Apr
11
The Myth of Passive Income
April 11, 2008 |
Before anyone comes after me with sharpened pitchforks and torches ablaze, yes, indeed, passive income does exist. And in various forms, whether you’re talking about dividends, royalties, or other investment income that is truly derived with not one whit of work on the part of the investor or the lifting of a single, solitary finger.
My only beef with passive income is that it seems to increasingly be tossed about in contexts that I’ve personally found to be far from passive, if you want to have any success at all. It seems that suddenly it’s hip and cool to talk about passive income as a goal (which I’m all for, don’t get me wrong, as I think we’d all love to be in a position where our bank accounts grow of their own accord), but it’s hard for me to scan the horizon or pull from my own experience and find many situations that actually produce the much-talked-about passive income.
Case in point: I’ve been involved in affiliate marketing/SEO optimization for nearly 10 years now. I’ve got a dedicated server with approximately 250 websites parked on it, all angling to make money in one form or another, whether it be from direct e-commerce sales, Adsense ads, affiliate products, direct ad sales, text link sales, reviews, you name it, I’ve got a site that’s likely trying to capitalize on it.
House #2 pretty much dominated my life the last month, with all my free time going into the renovation work there, so I had essentially zero time for my Web ventures. I didn’t launch any new sites, didn’t overhaul any sites, didn’t do a single damn thing to any of the sites other than the bare minimum to keep the trains rolling. For the month of March I ended up with a net profit of +$2,072 from all of those websites combined.
Pretty sweet, no? 2 grand in passive income isn’t something to sneeze at, not for me at least. But is that really passive income?
By definition, sure. I did nothing, yet all of my little sites hummed right along, producing a handsome profit. In this example, though, there’s a piper to be paid later down the road. You can’t really sit still in the world of affiliate marketing via websites, as things are always in flux and your targets are moving. Google is constantly tweaking its search algorithms, competitors are angling for top keywords on your sites, sites that get a short-term boost due to current events or links from huge sites drop back to reality, etc. For the particular game I play in the affiliate marketing world, I have to rely on volume, as far as producing lots of sites that typically return a decent but small profit, so I’ve got a pretty consistent churn of sites that I launch and build up, they make decent money, then slowly spiral down to producing nothing.
While taking a month off didn’t show any demonstrable effects, as far as income I’m going to pay for it 2-3 months down the line (unless I bust my butt in the next month or two working double-time), as I won’t have sites in the pipeline that start making cash to replace the ones dropping down in search engine results.
Which, really, is the point of this babbling about passive income. In my case — and I think in many cases when people discuss passive income — it’s not really passive income at all, as it requires a good amount of attention moving forward. While the sites I’ve built in the past are on auto-pilot and passively generating income, they’ll almost assuredly die a slow death if I never touch them again, and my net income will drop unless I constantly pay attention to them or add additional sites.
I think the same is true of many other cases where people talk about passive income, especially in real estate. Rental properties are usually what’s discussed, in combination with property managers that handle all of the day-to-day work, allowing you to simply cash fat checks as the owner. Which could definitely be the case in some situations, but far too often investors are stuck managing their property managers, rotating in major repairs to rentals stuff as new roofs and/or renovations between tenants, scoping out new properties to buy, determining when the best time to sell other rentals is, etc.
At the end of the day it’s pretty difficult to find any magic passive income pill that really works as promised. Or at least that’s been the case in my own personal experience, as anything that will make you money, whether it be REI, affiliate marketing, or even investing in dividend-producing stocks, also includes more than a small amount of associated work, if you really want to do it well and be successful.
Granted, it’s not as sexy to say “Project A should generate $1,000 in income from a massive amount of hard work, planning, and determination” when you can say “My latest venture will easily provide me with $1,000 in passive income”, but in my experience the former is far, far more common than later, unsexy as it may be.
Comments
1 Comment so far
250 sites? Good grief. I feel like a sluggard for only having 1/2 a dozen websites now… none of which generate income. There just seems to be so many opportunities to make money online… and more and more I’m feeling pretty doggone dense for not taking advantage of any of them. And while I know it’s mostly via traffic numbers that I don’t come remotely close too… I still scratch my head to figure out how in the world one gets to that point.
So… If you find the time during your 5-days-too-long Vegas excursion… feel free to email me or blog more details about your endeavors. This entry has most certainly piqued my interest. As it stands, a starting point escapes me.