The critical guide to passive income james puffin

Passive income is the powerful idea that you can set up ways to earn yourself money thatwill keep earning you money even after you stop working on them - this is what makes it passive in

Titan ReadChristianshavn

1428 CopenhagenDenmark

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titan@titanread.com

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Passive income is the powerful idea that you can set up ways to earn yourself money thatwill 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 passiveincome 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 inthis 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 havesuccess with and recommend against forms of passive income that are not viable for asingle, ordinary person For instance we recommend trying retail arbitrage and

recommend against trying arbitrage betting This is not because money cannot be madedoing arbitrage betting - we even go as far as listing resources to use when trying arbitragebetting - but because a single, ordinary person will more than likely be wasting his or hertime and money doing arbitrage betting without ever generating any kind of real, lastingincome

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, promiseour 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 usingonly passive income Other people will have to settle for a side income from passive

A Definition

For some passive income is the idea of a secondary income stream that might one dayenable them to quit their day job and retire to a beach somewhere For others the termdenotes 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 incomefloating 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 theterm passive income Income from activities on the Internet if for instance not covered.This definition is therefore not useful as a tool to us

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

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 broadand 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 definitionbut that unlike those definitions captures the full universe of types of incomes that arelogically 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

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, youare contractually guaranteed paid

To put it another way; passive income operates on a broader spectrum with a muchlarger upside but also a much larger downside than salaried work This is why most peoplehave salaried work It is a safer bet and better suited to the risk averse, which the largemajority of the population is

Another thing to note with this definition of passive income is that a decoupling ofincome 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 asubstantial amount of capital What is more, the investment - be it work or capital - isrequired up front You have to put in your work and/or your money before you see anykind 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

Having now defined passive income, we can use our newly minted definition to compile alist of different categories of passive income We arrive at five categories we believe coverthe universe of all kinds types of passive income satisfactorily In the following chapters -chapters 3 through 7 - we will dive into the specifics of each categories and explore thedifferent forms of passive income that fall in each category We will also provide examples

of potential businesses in each of the five categories

Below is a brief introduction of each of the five categories

1 Property Income

Property income comes in three varieties; rent, interest and profit Rent comes from theownership of property that is rented out This can be houses, office buildings or even

natural resources such as shale gas Interest comes from the ownership of financial assets.This can be dividends and interest from owning securities such as stocks and bonds - this

is sometimes also labeled portfolio income Finally profit comes from the ownership ofcapital equipment This can be as simple as owning your own car or as complicated asowning an entire factory

Common to property income is that it requires capital If you don’t have a house torent out, you need to buy one before you can start renting it out Sometimes it also requireswork Running a rental service for example requires a lot of work Owning stock not somuch

2 Royalties

A royalty is a usage-based payment from the licensee to the licensor The licensee pays thelicensor for the right to use an asset - often an intellectual asset Royalties can work inmany ways but are typically a percentage of gross or net revenues derived by the licenseethrough the use of the asset An author earns royalties by licensing out his book to a

publishing house Similarly a pharmaceutical company can earn royalties by licensing out

a patent for a drug

Royalty income often requires little capital but lots of work Think of the starvingNew York author But it can also require lots of capital if the goal for instance is a newdrug

3 Arbitrage

Arbitrage is put simply about buying low and selling high Usually it involves taking

advantage of a price differences between two markets Arbitrage is usually thought of asthe domain of large financial institutions that trade billions of dollars in split seconds It is,however, also the domain of the lowly eBay seller that has figured out how to buy

something cheap and sell it with a markup

Arbitrage in its pure form requires no capital, as it is a risk-free instantaneous trade

In practice, though, it usually requires at least some capital It also requires a lot of

4 The Internet

The great white whale of the Internet is passive income Many hunt for it Few capture it.There are generally three routes to earning passive income on the Internet; advertisements,affiliate marketing and subscription services Advertisement, i.e selling eyeballs, is themost common form of income on the Internet Every blogger hopes that one day his or herblog is going to take off and the ad-money is going to start rolling in It seldom happensand the competition is fierce Affiliate marketing is something that mostly happens in theseedy underbelly of the Internet The idea of affiliate marketing is that a business rewardsaffiliates for acquiring customers for them It can be highly lucrative but it is often highlydifficult Finally subscription services involve getting an audience that is willing to pay toread/listen to what you have to say or for access to a community you have build

The barrier to entry on the Internet is very low and anybody can start building anaudience in as little as a few minutes But patience, hard work, and luck are required tosucceed

5 Digital goods

Digital goods unlike physical goods have practically zero marginal cost This means thatproducing an extra unit of a digital product costs nothing - or at least practically nothing.Digital goods also have very low distribution costs Together these two aspects of digitalgoods mean that the sale of digital goods is fertile grounds for generating passive income.Digital goods include things such as e-books, software, downloadable music, graphics,audiobooks etc The list is long and growing What is important to note concerning digitalgoods is that most creators of digital goods do not sell their digital goods themselves.Instead they license (and get royalties) the sale of the good to a digital store Think of anauthor independently publishing through Amazon That author is not selling anything toanybody Instead the author has licensed his or her book to Amazon who in return pays outroyalties for every sale Amazon makes When trying to generate passive income withdigital goods the main goal should therefore not be to create but to sell

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 Thiscan include advertising, an affiliate program of your own, having exclusive content, orpresenting customers with an opportunity to save money or fantastic customer support

boundary of multiple categories, and some types of passive income do not fit neatly intoany category We, however, find that the categories work in so far as they in a useful way

accordingly built around these five categories

In five chapters - chapters 3 through 7 - we are going to look at each of these fivecategories of passive income For each category we are going to describe the general

category more in depth, and then we are going to dive into specific examples of forms ofpassive income This is meant to give the reader concrete examples of opportunities theymight go out and explore At then end of each of these chapters we concisely sum up themain points of the respective chapter

In the final chapter we are going to review and conclude on our findings of for each

of the five categories and compare the results It is not the case that any one of the fivecategories hold inherently better forms of passive income than the rest but some of thecategories 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 aperson 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 fittheir resource-profile Lastly we are also going to explore the concept of opportunity costand the hidden costs of not doing anything at all In chapter 10 we are going to review allthe different forms of passive income that we have looked at in this book We call thischapter The Long List of Ways to Generate Passive Income

Before all this we are, however, going to take a short detour and explore what passiveincome is not

So What Is Passive Income Not?

Okay So we just defined what we mean by passive income and everybody is happy andready 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

work put in and the income earned If you open a pizza place there is going to be a prettyclear correlation between the number of pizzas you are making and the amount of money(*dough*) you are making

This doesn’t mean that it is a bad idea to open a pizza place It might be a great idea

if you are really good at making pizzas But you are not going to be generating passiveincome from your pizza place until you parlay your mad pizza skills into for instancebecoming a pizza place owner not needed for the day-to-day operation and earning

property rent (profit or interest depending on your business setup), or into earning

royalties on your patented pizza making process, or maybe through a third or fourth way

It is also not passive income to get a second job or work two jobs at the same type.Say you are working nights in a hotel and have plenty of time to work on your second job

as a freelance editor That is obviously a sweet situation to be in and good on you forgetting into that situation But you are not making passive income Both are jobs and bothhave a clear coupling between hours worked and income earned You need to be doingsomething else with you extra time in the hotel to begin generating passive income

Writing a book that can earn you royalties for instance

Saving money by cutting down on frivolous spending A great idea Also not passiveincome Not income at all really But definitely something you should be doing A dollarsaved is a dollar earned - actually more than a dollar since you are not paying taxes ondollars you save And the money you are no longer spending frivolously can instead bemade to work for you by investing them

Distinctions

The things listed above are all things people at some point or another have conflated withpassive income This is why we are taking a moment to point out that these streams ofincome are, in fact, not forms of passive income - at least not in our definition of passiveincome

This is, it should be noted, not a normative statement Passive income, as we havealready established in the previous chapter, is not inherently better or worse than otherforms income 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 otherkinds income in this book - although we will be taking a another short detour from theworld of passive income in chapter 9 to look at ways to make money on the Internet that

With this little detour out of the way, we move onwards

Property Income

Property income comes in three distinct varieties; rent, interest and profit We let thistrichotomy structure this chapter and consequently divide this chapter into three subparts.First up we will tackle rent, then interest, and finally profit

Rent

Rent comes from the ownership of property that is rented out This can be houses, officebuildings or even natural resources such as shale gas We will, accordingly, in this bookdefine rent as income from the ownership of property This is a pretty straightforwarddefinition, which makes the concept of rent pretty easy to understand Person A ownsproperty C that person B wants to use Person B therefore offers person A money for theright to use property C Person A accepts because person A do not need to use property C

at the moment

A few things can be inferred from this general understanding of rent Firstly person Bmust be in a position where obtaining ownership of property C is not possible This might

be because property C is exclusive (i.e rare) or because person B does not have the capital

to obtain ownership of property C and therefore is consigned to renting Secondly person

A must be in a position where he or she does not need to use property C Person A canhereby be said to have a surplus with regard to property C

In this little thought experiment person A seems to be the winner and person B seems

to be the loser It is, however, important to note that in the real world property is not theonly resource you can own Person B might not want to own property C because person Bwould rather have his or her capital liquid or invested in something else than property.Person A conversely might be in surplus of property C because nobody wants to buy

property C It is therefore important to note that there is nothing inherently superior inbeing rentier (person A) instead of renter (person B)

So to sum up we can conclude that to be a rentier you need to be in surplus of

property for which there exists demand for the right to use We can further conclude thatbeing a rentier is not inherently better than being a renter With that we have the

theoretical footing to explore a couple of concrete examples of earning passive income byrenting out property

Teenage Landlord

Down in Florida the housing market experienced first an enormous boom in the early2000s and then an even more enormous bust when the recession hit in 2008 That is thekind of market volatility that creates market opportunities Willow Tufano was 14 in 2012and had just come into a few thousand dollars, and so she decided to become a landlord.Willow’s mom, a real estate agent, had seen a two-bedroom, concrete-block home onauction for $12,000 The same house had cost $100,000 a few years earlier at the peak of

On a $12,000 house $700 dollars in monthly rent amount to yearly return on

investment of 70% 70% is a stratospherically high annual return Famed investor Warren

Buffet, the oracle of Omaha, historic average is only around 22% Obviously some

percentage of the $700 goes to maintenance and other expenditures that come with being alandlord But even if we half the $700, a 35% return on investment is still something thatwould leave any hedge fund manager salivating uncontrollably What is more, that

$12,000 house will likely appreciate over time This is more money directly in Willowspocket All in all a pretty solid investment for a 14 year old

Now imagine a person wanting to generate $100,000 in yearly passive income onrenting out properties What would it take? Let’s be conservative and say that Willow canonly pocket $200 a month on her $700 rent while $500 goes to maintaining the propertyand other expenditures connected to being a landlord including finding tenants That gives

us a yearly return on investment of 20% on our initial $12,000 housing investment Nowimagine we reinvest all our profit into new houses that we rent out terms similar to theterms for our original house How long would we have to do that before our yearly return

is $100,000? Not that long actually After 21 years of compounding interest our small realestate empire will be throwing off $110,412 yearly and be worth $552,061 Willow will be

35 years old at that point Not a bad time to retire But it gets better because we haven’tfactored in any appreciation A conservative estimate is that our houses appreciate around3% yearly (that’s the historic average) Our original $12,000 will therefore be worth

$22,324 after 21 years The rest of our housing empire will have appreciated similarly If

we factor in appreciation in our calculations, Willow will be ready to retire at 32 yearswith a yearly passive income of over $100,000

California Mogul

Hold on you might say Is this is any way replicable and scalable Enter Donald Bren,chairman of the Irvine Company, a California-based real estate investment company Bren

is estimated to be good for $15.1 billion Bren’s portfolio exceeds 105 million square feetand includes 500 office buildings, 41 retail centers, 130 apartment communities, five

marinas, three hotels and three golf courses (source:

https://www.irvinecompany.com/donald-bren) Things, however, didn’t begin this grandfor Bren In 1958 he built his first house in Newport Beach with a $10,000 loan But 57years of compounding interest is a long time If we assume the $10,000 was Bren’s onlycapital in 1958, at what rate has he then been compounding that initial sum? At a

stratospherically high annual return like 70% you might think Well you’d be wrong Brenhas been compounding his housing capital at an annualize rate around 28% That’s thesame ballpark as Willow is playing in

So What Should You Do to Get In On This Thing?

Well you need to start buying property and renting it out It is really pretty simple The

Should you buy property in San Francisco and ride the Silicon Valley train to riches?Maybe, or maybe the market is overheated and about to crash Should you buy cheapproperty in Detroit and wait for the second coming of the American car industry? Maybe,

or maybe Detroit is never going to bounce back We don’t know and neither does anybodyelse People can make educated guesses but nothing is certain in a dynamic world

Don’t buy buildings you wouldn’t want to live in yourself That is how you become aslumlord 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 tradedlike stocks and represents investments in real estate through either properties or

through mortgages REITs receive special tax considerations and generally offerinvestors 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 tolose 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 tenantscan actively destroy your property and your life and they can be really hard to get ridof

Regulation - renting is regulated heavily That is not necessarily a bad thing as aproperty owner but it requires you to stay on top of the regulation to make sure thatyou are not doing anything illegal

Not so passive, passive income - being a property owner is steady work and if you do

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 forceyou 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 howpeople end up buying high and selling low

Conclusion

Rent can be an amazing source of income But it requires you, the would-be rentier, to be

in surplus of property for which there exists demand for the right to use This is not aseasy as it sounds and requires start-up capital It also requires you to seize the right

moment like Willow and Bren did

Interest

Interest comes from the ownership of financial assets This can be dividends form stocks,stock gains, and interest from owning securities such as bonds Interest in this broad sense

is sometimes also called portfolio income In the following we are going to focus only onstocks and bonds That means we are not going to be looking t the type of interest mostpeople are most familiar with - interest from you bank The reason we are not going todeal with bank interest is because 1) everybody knows how interest on your checkingaccount works, 2) the interest bank pays on normal checking account is today so

infinitesimally small that bank accounts cannot function as an investment vehicle We arealso no going to be looking at the more complex forms of investing such as short-sellingand derivatives 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 itsowners 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 ofownership in a company Additional shares may subsequently be authorized by the

existing shareholders and issued by the company This happens when a company needs toraise 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 willstrengthen the growth of the company and thereby the future value of their shares Stockcan take the form of either common stock or preferred stock Shares of common stocktypically carry voting rights that can be exercised in corporate decisions Shares of

preferred stock differ from shares of common stock in that they typically do not carryvoting rights Shares of preferred stock are instead legally entitled to receiving a certainlevel of dividend payments before any dividends can be issued to other shareholders Mostshares are traded on stock exchanges, which are ways to facilitate the trade of shares

dividend to its shareholders - this obviously requires the company to have money to payout When dividend is paid out, each share will receive a set amount 2) The value of ashare can rise This happens when other investors wants to own part of the company orwhen the company buys back share and thereby raises the value of the rest of the

outstanding shares as each outstanding share comes to represent a larger fraction of thecompany

It follows from this that an investor looking to make money on stocks will be lookingfor shares in companies that either 1) earn profit and pay out dividend or 2) are likely toincrease in value over time

So How Do You Make Money?

Investment strategies are a dime a dozen Some people do technical analysis Other peoplelook at animal entrails Some claim high success rates and others promise quick riches In

the world of investing there is no right way of doing thing as long as you are making

money (hint: you shouldn’t do technical analysis which in most of its iterations is basicallyjust pseudo-phycology nor look at animal entrails)

We are not going to add to the great plethora of books on investment strategies - if wetruly 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

market hypothesis states that it is impossible to “beat the market” because stock marketefficiency causes existing share prices to always incorporate and reflect all relevant

But first a quick detour to the world of the efficient-market hypothesis The efficient-information In other word if you have discovered something that might make a stockover- or undervalued, the market already knows The efficient-market hypothesis assumesthat all actors have perfect information all the time This is probably not true, and someinvestors do, in fact, beat the market consistently Advocates of the efficient-market

hypothesis claim that such investors are merely lucky - line up enough monkeys flippingcoins and one of them is eventually going to flip a thousand heads in a row But any

controversy aside, for a single, ordinary investor the efficient-market hypothesis is mustassuredly true A single investor is never going to have more information than the

institutional investors (e.g big bank, hedge fund, pension funds etc.), and if you are going

to gamble on being a lucky monkey, you might as well go to a casino (or a zoo)

To maximize returns a single, ordinary investor should therefore work on minimizingcosts This means making as few trades as possible at the lowest possible costs In otherwords don’t day trading and find the cheapest possible stock brokerage A single investorshould buy and hold, hold, hold

So what kind of stock should the investor buy and hold, you might ask According tothe efficient-market hypothesis that doesn’t really matter Just as it isn’t possible to pick

the right stock, it also isn’t possible to pick the wrong stock Everything that might be wrong with a company is already priced into the stock, meaning you cannot pick a bad

stock to invest in

dependent on just that one company’s economic outlook It is therefore a good idea todiversify which simple means buying stocks there are not similar Diversifying protectsyou against sudden changes of fortunes for companies and industries Diversifying,

Buffett’s Great Bet

In 2008 Warren Buffett, the famed investor from before and one of the wealthiest people

in the world (top 3), bet Protégé Partners, a hedge fund that manages $3.5 billion dollarsthat “[o]ver a ten-year period commencing on January 1, 2008, and ending on December

31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when

performance is measured on a basis net of fees, costs and expenses.” (source:

http://longbets.org/362/) Buffett thought that the index would outperform the hedge fundswhile Protégé Partners thought that they and their colleagues could beat the index So farseven of the ten years have past and Buffett is comfortably in the lead As of May 2015the S&P 500 has produced an awesome return of 63.5 percent while the hedge funds haveonly managed a measly 19.6 percent, though the managers of said hedge funds have

probably pulled down some hefty management fees for bringing their investors that

measly return

Buffett reasoning is that even though “a number of smart people are involved inrunning hedge funds” their effort are, to a great extent “self-neutralizing, and their IQ willnot overcome the costs they impose on investors Investors, on average and over time, will

do better with a low-cost index fund than with a group of funds of funds.” And so far thedata backs Buffett up So if you don’t believe us, believe Buffett and invest you money in

a low-cost index fund

The Counterproductive Example Set By Buffett’s Action

There is, however, a small problem with Buffett’s argument The logic is sound, the databacks it up - and this book fully supports the message Buffett is trying to send to small,ordinary investors Yet Buffett himself is not following the advise Buffett doesn’t investhis money in index funds His investments are aggressively active Throughout his longcareer that has made him one of the wealthiest men in the world, Buffett has build far-reaching conglomerate buying stocks carefully picked out as undervalued Buffett has ineffect disproven the efficient-market hypothesis (though proponents of the hypothesis will

- and has - called him a lucky coin flipping monkey) Investors all over the world havetried to emulate his strategy Some with great success Others with decidedly less success

in Buffett’s company Berkshire Hathaway

So does this mean that you should be an active investor after all? No you shouldn’t

On average you can’t beat the average That is just how math works And the more timeand money you spend trying to beat the average, the bigger the hole gets that you have toclimb out of to beat the guy who just locked himself to the average by investing with acheap index fund

On Chess, Rice and Wealth Building

Imagine a chessboard A chessboard has 64 squares No imagine that we put a grain of rice

on the first square Two grains of rice on the second square Four grains of rice on thirdsquare and so on and so forth How many grains of rice would we be putting on the lastsquare of the chess board? A lot probably Well a little more than a lot

18,446,744,073,709,551,615 grains of rice to be precise That is 18 quintillion 446

quadrillion 744 trillion 73 billion 709 million 551 thousand 615 grains of rice Rice

enough for the world This is the power of compounded interest Even the smallest ofprincipals can grow infinitely large given enough time and a steady return

This is way it is a good idea to invest early and to wait, and wait and wait And that isalso why it is a good idea to invest with an index fund as it makes it frictionless to reinvestyour gains

Bonds - And Other Ways of Making Money by Lending Money

A bond is basically an IOU (I Owe You) that states that the issuer owes the holder(s) adebt and, depending on the terms of the bond, is obliged to pay them interest (the coupon)and/or to repay the principal at a later date, termed the maturity date The holder of a bond

can sell it to a third party if the holder no longer wants to be the holder The interest of a

bond is normally fixed at the issue of the bond This means that the value of the bond risesand falls inversely with the general interest rate

An example Say that I have sold you a bond The terms of the bond is that I pay 3%per year for 10 years at which point the bond matures and I pay back the principal to you.Let’s say the bond is for $100 This all means that year 0 you give me $100 and I give you

a bond certificate Year 1 I give you $3 (the interest) Year 2 I also give you $3 This

continues until year 10 where I give you the final $3, pay back the $100, and rip up bondcertificate This all seems like a pretty sweet deal for you You are $30 richer and havedone anything but borrow your $100 to me How good a deal it was for you, however,depends on a lot of things How much inflation has occurred in the last 10 years? Whathas the general interest rate been? How big was the risk that I wasn’t going to be able topay the $100 back?

You can also speculate in bonds Returning to the example above, let’s imagine thatthe interest rate plummets to 1% year 1 Suddenly a guaranteed interest rate of 3% overthe next 9 years is looking pretty good and you might be able to sell your $100 bond

certificate to a third party for $115 Conversely the interest rate might skyrocket to 10%

certificate, the value of the bond certificate I have issued will plummet Speculating inbonds is, however, something most investors should stay clear of for the same reasons thatthey should stay clear of speculating in stocks

Generally owning bonds is less risky than owning stock, since you know exactlywhat you are getting into (barring bonds defaulting) Generally the payoff is also less For

a single, ordinary investor investing long-term stocks therefore beats bonds

Peer-to-peer Lending

Owning bonds is not the only way of lending out your money You can also circumventthe traditional finance industry and lend money to strangers through peer-to-peer-lendingservices A service like the Lending Club has historically given investors returns on theorder of 5.06% to 8.74% (source: https://www.lendingclub.com/public/steady-

returns.action) which is very good for a supposedly safe investment But it is important as

an investor to remember that with these kinds of services, you are betting not only that thestranger, you have lent your money to, is going to pay you back You are also betting thatthe service you are using is not going to go out of business or in any other way invalidateyour investment How risky this second bet is, only time will tell But new businesses gobankrupt all the time, meaning that the risk is definitely non-zero

Conclusion

You are not going to beat the average So put you your money in an index fund and wait.And wait And wait… …And wait That is how you get rich off of stocks as a single,ordinary investor Let other people gamble And if you truly cannot help actively

managing stock, then get a job at Wall Street and gamble with other people’s money

If stocks frighten you, you can buy bonds or lend your money to strangers throughpeer-to-peer lending services Though these options on the surface appear less risky thaninvesting in stocks, there are also serious risks inherent in both of these options The onlycompletely safe (or as close as you can ever get) bonds are issued by states with solidcredit ratings and the interest paid on these bonds are accordingly absurdly low (and insome cases even negative!) Our unequivocal advise for anybody reading this book withthe goal of wealth building is therefore to choose stocks over bonds

Profit

Profit comes from the ownership of capital equipment This can be as simple as owningyour own car or as complicated as owning an entire factory The profit category of thethree categories of property income is probably the most diverse and hardest to easilycondense We shall try, nevertheless, but the knowledgeable reader will notice gaps andholes in our description This is by design We cannot (and will not) cover the entire

But back to the task at hand - profit The general idea is simple The owner of capitalequipment makes money from other people’s operation of his or hers equipment A veryclassical 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 factorybecause they cannot afford starting their own factory The factory owner, in principal,doesn’t have to work He just collects with is left after having paid the workers’,

managers’ and sale people’s salary, namely the profit The more expensive the capitalequipment is, the fewer competitors the factory owner is going to have This will, all otherthings being equal, mean that a factory owner will be pulling down more profit on moreexpensive capital equipment

In the real world capital equipment have grown increasingly expensive, to the pointwhere almost no one person owns a factory outright Instead corporations are formed andshares are sold to raise money to invest in capital equipment For most normal people themost classic forms of generating profit are therefore off the table If you want to be partowner of really expensive capital equipment, you should buy stocks in companies likeIntel that owns and operate extremely expensive semiconductor fabrication plants (fablabs)

Owning Capital Equipment for People with Limited Means

That the most classic way of generating profit are off the table, however, doesn’t meanthat there isn’t plenty of ways for an ordinary person to start generating profit The

Internet and the advent of the so-called sharing economy have actually made it

extraordinarily easy for ordinary people to generate profit form things they already own.Different services have made it possible to rent out almost anything to almost

anybody Below we are going to list a few examples but really only your imagination isthe limit for what can be rented out

The service Sharehammer (sharehammer.com) lets you connect with people in yourarea that needs a specific tool for a few days Similarly NeighborGoods

(neighborgoods.net ) lets you rent out stuff you have laying around to your neighbors.Zilok (zilok.com) and Rentything (rentything.com) are the same types of services You canrent out the ladder that you have in your garage and only use once every year You can rentout the expensive juicer that you bought years ago and only used once You can rent outall the tools you bought when you where remodeling your kitchen

RelayRides (relayrides.com) lets you rent out you car GetAround (getaround.com) isanother option for your car So is JustShareIt (justshareit.com) Most cars spend most oftheir time in the driveway With these new services cars can be more fully exploited This

is good not only for the owner of the car (you) who gets paid money but also for society ingeneral as we want to waste as few resources as possible

The main focus of the sharing economy is people renting things out that the already

own This focus puts an artificial limit on the thinking of most people because you are notlimited to renting things out that you already own An enterprising individual will seek outequipment in high demand and buy him or herself that equipment If lots of people in your

hammers) and start renting them out That is how you make profit in the 21st century

Example of Business Waiting to Happen

Depending on your car’s age, make, and model, RelayRides will guaranteed you anywherefrom $150-425 per month for parking your car at SFO or LAX (source:

https://relayrides.com/airport-parking) that is basically free money if you can get yourhands on a qualifying car for under $150 in monthly expenses

Similarly people can earn a very decent income by simply leveraging the different carsharing sites data about supply and demand and then moving cars to underserved areas

An enterprising individual would in this way be able to build up a small fleet of rentalcars One might even take it step further and offer people the change to rent the cars to beused as Uber/Lyft cars

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 riskare you running (what is the value of the thing you are renting out, what is the rentalrate 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 rentalrates? If the rental rates are very low, you should think about selling the equipmentand investing the proceeds in something else You can then turn around and startrenting 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 especiallyimportant if you are renting out your car You need to make sure that your rental ratesare 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 calculationshow much time you are spending facilitating the rental of your equipment If youspend an inordinate amount of time meeting people, posting listings and the like, theincome you are generating will tip away from being a source of passive income since

workers are over; now it is corporations that do that - companies that you can buy stock in(hint: we are only half-joking) This, however, doesn’t mean that you cannot make profitfrom capital equipment in this day and age You can make plenty of profit from renting outthings you have lying around and from the car in you driveway You can even make abusiness out of it by leveraging the different service to figure out where there is greaterdemand than supply and then addressing that demand.

Royalties

A royalty is a usage-based payment from the licensee to the licensor The licensee pays thelicensor for the right to use an asset - often an intellectual asset Royalties can work inmany ways but are typically a percentage of gross or net revenues derived by the licenseethrough the use of the asset An author earns royalties by licensing out his book to a

to purchase something is a fickle undertaking As the licensor you might think that you arenot responsible for making the sales Every sale, however, is made or missed on the

strengths and qualities of your creation The licensor is therefore very much responsiblefor making the sales, albeit indirectly

In this chapter we are going to go through all the different ways an ordinary personcan begin to earn royalties The idea is not that any one person should try to earn royalty

in all of these different ways Rather a person trying to earn royalties should pick out theone or two avenues of making royalties where they have experience or have an interest.Before we jump into the deep end, a word of warning Many people tend to think thatcreative work it easy and that they easily would be able to slap something together that’sjust as good as what they see being sold out in the real world We are here to tell you thatmost people are wrong They might be able to slap something together but chances arethat nobody is going to want to buy their creation If you don’t have an original idea or are

in some way making improvements on old concepts, you are wasting your time The

world is littered with intellectual ”assets” that nobody is ever going to spend a dime on.This is fine if the creator had fun creating but it is pretty terrible if the goal was moneymaking What we are saying is this; don’t quit your day job until after the royalty checksstart showing up - the proof of the pudding is in the eating, not in the making

Ways You Can Begin to Earn Royalties

Below we have compiled a list of nine different ways that an ordinary person can beginmaking royalties This doesn’t mean that there isn’t other ways to make royalties Thereare plenty of other ways The ones we have listed are the most accessible for an ordinaryperson Drug-development is for instance not listed Companies make fortunes on

royalties from drugs they have developed But no ordinary person is going to be able todevelop a new drug So drug-development is not on the list But by all means go aheadand develop the cure for cancer if you know how, you will be earning royalties in thebillions

So let’s jump in

1 Writing a Book

Writing a book is easy Anybody can do that Writing a book that can get publish That isharder Luckily self-publishing has gotten very easy in recent year and a lot more

profitable too The trick, however, is to be able to write a book that people are willing tobuy Unfortunately, that is also hard Not as hard as getting published by one of the bigpublishing house But pretty hard, nevertheless

But first things first How do you actually write a book? Methods for writing varyand people vary so there is no one-size-fits-all guide to how to write a book In general it

is a god idea to plop your butt down in front of a computer You write a book by typing,typing, typing Sounds easy now Wait until you sit in front of the computer You will want

to do a thousand other things than write Start by mapping out what you want to writeabout What is the idea? Are you writing fiction or non-fiction? What genre? How is itoriginal? Answer those questions and write the answers down Then start organizing

Write a list of chapter with short descriptions List the main characters Draw an outline ofthe plot Organization only smoothers creativity if you have no good ideas, if you haveplenty of ideas being organized breeds creativity When you are done with all that, decide

on the length of you book There are no rules A good guideline is that a novel should be atleast 30,000 words, if it is much shorter it becomes a short story or a novella A standardlength novel is around 100,000 words and many are much longer Then pull out your list

of chapters and divide your desired word count out on your chapters Note that chaptersdon’t need to be the same length

Now you are ready to start writing You have a rough outline You have a generalidea of how long each chapter needs to be If you are serious about your project, you goalshould be at least 500 words each day That might either seem like nothing or seem like alot Test it out for a week Are you hitting your numbers, or are you falling behind? If youare falling behind, figure out why this is the case Are you spending too little time writing?

If so prioritize more of your time to writing? Are you running out of ideas? Go back to theearlier steps and flesh out the chapter descriptions and make sure you have a novel’s worth

of material

Ok So that how you write a book or at least one way to approach it - if the abovemethod is not working out for you, there are a literally thousands of books and websitesdevoted to the writing process that you can seek help from

What do you do with the finished product? Well this is where things have gotten a loteasier in recent years You can still send your book to a traditional publisher You can,however, also publish right away Amazon’s Kindle Direct Publishing (kdp.amazon.com)

is dead simple Just go to the site Create a profile - you can actually just use your existingAmazon account And then upload your book Amazon’s system accepts many file types,even a simple doc file The best way to control formatting is to set your book up in html.You also need a cover images Design one yourself, or outsource it to a site like

If you want to take advantage of KDP’s 70% royalty option, you have to set the pricebetween $2.99 and $9.99 Most unknown authors should probably price their works in thelow end of this spectrum Now all that is left for you to do is hit that big button labeled

publish.

Self-publishing options besides Amazon’s Kindle Direct Publishing include

Smashwords (smashwords.com), Apple’s iBooks (support.apple.com/kb/PH2808), Nookpublishing (nookpress.com), and Createspace (createspace.com) if you want to publishphysical books

So has anybody ever done this successfully? Yes Dozens and dozens of previouslyunknown writer have made their breakthrough in the Kindle Store One of the first

breakthroughs in the Kindle Store was made by Amanda Hocking who made a small

fortune in the Kindle Store in 2011 and 2012, before the store had even gotten big

dollar deal for a print book (source: http://www.npr.org/2012/01/08/144804084/a-self-published-authors-2-million-cinderella-story) Another prominent example is Hugh

Hocking in 2012 had already made $2 million from her books and landed a multimillion-Howey whose Wool series has been a monster success Howey claims that most of hismonths are “six-figure months” (source:

http://edition.cnn.com/2012/09/07/tech/mobile/kindle-direct-publish/) Mark Dawson isyet another example of the great success some authors are having self-publishing Dawson

is reportedly pulling down $450,000 a year on his series about an assassin called JohnMilton (source: http://www.forbes.com/sites/jaymcgregor/2015/04/17/mark-dawson-

made-750000-from-self-published-amazon-books/)

The big question for the rest of us is whether Hocking, Howey, and Dawson are

unicorns Or put another way, can a skilled writer expect a similar type of success? Thenewspaper the Guardian published a survey in the beginning of the year (2015) that

indicates that there is room for the rest of us 1,879 published authors were surveyed.Overall, half of the writers earned $1,000- $2,999 or less Which is obviously not

impressive But at the top end, almost 10% earned $100,000 or more, with 4.1% earning

$250,000 or more (source: http://www.theguardian.com/books/2015/jan/23/authors-earnings-fall-350pa-survey) That’s a one in ten chance of earning $100,000 or more ifyou are a published author (assuming that the survey is not biased towards successfulauthors) Pretty good odds if you ask us

2 Making Music

Making music has never been easier Having a home studio has come within the reach ofalmost everybody, and getting your music out into the world has never been easier Upload

it to YouTube (youtube.com) Put it on SoundCloud (soundcloud.com) Or get it on

Spotify (spotify.com) and iTunes

So how do you get started? Music is a skill And the question is whether you thatskill or not Do you know how to compose a song? Do you know how to play an

instrument? If not, it is probably a long shot to think that you are going to be making

money, making music - so maybe skip ahead - or start working on getting that skill Take

up an instrument and start learning

distribute it, there has never been more music available to people This makes it very hard

to make a living making music It therefore not a good idea to go down this road if youdon’t love playing and creating music

That it is hard doesn’t mean it is impossible Jonathan Coulton is an example of amusician that has found a niche He makes music aimed at nerds and brings in $500,000 inrevenue a year (source: http://www.npr.org/sections/money/2011/05/14/136279162/an-internet-rock-star-tells-all) The world is full of niches so there is plenty of room for

someone else looking to do something similar for other niche audiences

Another avenue for making money, making music is songwriting In the US the

standard arrangement is that the songwriter gets 9.1 cents in mechanical-royalty payments.That can become a lot of money if you write a smash hit Chances, however, are slim ifyou are not well-connected in the music industry

All in all making money from making music is more of a do it if you love it kind ofthing than a road to riches kind of thing But by all means, go out there and prove us

wrong

3 Voicing an Audiobook

Audiobooks are becoming increasingly popular as more and more people have iPods andsmartphones that can play audiobooks This creates an enormous market for audiobooks, amarket that demands voice actors ACX (acx.com) is the 800-pound gorilla in the roomwhen it comes to audiobooks ACX serves as a sort of backend for Audible (audible.com),

an Amazon owned marketplace for audiobooks

On ACX aspiring voice actors can audition for rights holders that what to have anaudiobook version of their books Two payment options are available for voice actors Youcan either earn a flat fee for your production work for an audiobook (a Pay for ProductionDeal), or agree to a Royalty Share Deal with the rights holder and earn half the royaltiesfrom each sale of the audiobook The Royalty Share Deal is the interesting option for ourpurposes It works as follows; Audible sells an audiobook - typically for $14.95 - andkeeps 60% of the sales price The remaining 40% is then spilt between the rights holderand you, the voice actor Meaning that you are getting 20% of $14.95 (i.e $2.99) per booksold

So how do you get started? You need to know how to create an audiobook, you needthe right kind of equipment (a quality microphone), and you need a nice reading voice.You can learn the first thing, buy the second, and practice the third

A good idea for an aspiring audiobook narrator is to dip his or her toes in the waters

at LibriVox (librivox.org) LibriVox is a project aimed at creating public domain

audiobooks form public domain books This means that you are not going to earn a dimeworking for LibriVox You are, however, going to learn how to create an audiobook, youare going to build yourself a portfolio, and you are going to get valuable feedback that willgreatly improve your chances when you audition for books on ACX

(assuming a $2.99 per book royalty) If the audiobook version of To Kill a Mockingbirdsells 1000 copies a year (a very conservative estimate) your hourly salary jumps to about

$290 Pretty good if you ask us The trick though is to pick out the books that are going to

do 1000 copies a year If you voice a dud, you are not going to be paid a dime So be

careful picking out what you are spending your time on

If you want to know more about voicing audiobook, you can visit Karen Commins’blog (a professional female voice-over talent) and read about hear experiences

Okay First things first You need to invent something That is the hard part And it isreally hard But the rewards can be huge Five years after setting up his business, GaryClegg, the inventor of the ignominious slanket, was making over $7 million (source:

http://www.therichest.com/rich-list/world/5-simple-ideas-that-made-their-inventors-rich/).Unfortunately there is no formula for invention Some inventors have Eureka-momentsothers grind it out over many years Generally it is a good idea to look for problems thatneed solving or look for products that are terrible and could be improved upon

What do you do, once you have made your invention? That depends on the kind ofinvention you have made If you have an idea for a product, you can contact a

manufacturer The average royalty on the typical invention is 3-6% of the wholesale price

of the product sold That might not sound like a lot But it could quickly become a lot ofmoney A product that sells for $100 in a WalMart store will typically have a wholesaleprice of about $50 You, the inventor, will then get $2 (assuming a royalty rate of 4%) forevery product sold at Walmart There is about 3000 Walmarts in the US So if each storesells one product every second week You will be bringing home $156,000 a year Notbad

If you are having trouble coming up with that one great invention, you can also tryout a site like Quirky (quirky.com) On Quirky anybody can suggest an idea or influence aproducts and subsequently make royalties off of their small contribution This can be agreat way of getting into the inventor mindset and make money doing it

Over the last few years several marketplaces for so-called royalty free photos and imageshave sprung up across the Internet, the most well known of these is probably ShutterStock.The photos and images on these sites are royalty free in the sense that the sites’ customerscan buy an image and then use it in different context without paying royalties for each use.The creator of the image is, however, paid a royalty at each customer’s initial download

On ShutterStock an image creator will typically be paid about $0,25 per download That’snot a lot you might think And well frankly it isn’t It is, though, important to note thatthere is no exclusivity in the sale The image can be sold and downloaded again and again,and across multiple sites This means good money can be made from high quality imagesthat are downloaded multiple times

When uploading images to sites like ShutterStock, it is important to realize who thecostumers are Uploading hundreds of random photos and images might not earn you adime if nobody has any interest in them Generally people on ShutterStock are looking forstock photos and images with a clear theme, meaning, or narrative If you want to succeed

on ShutterStock and similar sites you therefore need to be thinking in keywords A goodway to start is to make quality photos and images for simple and often used keywords (e.g.chair, web, social, love, pasta, climate etc.)

You should upload each picture with both a transparent background - so the

ShutterStock’s customers can use the picture with their own background - and with a

background of your choosing - so that the picture can be used straight away You shouldalso make sure that any illustration you are make is vector-based

Another good trick is to try to capture the zeitgeist in a photo or an image, and herebyleverage popular search terms (e.g subprime mortgage, World Cup, Yemen etc.)

A good resource for learning more about living off of taking photos is

200-from-shutterstock-istockphoto-or-fotolia/)

michaeljayfoto.com (see http://www.michaeljayfoto.com/beginners-guide/how-to-make-6 Making HTML-Templates

The html-template industry is a fairly new industry Yet web designers from across theworld are making anywhere from a couple of $100s each month to tens of thousands ofdollars each month on selling their pre-designed, pre-coded templates from anywherebetween $9.99 and $99.9

How do I get started, you might ask Well first of all, you need to be able to code andyou need to be able to design This might be a tall order for just one person and it mighttherefore be a good idea to partner up with someone that compliments your particular skillset If you can neither code or design, you best start learning The web is brimming withresource for people wanting to learn to code (e.g w3schools.com/html)

Generally a good idea is to pick a platform that you want to master Mastering

Wordpress is a safe bets as a very large percentage of the web runs on Wordpress Otherplatforms have smaller markets but also less competition Focusing on platform allowsyou to build the kind of expertize people will recognize and want to pay money to tap into

Now that you are done with all the nitty-gritty you need to start selling You caneither create your own storefront or you can use one of the many existing theme stores(e.g themeforest.net) We recommend using an established store - which is why we haveplaced this section on making html-templates in our royalty chapter Themeforest will givedesigners up to 60% in royalty on each sale which is generally a pretty good deal for theexposure and credibility Themeforest gives you

7 App Development

The great app gold rush of the early 2010s is over and things have settled down quite a bit.The numbers of app-users and app-buyers, however, have continued to grow There istherefore still plenty of money to be made for anyone with a good idea

Everybody knows the great success stories of the smartphone app-world WhatsApp,Instegram and Snapchat Billion-dollar companies build exclusively through a smartphoneapp The operative word in that sentence for our purposes is “companies” We are interest

in what a single individual (or two get do), and not what entire companies are doing Thequestion plainly is whether there is still room for a lone developer to make a splash

The answer - most definitely! In 2014 Vietnamese developer Dong Nguyen was

pulling down an average of $50,000 from his game Flappy Bird (source:

nguyen-interview) German developer Andreas Illiger similarly have sold more than 10.5million copies on iPhone and 1.8 million copies on iPad of his game Tiny Wings (source:http://en.wikipedia.org/wiki/Tiny_Wings) And the list goes on and on (source:

http://www.theverge.com/2014/2/5/5383708/flappy-bird-revenue-50-k-per-day-dong-http://inspiredm.com/23-phenomenal-iphone-apps-that-got-people-rich/)

This is not to say that it is easy to create a best-selling app Creating a great app ishard, creating a great best-selling app is really hard, doing it alone is really, really hard.But people have done it, and are doing it

To get started you first have to decide which platform you are going to develop for.The obvious candidates are Android and iOS Android have the biggest market share butiOS have the most app-buying costumers There is no right answer but generally the safebet is going to be iOS as it is an easier platform to support as a single developer and asyou will be connecting with more users willing to spend money on apps

With a platform chosen you just have to come up with an idea and build it (hint: both

of these are really hard) If you are developing for iOS, you can use Xcode to developyour app This requires coding experience and knowledge of Objective-C (or Apple’s newprogramming language Swift) Almost anyone can learn to code an app but it will taketime Lifehacker has a pretty good guide to iOS app development for the complete novice(http://lifehacker.com/i-want-to-write-ios-apps-where-do-i-start-1644802175)

individual developers to work with directly This can be done on site such as upwork.com.When you choose to outsource it is important that you have a very clear picture ofwhat you want and what you are willing to pay A non-developer’s attempt at developing agreat app can quickly be derailed by uncooperative developers wanting to fleece an

unsuspecting chump

Once you are done with your app You can put it up for sale in Apple’s App Store.Here you will be receiving a royalty of 70% for each sale that your app makes Most appsells for $0.99 but you shouldn’t be afraid to price your app higher if it provides sufficientvalue

This section has looked at app development and specifically app development forApple’s App Store But app development is only a subcategory of the much larger

category of software development We choose to only look at app development becausethis is where the money is and where a single developer has the greatest chance of success.There are, nonetheless, plenty of examples of people striking it rich developing other types

of software than apps for smartphones Minecraft, developed by Swedish programmerMarkus Alexej Persson (Notch), is a recent example of this Persson sold Minecraft toMicrosoft for $2.5 billion in September 2014 So if you have an idea for a program orgame that doesn’t fit in the narrow confines of a smartphones, do not let us stop you

There can be plenty of royalties in all forms of software development

8 Designing Clothes

Designing clothes online is one of the many things the Internet has made possible thatnobody could have imagined would be a viable way of making a living Yet a whole

cottage industry has sprung up around the hand full of sites that make it possible

The basic idea is as follows A company offers designers ready-made, customizablestores and the infrastructure to produce and ship clothes The designers upload their

designs to these stores, and the customers buy the clothes offered by their favorite designs.The company then prints the design on the clothes and ships it to the customer while alsosending a royalty check to the designer The setup is often such that the company has a setproduction cost that acts as the base price The designer can then decide how much his orher design is worth and add that to the price of the product The designer’s royalty is thenthe difference between the production costs and the price he or she has set

The major sites in the world of online clothes design are Spreadshirt

(spreadshirt.com), CafePress (cafepress.com), Zazzle (zazzle.com), and Printfection

(printfection.com) More sites exists and if you are serious about making money this wayyou should explore the market thoroughly as every site has both advantages and

disadvantages

You will often have the option of hosting your personal store on either the company’ssubdomain or on your own domain Generally having your own domain is advantageous

as you have better control and can switch company if you are unhappy If you choose tohave your own domain, you will, however, have to generate the traffic to your store

Every design you make should be high quality but clothing design is also somewhat

of a numbers game More designs will definitely land you more money than fewer designsall things being equal

9 Online Lectures

Online learning is on the rise In the knowledge economy people, unsurprisingly, wants tolearn This creates opportunities for people with something to teach Your first step shouldtherefore be to figure out whether you have something to teach that people wants to learn.You can’t just slap 30 minutes together of random insights - well you can but it probablywon’t get you very far Creating something worthwhile requires sustained effort

Once you have figured out what you have a special qualification for teaching, youshould sit down and write a manuscript for yourself What exactly do you want viewers totake away from your online course? Pin that down and develop you lecture around it Besure to cut out the superfluous fluff You do not want to be wasting your prospective

viewers’ time

When you have got a manuscript ready it is time to start filming You can either do ascreencast where you only record what is going on your screen This can be a good idea ifyour lecture is about something that takes place on your screen (programming, usingonline tools, software use etc.) It can also be bad idea as a pure screencast can make you

seem cheap A real recording (as opposed to a screencast) will take substantial effort for it

to look sleek and professional This is a good thing if you can pull it off, as it will set youapart from most of your competitors

Okay so now you have a sleek video with you perfectly explaining a complex

subject Time to dive into the pool of online teaching platforms There are quite a few ofthem They include Academy Of Mine (academyofmine.com), BrainCert (braincert.com),and Udemy (udemy.com) The different platforms offer different concepts for how

instructors are compensated and there is no perfect formula for choosing one over theothers Our advice is to explore the market and test a few of them

The average instructor earns $7,000 on Udemy (source:

http://press.udemy.com/udemy-raises-32-million-to-broaden-content-expand-international-presence-and-develop-new-product-innovations/) which is pretty good butprobably belies a skewed distribution with some instructors making fortunes and othermaking very little That the average is as high as $7,000 is, nonetheless, a very clear

indication that there is serious money to be made being an online instructor

Choosing Which Way To Go

So there you have it, nine concrete methods for starting to generate royalties Which oneshould you choose? Well that depends on where your skill lies, how much work you arewilling to put into your project, and how much money you are willing to spend We can’tanswer this for you so it is up to you to choose What we can say is that not all of thesemethods are born equal

is the payout going to be if everything succeeds perfectly, 2) effort - how much work

and/or money does it take to have any chance of success, and 3) risk - what are the chanceyou are going to fall flat on your face and nothing is going to come of your efforts

The perfect method for generating royalties would be high reward, low effort and lowrisk Meaning that you wouldn’t have to work very hard to be guaranteed great monetarysuccess Obviously such a perfect method does not exist - at least not that we are aware of

In the following we will go through the nine methods for generating royalties andrank them on each of three metrics We will rank them on a three step scale - high,

medium, low This ranking is not meant to be a precise indicator but will instead give ageneral idea of the strengths and weaknesses of each the nine methods

1 Writing a Book: Writing a book is clearly high reward, if you write a bestseller youcan be set for life Writing a book is also high effort It takes time to write an actualbook 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

2 Making Music: Making music mirrors writing a book It is also high reward Unlikewriting 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 issimply too much music and too few ears

3 Voicing an Audiobook: Voicing an audiobook is medium reward There is a reasonyou haven’t heard about any famous audiobook narrators It’s because they don’texist That doesn’t mean you can’t make a living doing it You are just not going to

be buying Caribbean real estate any time soon Voicing an audiobook is also mediumeffort It takes time but not insurmountable so Finally voicing an audiobook is alsomedium 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 inthe marketplace You can stay clear and not waste your time if a book is a dud

4 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 inventionare done in a second, others take years Lastly investing is high risk Most inventionsnever see the light of day and the majority of the ones that actually make into the realworld are not in any way successful

5 Taking Photos and Making Illustrations: Taking photos and making illustrations forsites like Shutterstock is a low reward proposition Most people will have a hard timemaking a living relying only on income from Shutterstock It is, however, also loweffort and generally low risk You can do it easily and if you put up quality photosand illustration, you are going to be getting royalty payments

6 Making HTML-Templates: Making html-templates is medium reward You are notgoing to become an overnight millionaire but you can make very decent money It ishigh effort and medium risk It takes a lot of time but if you produce something

worthwhile, people will want to buy it

7 App Development: Developing apps is high reward, very high reward Successful

8 Designing Clothes: Designing clothes is low to medium reward You are not going to

be making truckloads of money Yet you can make decent money if you now whatyou are doing Designing clothes is also low to medium effort Designs can be

pumped out at a mile a minute or can be carefully crafted over weeks As a designeryou will be facing a medium to high risk that nobody will buy your designs Theapparel industry is brutal and you are just going to be a small fish

9 Online Lectures: Making online lectures is a medium to high reward play Somepeople are making surprisingly hefty amounts of money teaching online The effort ittakes is medium to high If you are already an expert on a subject, you can withdetermined work put together a quality lecture in a relative short span of time Therisk 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 instructorearnings bears this out

Conclusion

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 arelucky) In this chapter we have looked at nine different concrete methods an ordinaryperson can set about generating royalties Not all of these methods are for everyone butanyone will be able to use at least one of the methods listed to generate a royalty incomefor themselves

Royalty income often requires little capital but lots of work Think of the starvingNew York author