Titan Read © 2015 Titan Read Christianshavn 1428 Copenhagen Denmark E-mail: titan@titanread.com Twitter: @titanread T H E C R I T I C A L G U I D E T O P A S S I V E I N C O M E A Thorough Exploration By James G Puffin Table of Content Preface Chapter 1 - What Is Passive Income? Chapter 2 - So What Is Passive Income Not? Chapter 3 - Property Income Chapter 4 - Royalties Chapter 5 - Arbitrage Chapter 6 - The Internet Chapter 7 - Digital Goods Chapter 8 - All the Many Other Ways of Making Money Online Chapter 9 - Summary and A Word About Opportunity Costs Chapter 10 - The Long List of Ways to Generate Passive Income Preface Passive income is the powerful idea that you can set up ways to earn yourself money that will keep earning you money even after you stop working on them - this is what makes it passive income Sometime the term SWISS - Sales While I Sleep Soundly - income is used to emphasize this alluring aspect of passive income In this book we take a critical look at the many different ways of generating passive income that exist The world is already littered with overly optimistic and, unfortunately, often wildly unrealistic how-to guides for how to generate passive income Our goal in this book is therefore to provide a somber and critical guide to passive income The starting point for us is what is possible for a single, ordinary person We recommend forms of passive income that are possible for a single, ordinary person to have success with and recommend against forms of passive income that are not viable for a single, ordinary person For instance we recommend trying retail arbitrage and recommend against trying arbitrage betting This is not because money cannot be made doing arbitrage betting - we even go as far as listing resources to use when trying arbitrage betting - but because a single, ordinary person will more than likely be wasting his or her time and money doing arbitrage betting without ever generating any kind of real, lasting income This is therefore not a naively optimistic book that promises its readers the world in 15 easy steps The reality is that easy money is hard to get by We do, however, promise our readers that after reading this book they will be able to go out into the world and set up up some form of passive income for themselves With enough hard work and - sometimes - luck some people will be able to make a very comfortable living for themselves using only passive income Other people will have to settle for a side income from passive income In this book we use the first-person, plural personal pronoun (we) because the information about the different forms of passive income we look at and describe was gathered by many different people who spent at lot of time testing and learning how things works in practice James G Puffin is merely the one who has written everything down and I (James G Puffin) thank everyone for their time, hard work, and patience Chapter 1 What Is Passive Income? This book is about passive income What it is and how to earn it Quite simple really Well no Not entirely simple For starters no definite definition exists of the term passive income This is obviously a problem if you want to write a book on the subject In this chapter we therefore start by setting out to find a definition of the term passive income After we have defined the term we compile a list of five different kinds of passive income that we believe cover all forms of passive income We also briefly introduce each of these five categories We end this chapter with a presentation of the structure of the rest of this book A Definition For some passive income is the idea of a secondary income stream that might one day enable them to quit their day job and retire to a beach somewhere For others the term denotes shady business practices and conmen hawking get-rich-right-this-minute schemes to hopeful dupes Neither of these loose understanding are very useful since we are interested in an objective definition of the term passive income and not a subjective opinion We therefore turn to some of the proposed definition of the term passive income floating about Quite a few exist and we are going to take a look at three of them For tax proposes passive income is earnings derived from rental property, limited partnership or other trade or business activities in which you do not materially participate This is a good definition in so far as it is pretty clear-cut and objective But the definition is also severely limited and it does not cover what most people think of when they hear the term passive income Income from activities on the Internet if for instance not covered This definition is therefore not useful as a tool to us Pat Flynn famed creator of the blog Smart Passive Income defines passive income as “building online businesses that take advantage of systems of automation that allow transactions, cash flow, and growth to happen without requiring a real-time presence” This is a much broader definition of passive income and hints at one of the desirable aspects of passive income, namely automation and cash flow Flynn’s definition is, nevertheless, also limited It focuses narrowly on online businesses, which leaves out offline forms of passive income Income from rental property is in Flynn’s definition not passive income since it is not an online business We must therefore also discard Flynn’s definition Finally the Wikipedia article on passive income defines the term passive income as “income received on a regular basis, with little effort required to maintain it” (source: en.wikipedia.org/wiki/Passive_income) This definition is very broad Both online businesses and offline businesses are cover But the definition is not very clear-cut How much is a little effort? Can a very laid-back job be passive income? For the term passive income to retain any meaning that answer has to be no But under Wikipedia’s definition it is not clear that the answer to that question is, in fact, no Wikipedia’s definition also requires regularity from passive income The purpose of this part of the definition is unclear A lump sum is still income Wikipedia’s definition is in this way both to broad and at the same time oddly constricting Not satisfied with the existing definitions we set out to coin our own We are interested in a definition that is clear-cut like both the tax definition and Flynn’s definition but that unlike those definitions captures the full universe of types of incomes that are logically similar, e.g both online and offline activities To this end we propose the following definition: Passive income is income decoupled from the number of hours worked to generate it Passive income hereby becomes the opposite of salaried work where there is a very direct (though not always perfect) coupling between the amount of time worked and the income earned This fits nicely with how passive income is sometimes equated with unearned income - for better or for worse It also subsumes both the tax definition and Flynn’s definitions So there we have our answer Passive income is income decoupled from the number of hours worked to generate it Note how passive income in this definition is not inherently better - or worse - than salaried work That income is decoupled from the number of hours worked simply means that there is no relationship You can get lucky and earn a huge income on very little work or you can be unlucky and not earn a dime after having put in a huge amount of work This downside of trying to generate passive income is something most people overlook in their eagerness to earn lots of money (or sell lots of passive income products) But it plainly exists In salaried work you can never earn more than it says in your contract, say for a stray bonus or two, but you can also never make less If you work, you are contractually guaranteed paid To put it another way; passive income operates on a broader spectrum with a much larger upside but also a much larger downside than salaried work This is why most people have salaried work It is a safer bet and better suited to the risk averse, which the large majority of the population is Another thing to note with this definition of passive income is that a decoupling of income and work does not mean that work is optional when trying to earn passive income Generating most kinds of passive income, in fact, requires a substantial amount of work, and the kinds of passive income that requires little to no work will most often require a substantial amount of capital What is more, the investment - be it work or capital - is required up front You have to put in your work and/or your money before you see any kind of return on investment This seems commonsensical at first glance But the decoupling which by definition is the nature of passive income means that nothing is guaranteed You might hit it big or you might not Either way your time and/or your money is already spent This might discourage some people and it should! Easy money is one of the hardest things to come by Chapter 10 The Long List of Ways to Generate Passive Income So you’ve reached the end of the book Congratulations But you forgot to take notes and now you have forgotten some of the ways mentioned that could generate you a passive income Not to worry We have compiled a short recap of all the different ways you can generate passive income We call it our long list of ways of generating passive income If you find the descriptions lacking, you should go back and read the specific chapters for more in depth explanations We should also note that we will only be mentioning the ways of generating passive income that we recommend You will in other words have to read the chapter 5 again if for instance you want to know more about arbitrage betting Renting - Property Income (Chapter 3) Start buying property and renting it out It is really pretty simple The trick, though, is to buy the right property at the right time General tips: Historically investing in real estate has been a pretty decent investment almost everywhere in the developed world The trend is towards increasing urbanization That means investing in real estate in a metropolitan area is probably going to be a good idea The real estate market is going to continue to experience boom and bust cycles That’s just the nature of the market This creates opportunities to buy cheap Such opportunities should be taken Being greedy when others are fearful is generally a good idea Practical tips Build capital by renting out a room or by renting out on Airbnb and similar sites Buy a multiple family house as your own house and rent out the part you aren’t using yourself This way it is easy to be a landlord and to keep an eye on your tenants It also makes financing easier (look into the first-time home-buyer program if you are a first time buyer in the US) On a smaller scale the same can be done with a multibedroom house Don’t buy buildings you wouldn’t want to live in yourself That is how you become a slumlord And you do not want to be a slumlord It is more trouble than it is worth Look into Real Estate Investment Trusts (REIT) REITs are securities that are traded like stocks and represents investments in real estate through either properties or through mortgages REITs receive special tax considerations and generally offer investors high yields, as well as a highly liquid method of investing in real estate With REITs you can earn rent (indirectly) without doing any of the work yourself Pitfalls: A rentier needs renter - people often forget that it takes two to tango If nobody wants to rent your property, you have expenditures and no income That’s a real fast way to lose a lot of money Make sure that there is demand before you buy Bad tenants - sometimes no tenants are better than bad tenants because bad tenants can actively destroy your property and your life and they can be really hard to get rid of Regulation - renting is regulated heavily That is not necessarily a bad thing as a property owner but it requires you to stay on top of the regulation to make sure that you are not doing anything illegal Not so passive, passive income - being a property owner is steady work and if you do not pay someone else to do the work, all the work is on you, the landlord Overleverage - leveraging up is a way to make things happened quicker - e.g borrowing money and buying an extra property before you can actually afford it But if things do not go your way, being highly leverage (owing a lot of money) can force you to liquidate assets (sell property) And if there is one thing property owners should never do, it is to sell property at inopportune moments Overleverage is how people end up buying high and selling low Interest - Property Income (Chapter 3) The best bet for a single, ordinary investor is a cheap index fund An index fund is an investment fund that replicates the movements of an index of a specific financial market Through an investment fund a single investor can invest in the entirety of the stock market, i.e achieve perfect diversification, at minimal costs At the same time it is the most hassle free investment you can make as all you have to do is fork over money to the index fund Remember to be patient - the power of compounded interest will grow even the smallest of principals infinitely large given enough time and a steady return This is why it is a good idea to invest early and to wait, and wait and wait And that is also why it is a good idea to invest with an index fund as it makes it almost frictionless to reinvest your gains Profit - Property Income (Chapter 3) The Internet and the advent of the so-called sharing economy have made it extraordinarily easy for ordinary people to generate profit from things they already own You can even make a business out of it by leveraging different sharing services to figure out where there is greater rental demand than supply and then addressing that demand A few things are important to keep in mind when renting your things out What happens if things break? Do the service provider offers some kind of insurance, and if not what kind of risk are you running (what is the value of the thing you are renting out, what is the rental rate you are charging, and what is the chance of the thing breaking)? What is your return on investment? How much is the equipment you are renting out worth, and how much are the rental rates? If the rental rates are very low, you should think about selling the equipment and investing the proceeds in something else You can then turn around and start renting the equipment at the low rental rates if you ever need to use the equipment How much is the extra use of the equipment depreciating its value? This is especially important if you are renting out your car You need to make sure that your rental rates are above (hopefully substantially so) the extra rate of depreciation Is it passive income? Your time is valuable It is therefore very important to factor into you calculations how much time you are spending facilitating the rental of your equipment If you spend an inordinate amount of time meeting people, posting listings and the like, the income you are generating will tip away from being a source of passive income since a coupling between hours worked and income generated will form This might not be a problem for you if you are making lots of money But it is a problem in the context of this book since this book is about generating passive income Royalties (Chapter 4) Making money from royalties is the quintessential way to generate a passive income You do all of the work up front and then lean back and await the inflow of money (if you are lucky) We looked at nine different concrete methods an ordinary person can set about generating royalties each of which had strengths and weaknesses: Writing a Book Writing a book is clearly high reward, if you write a bestseller you can be set for life Writing a book is also high effort It takes time to write an actual book Quite a long time, actually Finally writing a book is also high risk Some people write many books and never sell more than a handful Such is the book market - fickle and hard to predict Making Music Making music mirrors writing a book It is also high reward Unlike writing a book it is medium to low effort If you know what you are doing, recording a song can be done rather quickly Finally making music is high risk, very high risk Most of the music made in the world today will never find an audience There is simply too much music and too few ears Voicing an Audiobook Voicing an audiobook is medium reward There is a reason you haven’t heard about any famous audiobook narrators It’s because they don’t exist That doesn’t mean you can’t make a living doing it You are just not going to be buying Caribbean real estate anytime soon Voicing an audiobook is medium effort It takes time but not insurmountable so Finally voicing an audiobook is also medium risk Since the creation of an audiobook often happens after the publication of the book, you as a voice actor have a chance to judge the viability of the book in the marketplace You can stay clear and not waste your time if a book is a dud Inventing Inventing is high reward If you invest the next big thing, you are going to be swimming It is medium effort but covering an enormous span Some invention are done in a second, others take years Lastly investing is high risk Most inventions never see the light of day and the majority of the ones that actually make into the real world are not in any way successful Taking Photos and Making Illustrations Taking photos and making illustrations for sites like Shutterstock is a low reward proposition Most people will have a hard time making a living relying only on income from Shutterstock It is, however, also low effort and generally low risk You can do it easily and if you put up quality photos and illustration, you are going to be getting royalty payments Making HTML-Templates Making html-templates is medium reward You are not going to become an overnight millionaire but you can make very decent money It is high effort and medium risk It takes a lot of time but if you produce something worthwhile people will want to buy it App development Developing apps is high reward, very high reward Successful apps trade at astronomical valuations It is also very much high effort It takes time, skill, and lots of hard work to create a quality app and can also cost a lot of money And the risk that all of your hard work is going to go to waste is definitely also high Apple’s App Store is littered with failed apps Designing Clothes Designing clothes is low to medium reward You are not going to making truckloads of money Yet you can make decent money if you now what you are doing Designing clothes is also low to medium effort Designs can be pump out at a mile a minute or can be carefully crafted over weeks As a designer you will be facing a medium to high risk that nobody will buy your designs The apparel industry is fierce and you are just going to be a small fish Online Lectures Making online lectures is a medium to high reward play Some people are making surprisingly hefty amounts of money teaching online The effort it takes is medium to high If you are already an expert on a subject, you can with determined work put together a quality lecture in a relative short time The risk of failure you will be facing as an online lecturer is medium to low With a quality product, you can be pretty sure of an audience Udemy’s average instructor earnings bears this out Arbitrage (Chapter 5) Arbitrage is put simply about buying low and selling high Generally it involves taking advantage of a price differences between two markets We looked at three forms of arbitrage that regularly present themselves to ordinary people Spatial Retail Arbitrage Rational retailers across will arrive at different price points for the exact same product Goods do not have an intrinsic value in a capitalist system Instead the value of a good is set by the forces of demand and supply, which may vary in strength across space This all means that the retail price and availability of products will vary in different markets which is the very definition of an arbitrage opportunity To take advantage of this arbitrage opportunity you simply have to move the particular product from a low price market to a high price market Spatial retail arbitrage is not without pitfalls You will often have to buy before you sell This creates the risk that you get stuck with inventory This risk can be mitigated in several ways You can make sure that you buy from a place with a generous return policy You can make sure that the goods that you trade are highly liquid (i.e that they can easily be sold) Another risk that you run is that you can be screwed over by the buyers of your product This is especially a problem on eBay whose default policy is to side with a complaining buyer, which creates problems when you are the seller A way to avoid some of the hassle that buyers of your goods can create is to use Fulfillment by Amazon With Fulfillment by Amazon (FBA) you store your products in Amazon’s fulfillment centers, and Amazon pick, pack, ship, and provide customer service for your products This means that all you have to do is get you wares to Amazon’s fulfillment centers Using Fulfillment by Amazon will, however, cut into your margins and the amount of money you are making All in all spatial retail arbitrage is a low risk way to generate passive income The only major problem with spatial retail arbitrage is that you can easily end up spending a lot of time looking for arbitrage opportunities This is a problem as your time is not free and should be taken into account when you evaluate the viability of your arbitrage trades Temporal Retail Arbitrage Temporal retail arbitrage is inherently more risky than spatial retail arbitrage You can look at past trends and you can formulate theories on the basis thereof about future pricing But you can never now things for certain In practice there are, nevertheless, quite a few things that we do know with pretty high certainty Toys are going to be in high demand in December and in low demand in January That is how Christmas works Costumes are going to be in high demand right before Halloween and in low demand right after College supplies (like textbooks) are going to be in high demand in the fall and in low demand in the summer Similarly some products only rise in value over time because only a limited amount was only ever produced Vintage wine for instance usually rises in value over time Some people have found that LEGO sets do the same This trick is to spot trends that other people are unaware of and then take advantage In practice spotting temporal retail arbitrage opportunities takes time and a systematized approach You have to log the price movement of the product that you think might be of interest, and you have to give the trends that you are studying the time to play out The biggest risk that you are running doing temporal retail arbitrage is that prices don’t move the way that you expected and you get stock with an overpriced inventory Temporal retail arbitrage is a more imperfect form of arbitrage than spatial retail arbitrage which means that it is very had to hedge against adverse price movements You can make sure to buy from places with very generous return policies, and you can make sure that you buy at low price points so that your potential loss is minimized You cannot, however, completely avoid the risk of getting stuck with inventory Another risk of temporal retail arbitrage is that the goods that you are storing perish You should therefore make sure that you storage your products in a proper way - Fulfillment by Amazon can be a way to do this Finally temporal retail arbitrage runs the same risk as spatial retail arbitrage of you getting screwed over by the buyers of your product Again this is especially a problem on eBay whose default policy is to side with a complaining buyer Again a way to avoid some of the hassle that buyers of your goods can create is to use Fulfillment by Amazon All in all temporal retail arbitrage is a more risky proposition than spatial retail arbitrage It is also more cumbersome as you have to store things Yet this does not mean that temporal retail arbitrage is an inherently worse approach to generating passive income than spatial retail arbitrage Precisely because spatial retail arbitrage is harder and more risky, the competition is less fierce Fewer people are whittling away at price differences and so the potential for profit is greater Credit Arbitrage Credit arbitrage is about taking on cheap debt (e.g zero interest credit card debt) and reinvesting it at a higher return that the interest on the debt Credit arbitrage is theoretically a very good way of generating passive income We should, nevertheless, hasten to point out that the gap between theory and practice when it comes to credit arbitrage is rather wide and that the pitfalls abound Firstly you need to be organized enough to make your monthly payments on time A single late payment can eat your entire profit and then some Secondly taking out loans can hurt your credit rating, even when you are being very responsible with the money you’ve loaned Thirdly having debt makes you more vulnerable to shocks Leveraging up is a way to make things happened faster This can be good when things are moving in the right direction but it can also make the road to bankruptcy very short Fourthly no investment is risk-free There is therefore always a risk that you investment is going to fail and that you are going be stuck with a debt and nothing to show for it Our advice is to treat credit arbitrage with extreme caution It can be a very easy way to make money for some It can also quickly become a financial nightmare if you don’t know want you are doing or if you are unlucky For most people it is a much better idea to save and invest, and in this way slowly build an interest income (see chapter 3) Advertisement - The Internet (Chapter 6) In principle earning money on the Internet from advertisements is simple - build a large audience and sell their attention We explored five different ways an ordinary person can make entertainment on the Internet that has the potential of attracting a large audience Blogging A would-be blogger should find a subject that they care deeply about and has some sort of special insight into - optimally this subject should also be something other people care about A blog should be updated on a consistent basis with new and fresh content This is easy for the first month or so but when the pageview count continues not to budge in your third month, it can be very hard to keep the updates rolling out That is, however, what is required if you want to stand a chance There is no easy way to get a large audience There is only the long grind which is another reason you better be loving what you are doing The long grind is also why it is a good idea to become part of a blogging community Seek out peer bloggers and establish relationships Don’t pester people about linking to your blog but talked to them about what they are doing and what is working for them A relationship can also be adversarial Some blogs feed off of the controversy they create with other blogs Controversy can be an effective way of getting people to engage These water should, nonetheless, be treaded carefully Being a jerk is an easy way to send people running Be sure to also build a community around you blog Answer readers’ e-mails and take people seriously Niche Websites The core concept is that you look for a subject nobody else (or few others) tackles and then create a website dedicated solely to that subject The idea being that you will now capture every reader who wants to know about that particular subject Video Blogging (YouTube) Do videos on what your passionate about and give up trying to guess want other people want Remember that making lots of money only happens with lots of viewers This means you need to be prepared to not earn anything Views in the thousands are cool but hardly worth anything You also need to develop a concept that you can deliver on consistently, and you need to take your viewers seriously Pay attention to the comments and try to build a community - this can be really hard as YouTube comments are notoriously bad As a would-be video blogger you also need to accept that there is no fairness in the world of video blogging Some videos go viral for one reason or another Others languish in obscurity Quality might not have anything to do with it Social Media It pays to be popular on social media Different social media platforms are better suited for different kinds of accounts and personalities A would-be social media star therefore needs to fully understand the platform he or she is using and need to figure out who the audience is Like with blogging and video blogging it is important to be consistent Putting something out often is how you keep people engaged But there is no easy step-by-step plan you can follow The reason big companies pay big money for sponsored links is because they can’t figure out how to get popular themselves Podcasting A podcast can be many things It can be two people talking on Skype or it can be a fullyfledge production quality show For a podcast you need quality content You can for instance talk about what you know or what you are passionate about There is nothing stopping a podcast from being just a monologue but conversation often work better You should therefore find someone you can talk to on your podcast It doesn’t have to be the same person for every show Conversational podcasts are the most popular format of for podcasts They are easy to produce They don’t need a lot of scripting And there are plenty of listeners who like conversational podcasts But there is no iron law of podcasting that dictate that all podcasts need to be conversational If you want to - and know how to - create a radio drama, you can easily create a narrative driven podcast Affiliate Marketing - The Internet (Chapter 6) The core concept of affiliate marketing is that a business rewards affiliates for acquiring customers for them In principle the five ways of building an audience - blogging, niche websites, video blogging, social media, and podcasting - can be used to do affiliate marketing But the two ways of monetization shouldn’t be confused Serving ads is merely saying, “look at that” while affiliate marketing is saying, “buy this” With affiliate marketing you therefore becomes tightly linked to the business that your are an affiliate for You might not have a problem with this But your audience might Remember that doing affiliate marketing right is not about shoving as many of your affiliate link into the world as possible - a click-through-rate of zero produces the same amount of click whether you have put a thousand links into the world or only just one namely zero clicks Doing affiliate marking right is about creating value as a middleman If you want to do affiliate marketing on the Internet, you therefore have to sit down and figure out who the customers are and how you provide extra value to them as a middleman Subscription Services - The Internet (Chapter 6) The concept of a subscription service is that an audience pays to have access to a site All the major CMS-platforms like Wordpress offer membership and pay-wall plugins making the technical side of subscription services easy The hard part is creating something of value that people are willing to pay for Generally an audience can be convinced to pay for a subscription in three ways; through goodwill, through exclusivity, or to be part of a community When building a subscription site you should focus on one of these three approaches The theory of the True Fan stipulates that a true fan is willing to spend $100 per year Your subscription service therefore only needs 1,000 true fans to generate yearly revenues of $100,000 The first milestone of your subscription service should therefore be to build a fan base of 1,000 true fans Digital Goods (Chapter 7) Digital goods unlike physical goods have practically zero marginal cost This means that producing an extra unit of a digital product costs nothing (or at least practically nothing) Digital goods also have very low distribution cost Together these two aspects of digital goods mean that the sale of digital goods is fertile ground for generating passive income To sell digital goods you will need to create a digital store, find digital goods to sell, and market your store Building a Store For an ordinary person it has never been easier to create a digital store You can use Shopify and FetchApp, Squarespace, build your own, or use digital marketplaces Using either Shopify and FetchApp or Squarespace you can have a professional looking digital store that will not crash no matter how much traffic you throw at it for less than $45 a month That is an amazingly good deal Products To Sell Digital goods can be anything that can be delivered digitally It can be music, audiobooks, e-books, html-templates, spreadsheets, software, recipes, lyrics, photos, artwork, illustrations etc All these things are, however, protected by copyright (expect recipes with a few exceptions) which means that you are not allowed to copy and sell them without permission from the copyright holder There exist three categories of digital goods that you can put on your shelves without violating copyright; 1) public domain digital goods, 2) homemade digital goods, and 3) licensed digital goods Public domain digital goods are great for new store since you can sell public domain works in any form that you might wish and you can keep all of the profits yourself There is no rights holder that gets a piece of the action You can find public domain digital goods in the large online databases that exist with public domain works - use guteberg.org for books, use librivox.org for audiobooks, and use commons.wikimedia.org for a variety of other things including films, paintings and photos Using these databases an empty digital store can be filled in minutes How to Market Your Store Marketing your store can be done in three basic ways; you can buy advertisements, you can create an affiliate program, or you can build an audience Buying advertisements is easy but can be a waste of money if you are not careful You need to figure out which kinds of audiences that will most easily convert to costumers in your store Is it people listing to podcasts, people watching videos on YouTube, people reading blogs, people on social media, or people searching Google/Bing? Creating an affiliate program is a sense a way to outsource you marketing Selling digital products means that you can offer a very attractive affiliate program and still be making money on each sale The down side to running an affiliate program is primarily that you risk giving your affiliates credit for sales you would have made not matter what which amounts to just giving away money Secondarily you also risk that your affiliates market your products in way that you don’t approve of Building an audience is hard It is even harder when you are a company trying to sell something But if costumers feel they are getting good service, they will come back and sometimes even bring their friends As an owner of a digital store this means provide fantastic customer support should be your priority This is generally very easy since you can compensate customers with extra products at a very low cost (sometimes no cost) since you deal in digital goods A Word About Regulations and VAT Operating a store - even a digital one - means that you will be facing many different kinds of regulations Regulations are in constant flux and differ from state to state and from country to country Yet you the storeowner still has to make sure that you are allowed to sell what you are selling in the country or countries your are selling it in You also have to make sure that you pay the taxes that are required of you This among other things involves charging VAT on behalf of governments and doing your accounting correctly Drop-Shipping - Digital Goods (Chapter 7) Drop-shipping in its most simple form simply means that you as the storeowner don’t own or manage any inventory Instead each time you make a sale, the order is passed directly on to a wholesaler/distributor that stores and manage a physical stock of the product you are selling The wholesaler/distributor will when he or she receives your order send the product off to your customer in your name Drop-shipping hereby frees you of supply chain worries just like selling digital products does The most important part of setting up a drop-shipping store is finding a wholesaler/distributor that can supply your goods Several directories for wholesaler/distributor who provide drop-shipping exist World Wide Brands (worldwidebrands.com) and Whole Sale Central (www.wholesalecentral.com/Dropshippers.html) are two of the better ones [...]... But it is qualitatively different and the subject of this book is passive income We are therefore concerning ourselves only with passive income and not other kinds income in this book - although we will be taking a another short detour from the world of passive income in chapter 9 to look at ways to make money on the Internet that are not passive income With this little detour out of the way, we move onwards Chapter 3 Property Income. .. an analytic tool that divvies up the world to increase our understanding of it The categories are therefore meant to be exclusive; one form of passive income cannot belong to multiple categories, and exhaustive; no type of passive income exists outside of the five categories But the world is messy and some forms of passive income straddle the boundary of multiple categories, and some types of passive income do not fit neatly into... But back to the task at hand - profit The general idea is simple The owner of capital equipment makes money from other people’s operation of his or hers equipment A very classical example is the factory owner The factory owner owns equipment that his workers cannot afford The workers therefore have to work in the factory owner’s factory because they cannot afford starting their own factory The factory owner, in principal,... Before all this we are, however, going to take a short detour and explore what passive income is not Chapter 2 So What Is Passive Income Not? Okay So we just defined what we mean by passive income and everybody is happy and ready to go But first a short detour into what passive income is not Simply starting a business or operating a business is not a way to generate passive income In most normal businesses there is a pretty clear coupling between the amount of... Selling digital goods requires both hard work and a small amount of capital to set up a store It also requires some way to lure customers to your particular digital store This can include advertising, an affiliate program of your own, having exclusive content, or presenting customers with an opportunity to save money or fantastic customer support The Structure of the Rest of the Book So there we have it - five categories of passive income These categories are meant to be... It is not the case that any one of the five categories hold inherently better forms of passive income than the rest but some of the categories hold forms of passive income that tend to be capital-intense while other categories hold forms of passive income that tend to be labor-intense This means that a person looking to begin generating passive income should evaluate which types of resources they have available to them and choose forms of passive income that best fit... resources they have available to them and choose forms of passive income that best fit their resource-profile Lastly we are also going to explore the concept of opportunity cost and the hidden costs of not doing anything at all In chapter 10 we are going to review all the different forms of passive income that we have looked at in this book We call this chapter The Long List of Ways to Generate Passive Income Before all this we are, however, going to take a short detour and explore what passive. .. Ordinary people should stay far away from such complex financial instruments, as they can be very hard to predict in any meaningful way and carry the risk of unlimited losses Stocks - Basic Concepts The stock of a corporation refers to the capital stock and constitutes the equity stake of its owners The stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation A share in a company hereby represents a fraction of... Additional shares may subsequently be authorized by the existing shareholders and issued by the company This happens when a company needs to raise money and will cause each individual share to represent a smaller fraction ownership Shareowner will accept this devaluation of their shares if they think it will strengthen the growth of the company and thereby the future value of their shares Stock can take the form of either common stock or preferred stock... truly knew a fool-proof investment strategy we would be running the world’s largest hedge fund, not giving away our golden egg to any plebe willing to buy an e-book Instead we are going to discuss how to make money with no strategy But first a quick detour to the world of the efficient-market hypothesis The efficientmarket hypothesis states that it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant