This is part 3 of my series on generating passive income.

So far we’ve looked at how Blogging is a good idea, but doesn’t generate passive income. How eBooks and information products have been wildly successful for some, but are overall not a reliable way of generating passive income (the success rate is low). And today we’re going to briefly cover three other common passive income generating ideas.

Virtual Real Estate

Just as in “real” real estate where there is a limited supply of dirt that appreciates in value, there is a limited supply of domain names on the internet which are also increasing in value.

Virtual real estate is the concept of buying up domain names either to monetize them today or because you believe they will increase in value. Some people like John Reese seem to think that this is going to make a whole bunch of millionaires in the coming years. And it certainly has already created a handful of them, like Kevin Ham who has a portfolio of domains worth over $300 million.

Of course, the first complaint you will hear is that all the good domain names are taken! Some have taken a unique approach, like Russell Horowitz who focused on “local” domain names (instead of sunglasses.com he is buying houstonsunglasses.com or newyorksunglasses.com) or Craig Lovik who bought domains with common misspellings in them.

Overall domain names will continue to go up in value, although I haven’t seen any good data on appreciation percentages. The three main concerns I have with virtual real estate is:

1. Many of the websites that are created are “junk” sites that have no purpose and are just filled with adwords. If you aren’t contributing something of value to the world, it’s going to be hard to make money in the long run.
2. The gold rush of the internet is done, and almost every conceivable good domain name has been picked over thoroughly. There is now a fairly liquid market of domain names; the biggest site I know of for buying/selling these is sedo.com. You can make money off appreciation, or maybe even find a valuable domain name that hasn’t been discovered yet. But I doubt you could do this with enough regularity for it to be profitable, and even if you could generate income this way it sounds like hard work (not passive).
3. Finally, going back to my old measurement of “how many millionaires have used this method to become rich?”, the numbers don’t look good. I’d be surprised if virtual real estate has created more than 100 millionaires in the world.

Multi Level Marketing and Network Marketing

I’ve never been a big fan of these types of companies for a few reasons.

1. Everyone I’ve spoken to who is involved in these companies claims to know someone who is a millionaire from it, but I’ve still yet to meet a single Millionaire doing MLM or network marketing.
2. You end up annoying your friends and family by sending them information about various products and you’ll end up convincing yourself that you are really trying to help them by letting them know about a great product. They don’t want to hear from you.
3. It comes back to the old idea of are you contributing something of value to the world. I’m sure there are some MLM companies out there who do this, but I haven’t seen one yet.
4. These companies tend to take advantage of unsophisticated buyers, which raises an ethical red flag for me.

Anyway, I don’t have much more to say about networking marketing. I’m sure there are some millionaires created from these businesses and plenty of people will disagree with me on this, but I think they should be avoided.

Options

Options are not all bad. In fact, by selling options you can mitigate risk on various investments and large companies buy options on a regular basis which is solid business practice (Southwest bought fuel options to guarantee a price, McDonalds buys beef options, etc).

However, buying options as a way to make a living is generally a bad idea I think. Again, I’ve seen some classes on this and spoken to a number of people who have tried it. Every single person I’ve met (maybe half a dozen) who tells me they do option trading, I ask the same question: “when will you make enough to quit your job and live off your option trading?” None of them have plans to do this and they tell me that it’s more of a side hobby, which interpret as meaning it can’t be very profitable.

That isn’t passive income in my book. The only people I know making millions in option trading are doing it as a job at a large company, and of course they aren’t trading their money, so it’s not their millions.

If someone can find some info on how many millionaires have been made from option trading please post it here, but for right now I remain unconvinced.

Conclusion

So far things look pretty bleak for passive income ;) The final part (part 4) will cover real estate which as you might have suspected looks a little better for passive income. Stay tuned!

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