choice would be multifamily real estate. If you have lots of capitol, you can put down 50-100% and make plenty of permanent cashflow with an inflation hedge. If you have $1M to put down, you can make at least $5k a month easily...while still improving the property and creating more equity/value. Call me a one trick pony (see thread). Not sure how well dividends work out in the stock market, but McDonalds recently raised their dividend rate. I believe that most stocks only give you pennies on the dollar, while they mostly shoot for appreciation/gains. In any case, glad to have you here. ++ for starting this thread.


Please ignore the fuzzy math this time around.
 
OP
OP
J

John

Contributor
Sep 18, 2007
147
24
23
JScott: Thanks for the great post! Rep++ for you! Becoming a hands-off equity partner in a RE or business venture is an interesting idea that I hadn't considered. Hard money lending is also an interesting idea that I really know nothing about but now want to look into.

As for investing money back into the Internet business, I'm currently doing that and also investing most of my time into continuing to grow the business. I'm looking at also investing in another area because I'd like to diversify and get some income going that doesn't rely on the internet.

Yankee338: I think you're probably thinking of prosper.com. Most people I know of who have tried this haven't been happy with the results.

JesseO: 60k a year out of a 1 million investment is 6% not 16.5%. Hopefully I could do a little better than that!
 

JesseO

Contributor
Jul 25, 2007
548
31
33
Phoenix, AZ
Sorry, transposed the numbers. It's more like 9.5% COCR with 100% down. $8,000/month or so. Not including other income (laundry, appreciation, etc)

Also, I think prosper.com is more of a charitable site rather than trying to make as much of a return as possible. From what I've heard on the news they help people in the poorest of places...but then again I've only seen a snippet of what they've done on CNN.
 

JScott

Legendary Contributor
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Speedway Pass
Aug 24, 2007
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Also, I think prosper.com is more of a charitable site rather than trying to make as much of a return as possible. From what I've heard on the news they help people in the poorest of places...but then again I've only seen a snippet of what they've done on CNN.
Prosper.com is a peer-to-peer lending site that allows anyone with cash to lend to anyone who needs cash, for an interest rate that is determined using reverse auctions. It's definitely not charity, and is used mostly in the U.S. by average working folks.

The charity stuff that you are thinking of is likely the micro-finance work that people like Pierre Omidyar (founder of eBay) is currently doing, and is planning to formalize. Here's some more info:

http://www.businessweek.com/technology/content/nov2005/tc20051104_079665.htm
 

ProInvestor

New Contributor
Aug 15, 2007
82
10
15
Australia
If you are looking for total passive income look at Government programs, for example here in Australia the Government pays 100% of the rent to the landlord DIRECT (straight into your nominated bank account!). You can even set up a deal with our unemployment office so they send you tenants direct, have a property manager guy and no agent letting fees.

Good, ehh'????

Rgds.
ProInvestor
 

tbsells

Contributor
Jul 27, 2007
304
57
31
Ohio
John,
I'm not an expert on the topic but hard money lending seems extremely profitable, hands off, and not very risky. I read a post on here (I think it was by phlgrl) where the poster said they used hard money frequently and they typically paid 3 points plus 15% for short terms loans secured by real estate. That will add up in a hurry. You might contact phlgrl for more details. I'm sure there are others who use hard money lenders and could chime in on rates and fees.
 

TNT

New Contributor
Aug 31, 2007
58
5
12
55
I like the concept of truely passive income but I am not inclind to just turn that kind of money over to someone to manage for me. I do think appartments are the best rought with a property manager but I will keep an eye on things.
 

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