How to Make Passive Income
Get familiar with 9 passive income stream ideas in the below video, or choose to read a more in-depth analysis in the rest of the article.
9 Passive Income Streams
If you are reading this right now it means you have both an internet connection, and access to a phone or computer, which means you have everything you need to make passive income in a variety of ways.
Before I go into my own passive income website investing case study , I’ll go over 9 of my other favorite passive income ideas you can try and start thinking about:
- Dividend Stocks
The first and most obvious passive income idea is to invest in dividend producing stocks to get a nice check every month or quarter. I love picking stocks that have nice dividends especially when they’re great companies and I even recently invested in an MLP stock which has an insane 14% dividend. My current dividend payout each year is at $7,184.75 which is nice completely passive income. You can use a trading site such as TD Ameritrade or Etrade to do this.
- Royalty Income
Another of my favorite passive income ideas is to create any type of creative product you can earn royalties on such as art or music or write a book and license it to collect royalties, one easy way I do this is using Amazon’s t-shirt design licensing platform called Amazon Merch where you upload your own designs, and amazon handles the marketing, selling, apparel printing, shipping, taxes, ecommerce laws, customer service, customer returns and refunds and 100% of the business and ecommerce side and sends you a royalty check each month based on how many of your designs they sell. They used to send $7 per shirt sold but keep decreasing it and now I get around $4 per shirt sold but it is still a cool concept and completely hands off.
- Course Income
Another passive income idea that does require work up front is creating your own courses or products and selling them on your own website or a platform such as Udemy that does some of the marketing for you, creating and selling a course and products on websites is something I have done and made a few hundred dollars with but I’ve found it to require a ton of marketing legwork to be effective and prefer other passive income methods more.
- Affiliate Income
Another passive income idea is to promote products or services via affiliate links which is when you promote other people’s products and services and you get a percent commission for every one that your referral converts. This can be very lucrative and the pull of it is it is completely hands off and can be very passive because you simply drive traffic and sales and the person you’re referring the sales to has to fulfill the sales and deal with all the customers and business side of things. I’ve done a bit of affiliate marketing but there are people who do it way better than I ever have including Pat Flynn who is over six figures a month with affiliate promotion. If you have a large brand or audience or a site that gets tons of traffic promoting affiliate links. One site that does this is CJ.com or Clickbank.
- High Yield Savings
Another passive income idea that is considered truly passive and is technically low risk according to many people even though I personally don’t consider it super low risk is to sign up for a high yield savings account although those don’t really yield that much anymore at it’s high I was getting around 1.7% per year from my capital one account so you might be better simply choosing a great company with high dividend stocks, you can invest in
Lastly, if you have any type of large brand or traffic base already you can quickly turn that into passive income by monetizing it in any of the ways I previously mentioned or by selling sponsored ads, website ads or even starting a physical product brand– you may have seen celebrities or your favorite artist start to sell merch, or even start their own beauty brand *cough cough Kylie Jenner and all the copycats like Selena Gomez etc*, or sell ads or sponsorships.All this starts to get slightly more active, but the easiest passive way to monetize traffic you already have is by setting up ads on it where you don’t even have to reach out for sponsors, this could be simply starting with google adsense google’s ad platform and then branching out to other ad networks that have a higher revenue per page view once you start getting more traffic. Those with a large following can also start paid communities including a paid email newsletter where subscribers pay to be on the list or a paid community such as Patreon or a forum site where you share content in exchange for subscribers who pay monthly.
- Invest in Real Estate or REITs
Finally one of the other most well known passive income ideas is to invest in real estate and REITs which are real estate stocks – I’ve never personally done either of these because the concept at its core is so similar to website investing but if you invest directly into real estate you have a ton of property taxes, maintenance costs and a higher up front cost for the real estate to make less per month than you would with a website – so I have chosen to put more money into websites as opposed to real estate to get a higher return on my money when I didn’t have as much to throw around.
A website and real estate are very similar assets in the sense that every month actual realized income goes into your pocket every month that isn’t subject to the unpredictable ups and downs of other passive income types like the stock market.
As I mentioned Real estate also has extra costs including property taxes and maintenance that you can actually avoid with a website purchase, but real estate does have other tax benefits that are not extended to website investing so there are pros and cons to each.
- Website Investing
Investing in Websites for Passive Income
The main advantage to website investing over real estate investing is that websites are undervalued in comparison to real estate – sure they are riskier especially if you don’t know what you’re doing- but real estate is sold at higher multiples than real estate, for example you’d be lucky to make your money back in 6 or more years in a real estate investment and two of the successful sites I’ve purchased have made their money back in 10 months where after that all their income was pure profit.
The average time to make back a website investment is going up and the current average time to make back your site purchase is now closer to 30 months, assuming you don’t optimize or improve the site’s return at all which I never buy a site without having a clear optimization and revenue improvement plan.
You also have the option to create your own website from scratch, drive traffic to it and start monetizing it. This is actually how I started out, and I made a website that I thought would be super successful because I had done my research and found a gap in the youtube market where I knew I could create a really good video that would go viral or semi viral. It did end up going viral in its own way and now has over 600K views.
Sure it drove some site traffic and I’ve made over $100 in affiliate commission from that site and even more money from ads on the site and my youtube video, but it never ended up providing enough for me to live on, it was and still is basically a hobby site that happens to also have a viral video.
I chose to purchase a site because the sites I’d created weren’t at the level where they were providing enough passive or non-passive income to live on.
I thought it would be helpful to buy something that was already working and making money and see if I could grow it from there. This turned out to be the best idea I’ve ever had because buying a site that was already making money allowed me to see why it was making money and get a behind the scenes peek into what made it so successful. From there I was able to help it grow and even create a few other of my own sites using the principles I’d learn from getting the behind the scenes peek at the site that was already earning passive income.
For anyone having trouble starting a successful site or business on their own, a good shortcut can be buying an online business or website that is already working and making money so you can piggy back on its success, learn from it and then go on to create more of your own successful sites.
One thing to keep in mind is when you buy a website for passive income is there are always risks, one way to mitigate risk and increase the passivity of your investment is to:
a) make sure the site is one that is not super hands on, meaning not a news type site that needs new content daily unless you want to outsource writing to a group of writers or spend hours each day crafting new content yourself, another way to decrease risk is to do a revenue and stat deep dive before purchasing the site
b) you need to make sure the site is actually making in both revenue and profit what the owner says it is because people will lie about what the site is making or simply misrepresent it because they’re confused or they’re trying to get more money from you than their site is worth. This happens in all areas of life not just website investing so it is nothing new. Sometimes people are also confused about the difference between revenue and profit. For example a site that is making for example $10K a month, IN REVENUE, and has tons of traffic, but they never consider the site is spending $10.1K a month in ad spend or promotion or product cost and that their profit is actually negative. You don’t want to buy a business that is losing money unless you see a super clear path to cut wasted spend so its making money, AND if a seller is lying about the site’s profit, then you’re likely to way overpay as opposed to getting a great deal if you truly understand the site’s revenue vs profit numbers.
c) like any investment you need to evaluate the risk and make sure you have a clear path to optimizing and increasing its revenue off the bat so you can make back your investment as quickly as possible so your return each month becomes pure profit
Website Passive Income Case Study
Before I go over how you can make a website investing purchase on your own, I’ll go over the numbers of one of my own website investing purchases:
Now I’ll dive into the numbers of a case study where I bought a website for $6,400 and was able to let it run hands off and passively to make a total of $24,288.54, effectively quadrupling my initial investment:
The third website I bought really does qualify as a passive website investment because all the content was user generated and there were a group of unpaid admins who loved the site and community and did everything for me. I would only log in to the site every few months or if something came up – I really didn’t touch it much and I didn’t even do any SEO or anything because I wasn’t interested in the site at all or even growing it which is kind of funny but also true and that’s also part of the reason I ended up selling it after owning it a few years even though it was still going strong making around a thousand in passive income each month:
I bought the site for $6,400 at a 20X monthly profit multiple and when I bought it it was making $370 a month profit. After buying it I switched ad networks and added a few ads and revenue doubled and it started making $600 a month for month 2, 3, 4, and 5, and then, went up to $800 a month for month 6 and 7, and Then an ad company reached out to meand wanted to buy a flat fee ad for 500 euros a month that I was able to run in addition to the ads already on the site, so months 8 9 and 10 it was making $1,200 to $1,300 at its peak . The ad company switched from a flat fee to RPM based model a few months later so revenue from them decreased after a handful of months but the was still going strong in terms of traffic and revenue.
After 2 years I sold the site, and in total from regular ad, banner ad and site sale revenue I endedup making a total of $24,288.54 from the site, with the only expenses being $50 for website transfer costs, $15 a month for hosting and $12 a year for domain name, and a small amount for a few other maintenance costs that popped up along the way.
That’s a 379% return in less than two years, which you won’t find anywhere else at this risk level which is super mititgated if you know what you’re doing, not something you can find even in real estate unless you’re super leveraged which to me doesn’t count because you can technically leverage any type of investment you have to compare apples to apples.
How to make a Website Purchase
Now that you know part of my story and what’s possible with website investing,
Let’s dive into how you can make a passive income website investing purchase;
First, you’re probably wondering, where do I buy a website that produces passive income?
There are a few platforms that specialize in this:
Including flippa, latonas, empire flippers, FE international, motion invest, website investing club at investors.club, quiet light, and there are a few website investing facebook groups where members post deals that you can find by searching on facebook, you can also sign up for the her.ceo email list on the about page and I occasionally send deals, there are other email newsletters that send deals including Richard Patey’s paid subscription newsletter where he sends deals he vets himself, and if you start to build a relationship with a seller or broker they will often reach out toyou before they go to market, so there are a ton of buying options.
Flippa.com is the biggest website investing platform and the website I’ve made the majority of my purchases on because you tend to be able to find the best multiples here. The main thing to note is you have to do 100% of the vetting yourself which is why I got burned on my first purchase because I didn’t go deep enough to verify revenue – but if you do verify stats on your own I’ve personally found you can get the best deals here.
Latonas is hit or miss and you can find good deals if you keep an eye out, this is where I sold one of my sites, empire flippers tends to have crazy high multiples meaning you tend to overpay for sites but they are more thoroughly vetted and I almost sold a site through them they asked for monthly revenue screenshots and analytics access and an excel sheet with profit and loss statements so they’re much more thorough when vetting sites however it still would be easy for them to miss something as I’m sure they have in the past and you’d get burned even more if you didn’t do your own due diligence there since you’re also paying a premium for their sites, motion invest is created by Spencer Hawes whose blog introduced me to website investing. They have more starter sites and smaller sites which can be great for those looking to get into website investing however I’d personally never buy a starter site with no revenue which is one they do offer because the only reason you’d really buy a site is for one that is already making money so you can learn from how it is doing so and grow it form where it currently is, investors club is a paid subscription platform. I’ve never personally used it but you can check it out if interested, and quiet light brokerage has some great listings as well.
Once you start buying sites and creating relationships it also becomes much easier to find good deals. One of the sites I bought recently was from a previous relationship I’d started where I’d made an offer and they sold the site to someone else, but then had another site and reached out to me asking if I was interested and I bought and am actually happier I bought their second site than the first one that they sold to another person because the niche of the second site has much more profit potential.
Before buying a site on any of these platforms I can’t stress enough how important verifying revnue and stats are , you can do this yourself or even higher a company to do this. When I spoke at the flippa exit conference, Brian Diener of Centurica gave a great talk about pre-purchase due diligence & his company is one that offers a website due diligence service which at the talk he mentioned costs $5K per website.
To verify you should always get google analytics access and dive deep into where the traffic is coming from location and source wise, how much traffic there is, look at industry conversion and RPM rates and compare to what the seller is telling you they’re getting in terms of RPM, conversion rates, revenue and profit, and doyour own calculations to make sure everything matches up. Make sure you have and understand all their monthly costs and how the website is making money. Get video screenshares of all revenue and screenshots. Get access to all their accounts that receive the revenue and parse it out so you know exactly where it is coming from and match it to all the analytics channels you have access.
Every website will have different metrics you need to focus on so this is where your own mind and analytical thinking ability come into play. If you fully understand the website and how it makes money, and then get access to every statistic and revenue channel and do a deep dive you will be able to figure out if it is a) making what the seller says it is making and b) if it is a site you are interested in purchasing.
Personally I view a site purchase in two ways A) I have to be fine with the site humming along making exactly what it is making after I buy it meaning it will take the monthly multiple I paid to make it back for example I pay 20X the monthly profit for the site I am always willing to wait 20 months to make my initial investment back. HOWEVER I never buy a site simply expecting it to hum along making the same amount I paid for it – I always have a short and long term plan to increase its traffic and revenue so my goal is usually to double revenue off the bat and make my purchase back in half the time I would have if the site continued to simply hum along. This perspective is great because it allows you to have a mindset where you’re not overpaying for sites expecting miracles after you purchase it, and because it also allows you to look for undervalued sites you can quickly and long-term increase value on to make your money back more quickly and to increase the amount you earn per month from the site.
I also created the VSOT value website investing method, where I explain the process I personally use to buy high value websites where I’ve been able to earn my money back as quickly as possible with a good ROI. You can watch my how to purchase a website, VSOT value investing method video to learn more and I’ll leave the link in the description as well.
What do you guys think about website investing as a form of passive income? Let me know in the comments? Do you guys think it is truly passive or should it be considered active income?
Personally I think it can fall into both categories but it depends on a lot of factors including the type of website if the content is evergreen or user generated, and if you’re directly investing, outsourcing most of it, or even investing in a third party that manages everything for you. Anyway that could be a whole other video that we are not going to dive into right now.
Comment below if you think website investing is actually passive or more active and if you are planning on ever investing in your own website below! I will reply to you guys in the comments!