Today we’re finishing up some thoughts from Passive Income, Aggressive Retirement
by Rachel Richards, which I think should have been titled “How to Become Financially Independent by Creating Multiple Streams of Passive Income”. Haha!
If you missed parts one and two about this book, check out Passive Income, Aggressive Retirement and Five Categories of Passive Income and How to Evaluate Them.
I really liked this book and if you haven’t had the chance to check it out yet, you should certainly add it to your reading list.
In this post we’ll get into the 28 passive income ideas the book covers and I’ll share my take on them.
If you recall, the book lists five categories of passive income as follows:
- Royalty Income
- Portfolio Income
- Coin-Operated Machines
- Ads and E-commerce
- Rental Income
Now let’s take a look at the ideas under each category…
Royalty Income
For each category the author lists a brief summary of time and money costs readers can expect (in general) from the category.
She summarizes this one as follows:
Requires mostly time; minimal or no money
Then she lists nine ideas:
- Books, eBooks, audio books
- Music
- Photography
- Downloadable content
- PODs
- Online courses
- Software or app development
- Franchising
- Mineral Rights
Here are my thoughts on the category as well as her ideas:
- Generally this category requires a TON of time for the chance of little to low payout. Some hit it VERY big here, but those are few and far between.
- It also requires at least one of two things that make the category mostly a crapshoot IMO: luck or unique talent.
- As such, this category isn’t a favorite of mine since it’s likely a big time suck for no return.
- I have thought about writing a book, but there’s so much time involved and the payout is likely low — I can probably make more money simply by writing blog posts (more on that in a category below). That said, the author of this book makes several thousand dollars a month on book royalties without being Dave Ramsey or Suze Orman, so maybe it’s not as hard as I think it is.
- I think a course is similar to a book in the initial time commitment, but a course (or downloadable content or print on demand (POD)) has a much higher chance of succeeding at a much higher price point. So I’m keeping an online course on my “maybe” list.
- I give a complete “no” to music and photography. I have no talent in these areas and even for people that do, the chance of creating something with any meaningful income is very low indeed IMO.
- Software or app development, franchising, and mineral rights are all out based on skill set (or lack there of), knowledge (don’t have it), and interest (don’t want to learn it since it sounds unappealing to me).
So from this category, online courses is the only one I’m interested in at this point.
Portfolio Income
She summarizes this category with:
Requires no time; lots of money
I’m your Huckleberry. This category is just my game. Hahaha!
Her seven ideas here are:
- Dividend Income
- Bond income
- Interest income
- P2P
- MLPs
- REITs
- Crowdfunded real estate
Here’s my take on this category and these ideas:
- As you can tell from my comments above and from reading this site, this is a category I have used in the past, am currently using, and will probably use throughout the rest of my life. I like that it’s pretty hands off for the most part (or high on the “passive” scale if you prefer).
- I earn dividend income from my index funds (dividends aren’t the primary reason for investing in stock index funds (growth is) but they do throw off about 2% per year in cash) and have invested specifically in dividend stocks to generate extra cash. I’ll be adding to the latter over time as opportunities present themselves.
- I am not a big bond fan primarily because interest rates are so low they will eventually have to go up, which will kill current bondholders. So I avoid them.
- I earn interest income in a couple ways. The best is investing in private real estate loans. I also earn interest from cash in “high yield” accounts. It’s a joke.
- I have spent several years liquidating my P2P holdings. I should be completely out next year. The returns just weren’t there for me, so I moved on. But I put so much in that’s it’s been a long process getting out. Overall I earned about as much as a “high yield” savings account.
- I don’t know much about MLPs. Anyone out there use them? Do you like or dislike them?
- REITs are fine, but I prefer direct ownership in rental real estate. We’ll cover that soon.
- I haven’t gotten into crowdfunded real estate because I want to see where it shakes out. I was an early investor in crowdfunded lending (P2P) and you see where that got me, so I’m being cautious here. Besides I invest in real estate in other ways, so it’s not like I’m ignoring that asset class.
In the future I’ll, probably do more dividend investing and am willing to fund more private loans if they come available and I have the cash. The rest aren’t likely to be something I’d consider.
Coin-Operated Machine Income
She summarizes this category with:
Requires some time and some money
Her six ideas in this category are:
- Vending machines
- ATM vendor
- Arcade games
- Car wash
- Laundromat
- Slot machines
Here are my thoughts:
- I have given this category a lot of thought — so much so that I have considered entering it on three occasions.
- The first time I began looking for an existing coin-operated business to purchase. But finding one was harder than finding a needle in a haystack, so I gave up. That said, I’d still buy one if the right opportunity popped up.
- The second time, I actually had a friend who was doing this. He had purchased a couple machines, fixed them up, placed them in decent locations (in schools — he offered healthy snacks), and they were doing well. He said he eventually wanted to have enough of them to replace his day income. I offered to be a partner and the money man to fuel his expansion, but he said he wanted to do it all himself.
- The third time I heard a podcast interview from a guy who had a franchise business. It sold stickers in school vending machines. I got some information and looked at it, but decided against it.
- What I like about these businesses is that they generate cash and lots of it — even when I am not there. What I dislike is the time commitment — stocking the machines, caring for the equipment, etc. My ideal situation would be one where I would fund the effort and have a partner (maybe one of my kids) who would do the filling, maintenance, etc. so I didn’t have to invest so much time.
- In particular I like vending machines, arcade games, and maybe even a laundromat (I’d have to do more research into what operations takes on this one — there’s a huge capital expense with laundromats).
- I’m not excited about being an ATM vendor (sounds like the potential to lose a ton of money if a machine gets robbed), owning a car wash (I was until someone told me about the massive maintenance costs), or slot machines (I am not a gambling fan).
I’m leaving this idea on my list as a possibility in the future.
Advertising and E-commerce Income
She summarizes this category with:
Requires mostly time; minimal money
Her three ideas in this category are:
- Affiliate marketing
- Advertising
- Dropshipping
My thoughts:
- As you know, I’m all over this category and have been for over 15 years now. In fact, I’ve grossed just about $1 million in blogging (income and capital gains).
- I think blogging (and thus affiliate marketing and advertising) can generate a good side income for many people. That’s why I wrote Five Steps to Creating a Winning $25k Blog — to share what I know so others could do the same.
- Blogging is NOT a passive income activity, even after you get the site up and running. It’s a content-eating machine that needs to be constantly fed.
- I’m not a big fan of dropshipping, so I’ll take a pass on that.
I’ll probably be in this category for a long time since I enjoy it, it challenges my mind, and I earn a decent income from it. It’s an awesome retirement activity.
Rental Income
She summarizes this category with:
Requires some time and some money
Her three ideas in this category are:
- Airbnb or VRBO
- Storage space
- Residential real estate
My thoughts:
- Love, love, love this space, as you know.
- In my experience, this requires lots of time, money, and willingness to take risks, especially at the beginning. If you manage these yourself, it requires a decent amount of time after the purchase as well.
- I know people who are buying up properties just to turn them into Airbnb places and they are making a fortune. One guy told me something like, “I make more on an Airbnb place in three months than I would if I rented the place out for a year.” Of course we live in a vacation destination, so I’m sure that helps quite a bit.
- That said, I don’t think I’ll get into vacation properties unless we buy a place somewhere nice, live there part of the year, and rent it out the rest of the time.
- I’ve considered investing in storage units but so far haven’t taken the plunge. They’re building one near our house (we walk by it all the time) that has a great view of Pikes Peak. Ha!
- Residential real estate is right in my wheelhouse and I’ve done well with it.
I’d be willing to buy more real estate, but prices remain high in the markets I’d consider, so I’m on hold for now.
How the Income Stacks Up
So here are the multiple streams of income I’m interested in and my thoughts on the future of each:
- Rental Real Estate — If I simply keep what I have, I’ll be fine, but I wouldn’t mind adding another place or two. My preference would be to buy in Grand Rapids, Michigan where my other places are so I could roll the new homes into my property manager with no problem.
- Blogging — I’ll probably keep at this for some time as there are other reasons for doing it in addition to the money (enjoyment, challenge, retirement activity).
- Dividend Income — I am watching about 20 stocks and will buy if and when the opportunity presents itself.
- Private Real Estate Loans — I could add one or two more and would like to. This depends more on the group I’m lending to (and their expansion plans) that it does on me.
- Online Course — I would say this one is likely to happen. All I need to do is muster up the willpower to spend the time on it.
- Coin-Operated Machines (vending machines, arcade games, laundromat) — I’ll keep my eyes open here and see if anything pops up. If there’s anyone reading who invests in these sorts of businesses, I’d love to hear from you.
Well, that’s it for this book.
As I said earlier, I’ll probably add this book to my list of 12 Books that Will Make You a Financial Expert in One Year — most likely the lead book for month six where I discuss non-career income ideas.
What did you think of it? And which of the ideas above are you using to generate income (or would like to use)?
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Comments
Gary Martins saysGreat list of items, thanks. Very curious about Mineral Rights… where does one start?
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- ESI says
Google? 😉
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- Millionaire 14 says
My parents got a huge windfall when they leased their farmland to an energy company back when gas fracking was all the craze, and they were partial property owners in a plot with actual drilling operations – the royalties in that first year were tremendous, but have since fallen off dramatically (to the tune of 90% decrease – $12-14K/mo to now $1500/mo). However, they are still continuing, and are a nice side income. 10-15 years ago, energy companies were leasing properties with huge offers anywhere they could find them (often without any plans to drill, just to lock up the land from competition), now not a peep. There was/is a lot of political/environmental controversy, which I think has something to do with the quieting down of the industry, as well as the natural gas price collapse.
So I wouldn’t count on it for primary income, but it’s a nice side benefit if you’re already in it. In addition, it does make buying and selling property more complicated, as you now have to decide whether to separate or include mineral rights with the property, and that’s a whole other set of paperwork and negotiating…IMO, I wouldn’t go looking for it as income, it’s too variable.
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- Xrayvsn says
Glad to see blogging as part of your repertoire for retirement. I agree it is definitely not passive as each post I do takes at least 3 or so hours (if not more) before it goes live. $1M from blogging sounds like a dream (I am way off that pace) but as you mentioned there are other non monetary benefits that I enjoy.
I too am not a big fan of bonds. I try to use REITS as an alternative even though they behave more like equities. The mandated distributions is what does it for me.
Real estate, particularly syndication in multifamily, is the majority of my mailbox money which has now grown considerably as I have solely concentrated on it since May 2017
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- Naomi says
Great post! Thank you for sharing what is working for you.
I’ve always been curious about coin operated businesses, but have never seen anything legitimate ( so far).
Real estate is in my 2021 plan!
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- BC | FrugalWheels says
The coin machine/ATM one always intrigued me. I was just thinking about this this morning again and I think it’s something I am keeping my eye on for opportunity.
As far as art as passive income – I will say it rarely is. Things like books, music, etc require way more work no only on the front end, but on the backend too. I wrote a series of sci-fi books, and finishing a novel is a marathon of a task – but that’s only part one of the work involved. Part II is the marketing part, and it’s more work than writing the books in the first place. And part of that marketing is also writing more books. You have to keep feeding the machine to keep the marketing engine going on platforms such as Amazon.
Then there’s the calculus of writing/creating what you love versus writing/creating for the market. Of course they could overlap, but many authors I met write for the market. It’s a more likely path toward success, but it also feels more like a job. I already get paid to write; so writing fiction for me was more about allowing that side of me to create the art I wanted to see in the world.
There are exceptions of course. Some books or other works of art might take off and take on a life of their own, generating crazy amounts of passive income. But that’s very rare. Most authors that make good money, whether through traditional publishing or indie publishing, do so because they are grinding away and continuing to work, work, work. Hardly passive.
The rental one is interesting too. I have a friend in town who is making a killing on rentals, even renting apartments to turn around as Airbnbs (post covid, of course). After hearing about his returns I researched our market and found out he and his wife were the exception – most rentals were way underbooked compared to their counterparts in other cities.
This was a great post and I love that you included all passive streams that you researched and decided against. I think that’s a key when it comes to evaluating these sources.
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- Tom says
I’d been toying with the idea of a vending machine (have access to one in need of some repair). I picked up the book after your first post and read through it, got excited about coin machines in general and did some research, found potential equipment, etc. That’s when I mentioned it to a friend, who brought up a huge red flag that escaped me: With the current environment we’re all in, there are immediate issues (less people traffic, closed businesses, etc) and likely long-term behavioral shifts that could result in people no longer being comfortable touching these surfaces or purchasing/receiving products in this manner going forward. For now at least, the risk has grown too large for me to keep this potential income stream in consideration, unfortunately.
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- JJ says
Maybe there’s a way to cater to the covid-wary market. There are portable UV scanners that claim to kill any virus. Maybe building that into the machine and advertising that anything dispensed has been “cleansed” would be an attractor.
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- Apex says
I find this real estate list oddly specific and yet oddly sparse.
1. VRBO & AirBB is a new hot thing in the last 5-10 years. Not so hot in the last 3 months and perhaps for years.
2. Residential is listed as one big broad category when it is loaded with niches each having their own unique qualities.
3. Self-storage space is extremely niche and also hot recently, but it is called out as its own category.
4. Commercial is completely ignored. It is also loaded with niches (one of which is storage space)
5. Triple-net leased single tenant properties are 100% passive and would seem to be worth an explanatory inclusion if you are going to put specific niches in your list.Perhaps she doesn’t have a lot of direct knowledge in this category which is fine, but then I think she should have left it broad. Her list seems to be based on what is currently hot when 2 of the 3 things on it are AirBB and self-storage . It feels like chasing the trend which I would not advise.
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- ESI says
True. But that said, if there was no Covid-19, #1 would still be very hot…and who could have (or did) predicted the virus?
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- Apex says
Correct. My point wasn’t to try to prove that AirBB was a bad selection, it was just an example of a hot trend that appears to have been seriously disrupted for the time being. The main point was about using currently hot trends as advice which I find risky but too common.
I guess to be fair I am just getting your summary of what she recommended. Out of curiosity did she address much wider aspects of real estate and then explain why she thought those areas were not currently good passive income streams for any number of possible reasons or did she mostly just focus on these three areas of real estate?
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- ESI says
No, she didn’t.
I think for novice real estate investors she did a good job of offering “some” ideas to consider.
For those of us who are more experienced, it’s admittedly a bit haphazard.
I believe she personally owns residential real estate, though I’m not sure if it’s single family homes or multi-units.
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- Apex says
Fair enough.
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- ALBERT ADU says
When a borrower default in Payment, What should one do in retrieving the funds back – Should the service a Lawyer be sort for OR reporting directly to Police
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- ESI says
I don’t think the police would care — it’s a private, financial transaction. Unless they did something illegal (which non-payment is not), there’s no use contacting the police.
If it was me, I’d contact a lawyer and see what they would suggest.
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- Pete says
Real estate investments through syndication in hotels, multifamily, senior housing and currently researching self-storage. I got to retire from these investments and it provides me with 100% passive income once the due diligence has been done on the Sponsors and the particular investment opportunity. I can be anywhere in the world by this approach and additional benefits are limited liability, depreciation and long term capital gains. If compound interest is the 8th wonder of world, IMO depreciation and long term capital needs to be included as the 8th wonder of the world too.
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- Papa Foxtrot says
Portfolios are the only one that is truly passive. Everything else requires effort.
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- Mike - DadSense says
Royalties sound like a great idea and truly passive income, but you’re right…most music, photos, etc won’t generate any income ever. Now, if you could get your hands on the royalties to The Beatles catalog of songs, that’s a bit different!
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- Krista says
Thanks for the post!
My Brother-in-law makes a killing with ATM machines. He has them in bars, dispensaries, and convenience stores. This is his side-gig that brings in 6 figures. He partnered with someone that had contacts to be able to get into places. He bought an armored car and hires former military to assist. They carry a gun at all times. He recently had to invest in 3 dryers (like for your clothes) because there was such an influx of brand new bills that they would stick when being dispensed out of the ATM. They would pop the bills in the dryer to rough them up. He also has games in bars.
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