Ask HN: What passive income investments exist to supplement your salary?
I was reading this article (https://themdpreneur.com/purchase-future-cash-stop-buying-more-stuff/) on HN the other day and it talks about a hypothetical person who buys a condo and rents it out, or a vending machine and has it serviced, and a website that brings in income.
I come from a fairly traditional investing background of purchasing equities or ETFs as my primary investments, and am interested in learning what else is out there in a non-traditional sense like the above?
What other kind of passive income or cash flow helping investments are out there?
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[ 3.5 ms ] story [ 233 ms ] threadIn terms of vetting them, first thing is to check licenses - most states require them to either be a licensed real estate broker or working under one.
I prefer to work with someone who matches me in scale/style - my guy is a broker and runs his own PM service. I deal directly with him. I'd be hesitant to use a larger PM company (even if it might be a bit cheaper) at my scale, because I'm small enough that I'll be a very low priority and will have the most junior employees dealing with my properties. That can be an issue, since they're not necessarily going to have the expertise to do the long-term stuff like knowing when to get the roof inspected. When my wife moved out of her last apartment before we got married, the rep from the PM company refused to do a move-out inspection, since there was still furniture inside that could have been hiding things. Had they charged my wife for anything, we would've taken them to small claims since PMs are required by CA law to inform the tenant of their right to a move out inspection and then to perform one and provide written feedback on request. That's what happens when you're dealing with someone in their early 20s who just passed the real estate agent exam (which I have passed... it is not hard) and doesn't know what they're doing.
Also, look for companies that serve your kind of property - dealing with a property that has an HOA is different than one that doesn't. Dealing with a single family home is different than dealing with a condo. Dealing with a whole apartment building is different than dealing with a single apartment.
And lastly, references. You should be able to get a bunch of them from the PM. Try to get tenant references in addition to owner references - if the PM is ignoring or mishandling tenant issues, the owner probably doesn't know.
Source: My family had a tenant that started a fire.
What could happen that would impact the exchange rate of this 'Stable coin'? What risks exactly is one taking on for the 8.6% interest?
Never worth the risk unless there is a legal insurance provided by the government which there isn’t.
Hence, I would peg my return on investment of 5% if I do not account for increase in price of the house. If I do, it would be around 10% which is what FAANG has been giving me, with much less hassles.
Decide for yourselves if this is passive enough for you.
Home loans at least in the United States taken out at usually 5x leverage which would never fly for index funds but is ok for some reason for buying a home, even though you could become unable to pay the mortgage in which case the bank has to spend money foreclosing and selling it.
I tend to think it's not worth it to try to hedge against that unless know you're going to need hard cash for a specific purpose during a recession, like meeting payroll in your own company.
My ide of diversifying is to hedge against industry-specific risks like space launches if Kessler syndrom hits, internal combustion tech if the ICE car ban becomes reality, real estate if the Detroit scenario happens, etc.
https://www.nolo.com/legal-encyclopedia/the-eviction-process...
1. Rare but highly expensive major expenses like a new roof, new heating system, etc. It's like a tail risk- you don't pay for it most years, but when it comes up, it costs a lot.
2. Required renovations- just to stay at your current level of quality. I.e. let's say you rent to normal middle class tenants now. In 10-15 years, you'll need to install a new kitchen, new bathroom, overall maintenance- just to stay at a middle class level. The building is constantly depreciating! So unless you intend to move economically downscale and rent to lower income folks, to stay 'middle class' you'll need to refresh the building every decade or two. No one wants an ancient kitchen, a decrepit bathroom from three presidents ago, etc.
So you have to factor those two major expenses into your total rate of return over the decades. How much is a new roof, a new heating system, that new kitchen, that new bathroom.... You may not see these expenses every year, so you don't feel like they count, but over the decades they will.
Source, am actually familiar with the true rate of return for properties over a long enough time span to judge. A 1-3 year snapshot isn't sufficient!
This argument falls apart once a property is a fraction of someone's net worth, but it's rarely the case.
And what is it?
What is it? 7% 11%? Do you factor in financing leverage when you make the tenant pay the principal to your mortgage (if any)?
If you want leverage, you can get vastly more leverage for risky stock market trades (I am not advocating for doing that, I just think it's odd when real estate proponents talk about 'leverage' as if it's unique to buying a building)
My advice; learn how to actually put together a DCF model and get some real insight into your returns.
EDIT: I realized that my last statement might come off a bit condescending, but that wasn't my intention. Fundamentally, evaluating Real Estate returns is significantly more complex than other investments, such as holding stocks, ETFs, or Bonds. A Distributed Cash Flow (DCF) model will help you gain some understanding that will likely help you to make better decisions about your existing investment and make a more educated plan for the future (e.g. upcoming maintenance, when to exit at what price). You don't have to build a complex model, but even a simple one can help. There's plenty of resources out there, and you don't need much more than Excel to build one.
Source: formerly employed at a national REIT
Do you have a mortgage on it still? I don’t see that in your math. And what about the opportunity cost of your down payment?
Literally just tick a box to give broker permission. Nothing is risky free but looked into it and as best as I can tell it’s a pretty good deal. No inconvenience, not much risk etc
Other brokers seem to either keep it or implement a far less transparent process.
Since I'm holding risky shares (and thus higher % interest on borrowings) I definitely that directly linked
Short of a scenario like GME where there is an actual shortage of shares to short it won't move the needle given that available shares generally exceed borrowed shares.
It's a liquid market...so if I don't do this all that happens is the people shorting pay a fraction of a penny more in interest. For someone serious about strategically attacking something as a gambit / strategy that makes zero difference.
You can actually kinda see the effect in your own reports because it's proportional. e.g. If I have 1000 shares and only 200 get lent out then there isn't much short pressure. I've only seen it at 100% a few times and then interest rates soar so compensation for is good.
Ultimately it'll return to the intrinsic value of the company in the long run, so don't particular care about short term shenanigans
The causality here seems kinda confusing. People shorting an equity doesn't make it go down automagically. They don't have control over that.
They might be right that the stock will go down, but more likely, the shares are going to be used by someone riding trends of some sort.
If you're a long term investor, you don't care about short term trends. If you're planning on holding the stock for _years_, regardless of the performance over the next few months, then it's a nice way to generate income, and with less risk than doing something like selling Covered Calls on them.
If you add up the effect on the price lending all retail stocks has on the market, it won’t be insignificant.
Looking at it the other way, if you can generate “less risk” income off it, you have to be aware that the people borrowing the stocks are earning more than they are parting with.
There is no free lunch on the stock market.
Anyone advocating for being a landlord as a 'passive' investment vehicle is generally some type of Trump University or 'creative real estate' guru trying to sell you something. By contrast equities average a 9% annual rate of return, and are truly passive
With that said, depending on the property manager, they will do some of the following: find tenants, place tenants, evict tenants, collect rent, find contractors/repairperson to fix issues, etc.
The property manager makes it mostly passive but probably an hour a month of work if that.
Now it's 'passive', sure, but no longer an 'investment'
...unless the math adds up and you're still making a profit.
Anything that is not as standardized and well-organized as the stock or bond markets is going to require more work and thus is less passive, or will result in you having to pay others to do the work on your behalf (thus leaving you with less income).
I've also made a couple games in my free time ("Dodge the Wall!" on Steam and "Cup Pong AR" on iOS/Android). Those games have been a great way to make ~tens of dollars.
The best way that I've made passive income is just through boring Vanguard index funds/target date funds.
The nice things about the property market are: 1. High leverage - to a very high amount when you put down payments greater than 30-50%. 2. Managed or protected by some governments. Gives a more consistent rate of growth in many fast growth cities. 3. Cashflow and appreciation.
The details matter and there's obviously skill involved in making it work. At some point like other businesses you will need to hire others to manage the day-to-day if you choose to keep growing.
It's not a bad way to earn an income, but it really requires a lot of capitol to get started and earn enough to be worth it. Once you have enough units to sustain yourself you'll invest a decent amount of time keeping the whole operation going.
Edit:
Some people are pointing out you can use a property manager as a middle man to keep your involvement to a minimum. This is true but they will cut into your profits, which may or may not work for you depending on your margins. But it might make sense to go this route if you have minimal time or many units to manage.
For me this is investing in property but without the hassle of long term maintenance. You don't own the property but it's much more hassle free and fairly passive as long as you pick which things you'd like to invest into.
Services I've personally invested in and would vouch for: - https://www.kuflink.com/ - https://www.loanpad.com/ - https://www.lendingworks.co.uk/ - https://www.abundanceinvestment.com/
You might like to try out some peer to peer loan based investments if you're after some fairly passive gains.
Don't write them yourself, that's a lot of work.
Instead, do key word research about what books sell in non-fiction categories (fiction is a whole different ballgame). Look for keywords that 1) auto complete in the amazon search bar, and 2) have less than 4,000 matching books, and 3) have an average Amazon BSR of less than 150k.
The above isn't easy, nor is it particularly difficult.
Once you've found a good keyword, create an outline on the subject. You'll have to do a bit of research here, but this can be done in a few hours to a few days. The more time you spend here, the better your result will be.
Then, hire a ghostwriter to produce a 30k-ish word long book. This will run you around $1000, and produce a book long enough to turn into a 3+ hour audiobook on Audible (audiobooks over 3hrs get significantly better royalties than less than 3 hours).
Get a cover made. This will run from $50ish on fiverr to several hundred on 99designs or upwork. Don't cheap out, good covers are important.
Publish on amazon. Run ads.
There's obviously more too it than this. If interested, look up the Mikkelsen twins or Dane McBeth on youtube.
I'm not the only one doing this, of course. Most of the books I see my competitors make are of lower quality, but they probably paid a lot less for them. In general, books made by people like me read like really long blog posts - because that's where most of the information comes from.
I don't blame people for going for the easy money, but it's like paying "writers" to write thousands of articles about "best pool equipment 2021" to target keywords on Google just so you can soak up Amazon affiliate revenue. Sure you make money, but how many people are reading your "blog" as fact?
These sites aren’t going to to really test the pool cleaning equipment, the web hosting services being reviewed and ranked, learning Python tutorials. Nobody is going to pay anyone to test anything to make sure how the how-to cobbled together from three similar articles actually works.
Does anyone here want to read a book that wasn't written by an expert on the topic? How upset or sad would you feel if you spend several hours reading a book only to discover it was produced by an opportunist who picked that keyword and asked someone in a developing nation with no expertise about the subject to grok some blogs (which might or might not be factually correct) and pad out to make it a 3hr audiobook read.
I'm sorry, I just think it's a shitty thing to be doing. I'm not against making money (I'm a VC!) but it just undermines the integrity of the medium of books because now you have to sort out 'real' knowledgeable authors from this carpet bagging.
An expert ghostwriter would be undercut by a ghostwriter supplying copy-pasted material just good enough to get past the publisher. A publisher who actually cares about whether or not the book is worthless would outbid this publisher for the skills of the expert.
And still, in reality, in an economy like our, that's what you get.
Knowledge used to be reserved for the elite, locked behind closed doors that the majority never knew existed.
Then the printing press came along. Knowledge was commoditized, no longer reserved for those born into families of status. Society changed, and I’d like to think for the better. We began to see innovation like never before.
This evolution was not without burden. Knowledge can be irksome at times—after all, it requires a certain degree of mental exertion to process. Fortunately, the means to publish knowledge remained somewhat exclusive; one need not look further than a book store for an authority on any subject. If it’s in print, it’s trustworthy.
Then the internet came along and commoditized that, too. Now, we’re forced to analyze all information presented to us should we seek the truth. How do we tell what’s trustworthy? Why must we expend such effort to sort fact from fiction?
I see this as a natural progression, given our history as a society. We’ll adapt, and we’ll be better for it.
On the other hand, I’m some random person typing into the digital abyss while lying in bed. Am I a subject matter expert, or am I a 13-year-old who’s presently failing History? You’ll never know, and that’s the beauty of it: you’re stuck judging my statements without the context of authority or a librarian’s recommendation.
Nothing has changed here. You should always be questioning what you read. Open an encyclopedia from a few decades ago; you’re quite likely to find numerous mistakes on each page.
Ah, but you don’t want to waste time reading something that never even tried to be correct, right? Well, that’s a problem we haven’t solved yet: give everyone a voice, and all you hear is noise. Maybe some young, enterprising VC will sort that out for us, but exclusivity isn’t the solution.
I don't believe that's difficult. You can almost always differentiate real books from the grift-type ebooks by looking at them by publisher. Big difference between serious non-fiction publishers and print on demand titles.
Because of the 'business' described above, that book is now impossible to find. It's been swamped by hundreds of easily generated titles which are at best copy pasted from the wikipedia, at worst utter gibberish.
I'm not quite in my 30s yet but "published" in general vs "published by a specific publisher" (like O'rielly) seems really odd, especially after some of the absolute garbage we were forced to buy in college.
No income source is truly "free". Either you pay with time or money.
How long have you been at it and, when you decided to take the plunge, how long did it take you to get everything set up and going before your first publish (as in figuring out the ropes)?
I looked the twins up. Looks like they've figured they can make more selling courses on what you describe.
A family member does FBA and does quite well. The book selling thing just sounds grim to me.
I can't exactly point out what, but it feels gross.
Also, how many tenants has this apartment (have these apartments) that you're managing(?) had in those ten years?
PS: Since I've actually been dabbling with the idea of buying property in Colombia, may I ask in which city you are? :)
In fact is unusual your rent is directly to the owner, is the norm you pay the "Arrendadora" instead.
The case of apartment is a bit different. All complex have "administration" that everyone pay, but this is mostly in "closed complex". If the building is in the open, is more common is a person that take the role.
BTW: I'm close to Medellin in a town called El carmen del Viboral. Right now exist a lot of demand for out-of-city property...
> All complex have "administration" that everyone pay, but this is mostly in "closed complex".
Would this administration also take care of fixing things and taking on the role of "arrendador" if I, as the owner, rent out the apartment to someone else? (Provided I pay them, of course.) Or would I have to hire someone else for that?
The housing-company takes a fee every month which is used for common-repairs, replacing the roof, etc.
If you rent out your flat the tenant pays for their own insurance to protect their possessions, and the housing-company takes care of things like leaks, broken windows, etc.
So being a landlord is mostly hands-off. You have to advertise and pick your tenant. Then once they move in if they have problems with their stuff they take care of it, and if they have a problem with the water, etc, they call the housing company.
So being a landlord of this kind of property is almost entirely painless and hands-off. Of course if there is a big repair, like a new roof, or pipe-works, then the fee paid to the housing company (which the landlord will pay) will go up sharply for a good few years.
Another problem, at least here in Sweden, is that the law prohibits making an "unreasonable" gain on rentals so you can't compensate on bad periods by raising the rent.
The communal gardens that are shared between buildings are really nice for children. As you say there is often equipment as well as toys, a sandbox, and similar.
We've got something like 11 children aged 1-11 in our buildings, and they're often playing together on weekends and in the early evenings.
That’s definitely unusual.
* Rental properties, vending machines, etc have poor liquidity. What if you need to get your cash back out in an emergency? This poor liquidity is particularly correlated to poor economic conditions (ie. it takes longer to sell a condo in a bad economy which is also when you might really need cash).
* Many non-traditional investments are not actually passive. Even with a property manager, you still have to manage that person. Also, many investments can have quarters with negative cashflow. What might happen to your cashflows in a given period if a tree falls on your rental property breaking the roof and the tenants move out as a result? What if your property manager also quits on you because that situation isn't worth dealing with?
* There are a variety of ETFs focused on non-debt income (Eg. high dividend equity funds). Vanguard's trades under the ticker VYM. If you come from a background purchasing equities, these kinds of investments might be more comfortable for you.
I think the image of an ETF you're seeing is of the S&P 500 index fund or total stock market index fund.
However, an ETF is just a method of exchanging securities. There are thousands of ETFs in all kinds of different categories: https://etfdb.com/etfs/
I personally subscribe to the idea that the fears about passive indexes ruining the market with feedback loop economics are overblown.
What they really did was bring down the cost of actively managed funds by providing competition. Not only that, in the post-Bogle world there are a lot of "hybrid" funds and robofunds that offer index-like expense ratios with more opinionated holdings than VTI.
Instead of laws enabling ETF's and long term capital gains discounts, I'd rather have a government with a less inflationary monetary policy, where the key to wealth for the average person is saving.
Soil, for the food you grow to eat, share, or sell. Much about a green, growing area is passive income for is.
Another option is lobbying your elected officials to regulate in the interest of healthier land, water, and air, which will help you and many others.
Making something useful and giving it away (or charging a nominal amount for hosting costs, or asking others to help with that to keep the use-barriers low) is an investment in other people that may continue paying dividends long after you’re dead.
[0] - https://en.wikipedia.org/wiki/Hydroponics
Ask yourself:
* What do I know that gives me an advantage over the average joe?
* What other resources do I have that give me an advantage over the average joe?
Generally speaking, if your idea to make money sounds really lame, boring, risky, complicated and/or esoteric to an uneducated layperson - but due to your domain knowledge you know that it's not - you're on the right track. Bonus points if it benefits from obscure, difficult-to-get resources that you already have (for instance, a best friend who owns a niche website you can advertise on, or family connections in the X industry, or you live in a town that has a huge Y industry.)
What other resources do I have that give me an advantage over the average joe?"
What if my answers are none and none?
If you truly think you have nothing to offer, then start acquiring something to offer. Put in the hard work and thought into acquiring specialized skills and relationships with people. It takes time (usually a lot of it), but it is not complicated.
$4600 - 2017
$23,000 - 2018
$3700 - 2019
$2500 - 2020
2021 is shaping up to look like 2018 again but I haven't run the numbers
Last I checked, I averaged just over the current annual roi at about 5%, but back in 2017 roi was higher at like 7% so you can do the math to see how much I have :)
It's all a bit of a blessing and a curse though. The year I made over 20k staking, I actually paid ~35% tax on that without realizing any profit in USD but thankfully I had enough money to handle that
It felt like I wasted everything butttt never again! I've already sold 12 months+ salary from a few other cryptos this cycle (:
I mean, with ETFs I'd trust that eventually they will increase in value (again) but given the high volatility of cryptocurrencies, I'd probably be selling and re-investing at a much higher frequency.
EDIT: Never mind, I now see your other comments and read up on "staking"[0] and "decred"[1]. Looks like I've been out of the loop.
[0]: https://staking.com/
[1]: https://staking.com/decred/
Funds that are locked randomly get called to "vote" (where I earn my reward) and re-enter my wallet so re-entering the lottery immediately would be more advantageous too
Also it feels passive because even though staking nodes need to be online at all times and require legit setups, I use delegated staking so I can select an operator which I pay a fee (0.5% in my case) in exchange for their redundant always-online setup so it's a painless ux
Minimum entry into decred staking is 37,000 USD unless you look into ticket splitting
I have over a few thousand decred which I'm already planning to never sell so staking is a no-brainer. My cost-basis is probably $25 so my initial investment was much lower
For example: https://investor.vanguard.com/mutual-funds/profile/VSMGX
https://s3.tradingview.com/snapshots/h/h53gSzG3.png
[0] https://mudrex.com/
[1]https://app.beefy.finance/
My philosophy of being a landlord is not to bank on appreciation, but rather find houses where the mortgage is well below what tenants are paying for. How do you find those kinds of houses? You buy dilapidated houses, renovate them and then rent them out. If you don't want to go through that work, there are middlemen called "turnkey providers" that renovate houses and then sell them to investors for a profit.
From there, you can decide whether to manage the property yourself (less passive) or hire a property manager (more passive). If you hire a property manager, they do all of the busy work associated with owning a house like finding tenants, collecting rent, evicting tenants. They do not get paid unless there is a tenant on the property so it's in their best interest to find you a good tenant.
The thing I like most about rental properties is four fold: 1) Positive cash flow (rent minus all operating costs) 2) Depreciation (in the US, you can depreciate the cost of the house--not land--over 27.5 years which usually makes the cash flow stated above tax free) 3) Principal payments (part of the mortgage the tenant pays goes into the principal of the property--usually around 30% of the first payment goes to principal if you put down 20% and it only goes up from there) 4) Appreciation (the house & land usually appreciates at pace with inflation)
Graham Stephan talks about this in his YouTube video: https://www.youtube.com/watch?v=h8wNUaBgZTk
Also remember, the longer you hold the property, the higher the rent will be while your 30 year loan will stay flat. This makes holding property much more appealing later on but with higher repair bills as well as things start to break.
There's a lot of advantages with owning homes IF you do the math correctly. Here's a video of Brandon Turner, the owner of Bigger Pockets, discussing how to analyze rental properties for the math to make sense. https://www.youtube.com/watch?v=2uogn4qtZ8U
Also, if there's a downturn in the market, usually people that own homes move to rental properties.
If you're interested in rental properties, I'd suggest the bigger pockets forums where you can read about everyone doing this type of stuff: https://www.biggerpockets.com/forums
Principal payments (part of the mortgage the tenant pays goes into the principal of the property--usually around 30% of the first payment goes to principal if you put down 20% and it only goes up from there
1. dividend growth portfolio
2. p2p lending
3. lifetime affiliate commissions for referrals
4. SaS website with paid membership
What I plan to have in the future:
1. crypto lending
2. real estate