Passive Income

A friend of mine asked me the other day if I could think of any ways to make extra money. It seems that his day job isn't enough to cover his bills or to go away on vacation as much as he wants.  I've been pondering this question for a while and have thought of some of the things I've done … here's a list of some of the ways I've attempted to make extra money. (You can read a similar post at Frugal Dad, where I got the inspiration for this post – 14 Ways to Raise Quick Cash)

BOUNCER/BARTENDER

I did this for almost a year and made some decent tips. I think I actually worked 7 days a week for a period of 6 months. But, I was a little grumpy with customers sometimes, especially after working 8 hours in an office.

Result: I just got too run down and my day job suffered. Had to quit to regain my energy.

CRAIGSLIST/EBAY

I managed to sell quite a few things on eBay and Craigslist. eBay was ok but I found the auction format somewhat tiresome; they do have a 'Buy Now' option for experienced sellers. I also found it a pain dealing with postage/handling – how much do you charge without scaring off potential customers yet still covering your costs? Don't get me started on Craigslist low-ballers – the scourge of the internet.

Result: I stopped doing this so much as I ran out of things to sell plus I found it took too much time in relation to the revenue. I guess if you find the right product it could be fine. Drop-shipping is also great if a company will do it for you.

TAXES

I know many accountants who do this on the side and you can earn some decent cash. But you need to have the proper software and insurance and some people are too cheap to pay a decent rate. You also need many clients to make some good cash – let's just say I've worked some long hours when tax time hits.

Result: I don't do this so much anymore as the cost of software/insurance is skyrocketing. People seem to almost want this service for free … especially friends! I also found my health took a bit of a hit because of the long hours.

PRODUCED A SHOW

I co-produced and co-starred in a show at the Vancouver Fringe Festival back in 2007. We thought we could make extra money AND get to perform and have fun. The reviews were horrid and it was painful listening to the slamming of doors as people left the theatre. I laugh about it now. I actually have a video somewhere but it is firmly hidden on my hard drive with the appropriate encryption.

Result: we didn't do a very good job on the marketing and our piano player turned into a real Divo. Plus, our concept and execution were generally quite poor – it was based on the music of Kurt Weill – think depressing, German show tunes.

NETWORK MARKETING

I can hear the groans, already. I've been doing this for several years now and must admit, I haven't made a lot of money. Many of the stereotypes of networking marketing types are true but also many are not – it just depends on the people. But, I am having fun and learning lots of new skills and doing things I never thought I could do.

Result: I plan on continuing – I've made a pact to not harass my friends and family and to just try and be as honest as I can.

So, there you have it – I haven't made a lot of money but I feel the experiences have been priceless and will serve me well in my future money-earning endeavours. I also have many amazing (and frequently hilarious) memories that I'll be able to reflect on for years to come.

As for my friend, what did I tell him?

I told him to focus on getting a budget and learning to live and save off the money he currently earns. The problems with part-time jobs are that they sap your time and energy (and health) and can seriously affect your performance in your day job.

Live on what you earn.

A final piece of advice (and I know he's reading) … stop buying shoes! ;)

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• Passive Income and Wealth
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• Succeeding In Network Marketing 

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Previously, I wrote about the concept of the Wealth Ratio which I first learned from reading the Rich Dad books. It's a convenient metric that measures how much passive income you have in your portfolio. Passive income is a key factor in being wealthy, I believe, because it (theoretically) flows to you regardless of how many hours you work in day – if you have lots of it, you don't have to depend on your job any more!

For a quick review, the Wealth Ratio is your total passive income divided by your total monthly living expenses. If this ratio is 100%, then you have enough cash flow coming to you to not have to work a job again.

In my previous post my wealth ratio was hovering around 24% … what is it now?

Well, I've managed to get it up to 28% – not a huge amount, but an improvement, nonetheless. What this means is that if I stop working, 28% of my living expenses will still be covered by cash flowing to me.

How did I do it?

Thankfully, I managed to lower my expenses a bit. I went on a bit of tear just before Christmas and was able to get things back to normal in the first few months of 2009. There's is still room for improvement, though. I've also added a bit of passive income to my portfolio. The blog is making a bit more than it used (although, not as much as I'd like!) and my investments are earnings a bit more income as well.

It would appear that the road to financial independence is all about increasing cash flow and lowering expenses.

Are there problems with the Wealth Ratio?

The problem with passive income is that it still takes a lot of work to set up. One could also argue that not all passive income is actually passive. Take rental income – while it can pay your mortgage for you, you still have to work to find tenants and if one of them turns out to be difficult, this could cause major problems and take up many hours of your time.

Some of the passive income I have could actually end. I have a roommate who pays me rent each month – is that passive? Well, it does come to me each month, but if he moved out, it would end.

So, ideally, passive income should have the following traits:

• Be perpetual – no expiry date.
• Once it's set up, it should take very little to keep it going – easier said than done?

Anyways, I guess one should enjoy it while it lasts. While you're receiving this type of cash flow, it will put less pressure on you to work, or it will give you more money to invest with. Plus, half the fun in life is at least trying to do something different – why be happy with just staying at your job until your 65?

At the end of the day, I like to look at it this way – if it takes less time to manage passive income than commuting and slaving at a 40-hr work week, I'm ok with that.

RELATED POSTS

• Rental Income and Cash Flow
• Passive Income and Wealth

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I'm a firm believer in passive income. For the uninitiated, passive income is money that comes in regardless of whether or not you work. It's cash flow. It's freedom. It means, if you have lots of it, you'll never have to work a job again. One way that I plan on getting me some passive cash flow is through rental income, but I've been looking through the Vancouver real estate ads and the numbers just don't add up.

The average price of a one-bedroom condo in Vancouver is probably anywhere from $300K to $350K. Thankfully, things are starting to go down but that's still a hefty price to pay … not to mention the issue with leaky condos and questionable quality. It's a virtual minefield and you never know what you're going to get. I've actually owned a leaky condo before and got burned.

Here is my predicament – once you factor in the mortgage payment, taxes, condo fees, insurance and other monthly expenses, the resulting cash flow is negative. That simply doesn't work for me. Here is an example for an apartment with a price of $300,000 and a deposit of 25% plus I've assumed an average rent of $1,400.

This also doesn't factor in vacancies or tenants from hell. Your cash flow could be even worse! Plus, many people don't have a 25% down payment so their payment could even be higher or if your credit isn't very good, you might not qualify.

WHAT ARE THE OPTIONS?

If you're an really astute investor or have lots of cash to blow, you may be able to find a positive cash flow property, but I wonder if it's an uphill battle? The Olympics are coming to Vancouver next year but after that, what will happen to rents and real estate prices? What about other cities?

I actually worked for a real estate investment company back in the 90's and in the Province of Alberta, you could actually get a no-qualify, assumable mortgage with a very small down payment ($10,000 at the time). All you did was sign the mortgage and the property was yours – no need to financially qualify! At the time, the properties were cheap enough to ensure a positive cash flow. Not sure how things are now, but it might be worth investigating.

I was at a Christmas party in December, and I overheard someone talk about rental property in Newfoundland! Apparently, you can earn positive cash flow because the prices are low enough to make it feasible. I also just got off the phone with a friend of mine in New Jersey, and the house a few blocks away – in a questionable neighbourhood, actually – was going for $75K and was rented for $1,700 per month. Do the math on that one!

My point is, if things don't seem realistic in your city or town, then consider other areas … but do your homework. Each real estate market has local differences and there could be a reason why that 'deal' is so cheap. Prices are high in Vancouver because of the weather and it's considered a great place to live. Newfoundland is beautiful but it depends on the fisheries for a large degree of it's economic prosperity, which could be a tenuous situation for rents and property values.

Anyways, I'll keep looking for now .. or perhaps, I'll hop on the next plan back to New Jersey.

RELATED POSTS

Real Estate in Vancouver

Buying Real Estate Abroad

Buying Real Estate Abroad, Part 2

Passive Income and Wealth

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