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Ask HN: what are your best (relatively) passive, non-stock-market investments?
54 points by gregcohn on Dec 28, 2012 | hide | past | web | favorite | 88 comments

I bought myself a "lifestyle business". Its a cleaning business that already had a number of long term clients and revenue as well as staff. I've rearranged the staff, automated the administration side of it and while i did the cleaning myself (with the existing staff) for the first 2 weeks of takeover, that now goes on without my involvement too.

I've only had it a month, i spent about £6k to buy it, i spent a further £2k buying a van and other one off supplies and my monthly profit after staff wages and other recourring expenses is around £800 a month. So if i left it at that i'd see a 100% ROI in 10 months.

However I intend to spend around £10k on advertising and marketing in the next 3-4 months to expand the business, i expect a conservative £25k a year revenue for that £10k.

Of course being a geek has helped immensely, especially with automating things like invoicing, payments, accounting and building the website, phone system, business cards, designs etc.

I urge all geeks here to think about applying your high tech skills to low tech businesses, you'll often find massive opportunity, especially if the space is typically occupied by non-tech literate people.

Also, as a side note, this is now my new strategy for my consulting too, instead of being a PHP Developer doing boring but well paid jobs like facebook apps and wordpress sites, i'm now positioning myself to be a business consultant that makes businesses money by applying technology where its severely lacking, and i already have my first client, a taxi company.

If anyone wants to ask me questions, feel free to reply here if you dont mind if being public or email me: contact@[myHNusername].com

This is a great approach. Many of the best in tech are outside of tech. You have to just think about your day-to-day activities and observe ways to improve things. That is where you usually find great opportunities.

this is great. how did you identify and qualify this opportunity?

This sounds a bit crazy, but I saw the opportunity on Gumtree, a guy wanted to sell this part of his business. I went over his historical figures, did as much due diligence as i could and considered the figures to see if it was worth it. I have kind of a rule, if i can get a 100% ROI in 1 year, its worth doing, I initially thought i'd get a 100% RIO in 8 months, i figured i'd miss something (which i did) but i thought there was enough room for a little bit of error and decided to go for it.

In my opinion, passive investing rarely has the capacity to earn someone a substantial amount of money. Large, stable returns occur in only two situations: 1) You invested a huge amount of initial money, so even a low yield returns a lot of money. (This is, from my understanding, how a lot of super-wealthy people do it. Stored wealth perpetually generates income. If one has a massive amount of stored wealth, they earn a massive amount of passive income.) or 2) You invest over long periods of time.

Making large amount of money in short periods of time through investing necessitates either making a very active, labor-intensive investment (like buying a small company or flipping houses), or resorting to speculation. Obviously, this is not passive.

The market is self-correcting. It's absurd to believe that one can earn prodigious amounts of money quickly, predictably, and effortlessly.

However, you should take this with a huge grain of salt. I am not an experienced investor. (In fact, I'm fairly sure that the law prohibits someone my age from investing. Even if it didn't, I wouldn't be in a financial position to invest anyway.)

Yes but there's such a thing as leverage on labor. E.g., you could start a coffee cart & hire someone to manage it; be primarily a financial partner in purchasing a small business or house-flip; etc.

I've had pretty good results with peer-to-peer lending. Prosper is the platform I use (Lending Club is the other big player in the U.S. but not available to investors where I live). It can be a bit high maintenance as an investor as you'll need to invest in 100+ loans to be diversified (and you'll have to reinvest proceeds over time), but I find it to be manageable. If you really want to get into it, both platforms allow you to download all past loan data so you can analyze past performance and come up with your own approach.

I like those platforms in principle, but I don't think investors reallly understand what's in it. The truth is, you're creating your own asset-backed security based on loans originated to refinance credit card loans or finance personal projects for what is (I assume) a pretty narrow slice of the population.

Just like banks and other players (ahem rating agencies) before the financial crisis assumed ABS were safe because they were diversified ("the housing market cannot collapse uniformly accros the country"), they can actually become very correlated in a very short amount of time.

So even though peer-to-peer lending is an interesting proposition, it is important to understand that it can potentially become ugly and sticky...

Yes. After a quick look at this (very interesting) suggestion, my intuitive reaction is that a lot of the borrowers are likely to repay based on their credit histories and the desire to protect them.

My #1 question, however, is what makes people turn to a source like this?

Well, a credit history tells you whether a borrower paid his credit card bill last month, not if he is going to have a job next month. My point is not that people will try to run away with your money, but that holding 100+ notes from Lending Club might not be the diversified investment it appears to be, especially when some macro event happens.

Peer to peer lending being somewhat new, I would say some of the borrowers think it's cool. Some of them might also be making a principled choice ("banks are evil"). But ultimately, if you have a reasonnably good credit profile it should be noticeably cheaper than the average traditional lender with its branch network etc.

Seconded. I've been rocking 10% annual returns since I started with Lending Club almost 20 months ago.

The only bad thing about these sites is that your income counts as normal income and not capital gains.

Well it is income. What would you expect?

The second paragraph "Capital gains may refer to "investment income" that arises in relation to real assets, such as property; financial assets, such as shares/stocks or bonds; and intangible assets such as goodwill." is simply wrong, have flagged it. You are earning interest, an age old concept.

I swing trade, which is just stock speculation (aka gambling with equities). I think I made about 30 trades all year. I've been averaging over 40% annual returns over the last four years.

As much as I hate to admit this, I am a much better trader than an entrepreneur.

That's an interesting number of trades -- less than one a week. Can you elaborate on your methods for identifying, holding/monitoring, and exiting trades? How many hours a week are you spending on this?

This year was low (number of trades) because I was patient on a trade that went south. It eventually turned around, but locked up all my capital until it did.

Basically, I refuse all conventional stock investing advice. I never diversify; at most my portfolio has two positions at a time. And I invest upwards of 90% of my cash on most trades. I do not trade on margin (well, technically I do because I don't wait for trades to clear before taking my next position)--but I don't buy stock than cash I have in the account. I only buy heavily traded equities; trading volume over a million shares and over a billion dollar market cap. And I focus on stocks with more or less sound fundamentals that are showing recent swings in price. Apple is a good example.

But as for a being highly methodical and data driven--I'm not. I have a few simple rules and am patient. I generally exit positions after 1-3%. And then I have a few that I let ride. It doesn't take much to hit 40% that way.

I spend less than an hour a week doing research and monitoring my position. I don't have any magic edge. But I'm making money, so continue chug along. A bull market definitely helps, but I've also done ok in a bear.

Nice. I do the same thing but my returns aren't that high, maybe between 20% and 30%. I use Google Finance as well.

My strategy is simple: I look at the day's biggest losers and, if my research says it's an overreaction/emotional, I'll buy in the hopes of selling in the next week. Most of the trading comes around earnings time. I had a pretty good return with Groupon (I sold too early though), Verisign, MMR and a few others.

I found I was spending too much time checking the screen when I should have been working though, so I just bought about 100 shares of Apple when they dipped below $520/share recently and hope to sell early next year when they get back up to $625 or so, hopefully after Q1 earnings.

By the way, this isn't a passive strategy for me. I use stop and limit orders, but it takes a lot of time to keep track (at least for me, but I'm not very efficient), which gets especially difficult when I'm traveling and the market stateside doesn't open until 7pm (bleh).

Do you trade long only, or short too? Ie, are you trading pure volatility, or more looking for situations where there's a temporary dip in pricing relative to fundamentals?

Do you monitor daily, > daily, and/or use any automated tools to stop out of or otherwise monitor your trades?

It seems like you could make consistent small wins here but would also be subject to occasional big losses.

90% of my trades are long. I should be shorting more often, but I seem to have an irrational apprehension towards it, which is just plain dumb.

It depends on the trade. If I have time to get a better feel of the way the stock has been moving, I'll trade volatility. That's when I'm setting lots of limit orders in a short period of time, which is uncommon for me. If I knew how to trade programmatically, I'd be doing a lot more of this. It's something I should learn this year. But most of my trading is based on what I feel are fundamental flaws I pricing.

I make it a point not to actively monitor. I have Google Finance up all day, but I'm not glued to it. I just set a limit order to close my position as soon as I get into it. No real automated trading tools and don't stop out (which is really bad practice I should change). I've looked at autotrading via subscriptions, but since I'm booming gains as high as these pros, I see no point to encumber myself with complexity. For now, I'm a profitable simpleton. Of course, I fully understand my days are numbered. I'd much rather I didn't trade, but I can't any other activity with this kind if return in time invested.

You're right--I should be coming against a big loss. Actually, I have seen big losses, but I just never realized them. That's what I mean by being patient. I just wait it out until the company turns around.

The sites I use for insight are: Google Finance and Trefis. And I see what is going on in the order book--I use Interactive Brokers, which offers access to almost tick by tick trading.

Real estate. My wife and I own five homes (live in one of them). One is in South Carolina near Hilton Head (I bought it when I was single) and the other four are condos around San Diego, CA.

We bought in when the housing market was at its low. The credit markets were crap so we had to buy all of them cash except the one we live in now which was a bit more expensive. After expenses (HOA and property management) our average returns are about $900/mo. ($10,800/yr.) for every $100,000 invested. That's not too bad considering housing prices and rental rates will continue to climb over time (or that's the plan at least). We're fortunate enough to live frugally and just happened to have the money lying around when the housing market sucked so we bought a couple homes a year over the past few years.

For the house in South Carolina we're losing about $200/mo., but it's a 15yr mortgage. We'd be making a bit if it were a 30yr. I bought that one when I saw 21 so I didn't know anything about anything. Some would say I still don't.

The real estate is nice because the extent of my involvement is manually paying real estate taxes on the homes without mortgages, answering a couple emails a year about high dollar ($200+) repairs or signing new lease agreements.

As one of the other posters mentioned, we also invest in Lending Club. Our investment was more just play money to see how things worked, but returns so far have been surprisingly good, around 14% annually. I like it because it's so diversified with only $25/loan. You can maximize returns by picking better loans.

The passive income is nice because it'll allow me to quit my job next year and work on my startup full-time. I want to apply to Y Combinator and even if I don't get accepted I'd be able to bootstrap my startup indefinitely with our passive income. Hopefully it doesn't come to that, but if it does maybe I'll pivot around year 25 (year 50 at the latest).

If you purchase farmland, at least in the upper Midwest, you'll earn a 5-8% yearly dividend by renting it out, and there is little to no maintenance that you need to do yourself (depending on your rental contract).

This is an unlikely avenue for me given my geography, but out of curiosity and for the purposes of the discussion, are you basing the return on equity invested or on total value of the land?

Total value. Rental price per acre per year in my area of Minnesota is about 7% of the sale price per acre.

Any suggestions for more info on this? Books, how-to's, longer "this is what I did stories"? I could just start calling rural real estate lawyers and asking nosy questions, but maybe there's a quicker way. :)

I fell into it when my wife and I had the opportunity to buy a parcel of her grandmother's farm that was already being rented, so I don't have much more information than that.

Precious Metals. Gold and Silver Specifically.

edit: If you're in Canada, you can use ScotiaMocatta (division of ScotiaBank) as your broker Buy. online and they will deliver the metal right to your doorstep, or keep it with them in a safety box.


That's a speculation. Investments are returns on real value. Speculations are bets on unrealized value. The OP asked about investments.

Does this make angel "investing" more like angel "speculation"? Or even more so, Venture Capital primarily speculation versus investment? A legitimate question.

A little of both. Buying index funds is investing and buying gold is speculation, but there's not an excluded middle.

Anyone have a US-based broker recommendation?

You can just invest in the GLD exchange-traded fund (ETF) [1].

[1] http://finance.yahoo.com/echarts?s=GLD

ETF's are better than holding raw metals, i believe investing in raw metal or jewels is a myth, there is no buyer for raw gold/silver. Once you buy raw metal you end up with it for your lifetime or sell them for less (jewelers would give you less gold in a new design, after their 10-25% cut).

I invested in a CrossFit gym three years ago with 2 partners and we've done about 40x our original investment in dividends over the last three years. It was a lot of work the first 18 months, but now it's a solid business with good recurring revenue and a staff that runs it very well.

Are you opening additional locations? Was it a full-time job for the first 18 months?

No, for a variety of reasons. Mainly we always wanted it as a lifestyle business, but also due to location factors and not wanting to put in that much time again.

I'd say about 15 to 20 hours a week for the first 9 months, then declining to about half that after 18 months.

My personal blog http://www.russellheimlich.com/blog/

I run 2 Google Adsense ads on individual post pages and it more than pays for the cost of my shared hosting account. I haven't blogged in over a year after a pretty good run.

I also run http://dummyimage.com with a single ad which covers the increased monthly VPS cost to keep it running.

Shared hosting is $50/yr, tops. I made more than that while reading your comment. That doesn't sound like much of an investment :P

I invested the time getting it set-up, writing content, yadda yadda... In the past 12 months it has earned me ~$300. It's enough to fund other side projects.

I expect bitcoins to become significantly more valuable in the coming years, so I own about 100BTC.

IMHO that's speculating and not investing, if you subscribe to the Benjamin Graham school of thought. If we classify investing as betting on anything that could go up in value in the future, my best investment ever was at the roulette table, made 36x my money in under 30 seconds :)

Maybe the original poster should clarify more what they're after, - i.e. something that returns dividends/returns of some sort other, or just a capital gain at the end of the tunnel, or both, etc... would enable the community to provide more focused answers.

OP here: I don't have a hard time horizon or criteria on outcomes, just some idle assets that I don't want to put all into the stock market.

I believe there are lots of ways to generate returns on assets in compounding ways, and I'm interested in ways people in the HN community are using their skills, knowledge, and analytical brains to do this.

I'm not so interested in pure speculation per se -- in fact, one of my reasons for looking for alternatives to the stock market is that many stocks themselves meet the characteristics of speculation to me. (Just because you wrap it in quantitative comparisons to related-industry multiples and so on doesn't mean the whole market isn't overvalued.)

Thus precious metals, bitcoins, etc. aren't very interesting to me either, though they're interesting enough suggestions (as alternatives to leaving assets in dollars, if nothing else) for the purposes of this discussion.

That all said, I'm willing to take lots of risk in small doses, if the return dynamics are there.

Angel investing meets a lot of the criteria for me (and I've done some), but I don't have enough capital to make many bets of typical angel investment size, ie to have a sufficiently diversified portfolio to get EV returns.

Bitcoins are a bit like a pyramid scheme.

It's like buying a bunch of some cheap useless company stock, telling everyone to buy them, then you sell when the price goes up.

Deflationary currencies are like a pyramid scheme. Whoever gets in first wins big, while every successive person fights for an ever shrinking piece of the pie.

If you "expect" them to become "significantly more valuable", why do you own so little then?

It depends on your definition of "little"; that's nearly £900 worth.

True, but my point was that should never "expect" anything to happen with investments.

Maybe this is a difference in implications of the word "expect".

If you don't expect something to become more valuable, investing in it is a stupid idea, no?

This is the kind of implication I was shooting for: http://en.wikipedia.org/wiki/Expected_value

interesting. out of curiosity, what do you use for a trusted exchange and/or bank?

Mt. Gox.

isn't there some controversy re MtGox? E.g. http://www.guardian.co.uk/technology/2011/jun/22/lulzsec-rog...

The Bitcoin community as a whole is rather susceptible to blind optimism. Good characteristic in a mark, not so much in a financial investment.

They've had problems, just don't leave money there. Dollars or Bitcoins. Do your trade, pull it all out.

And store it where - on your hard drive?

A hard/usb drive somewhere, yeah. With backups.

...encrypted backups...

Domains - have my portfolio at hackernames.com. It's a good way to exercise your hacker knowledge and you can always use them yourself if you aren't able to find a buyer.

Forgive my bluntness, but my impression of domain sitting is essentially the same as patent trolling. It's not contributing anything to the economy or society, it just seems like legalized extortion of companies who just want to do business.

Is there something I'm missing about this?

This couldn't be further from the truth. Have you read Edward Bernay's book called "Propaganda"? Do check it out. Your impression of things is no doubt a result of a good spin job.

Domain investments are a proper alternative asset class and many people (some of whom have gone to the best schools in the world) are active players.

It seems like a bit of deflection to point me to a book written in 1928. My impression of domain sitting might be the result of spin, but domains didn't exist in 1928, so that book is not going to explain why what I said "couldn't be further from the truth."

I didn't say that domains aren't an asset; that has little to do with what I was talking about. I'm not saying they're not a good investment, I'm just saying my impression is that they're a kind of investment which does nothing to further society, like other sorts of investments do.

My comment was about the source of your "impression". I'm sure you'd agree that you weren't just say strolling along the banks of the Danube contemplating m-theory, when out of the blue - BAM! A thought came upon you - quite randomly - giving you the impression that you now contend you own.

So rather than post an emotional response, why not engage that no doubt massive neocortex of yours and investigate. I give it to you to decide. And of course I'm being snarky here, it's a shortcoming of mine ;)

On a different note, this firm has good research on the matter http://www.fairwindspartners.com/Why-It-Matters/FAQs/ (NB: I'm not affiliated in any way)

I'm a bit flabbergasted by your comments, but a quick look at your comment history doesn't indicate that you're trollish, so I'll try to answer under the assumption you comment in good faith.

I started by stating that my opinion was an "impression". Obviously by using the word "impression," which by definition means "an opinion (esp.) formed on the basis of little evidence," I was allowing that my opinion was influenced by external and implicit sources. I then asked for more informed input on the possibility that I was lacking an understanding of the issue.

Your response started with "this couldn't be further from the truth," from which I assumed you would go on to challenge the content of what I had said. Instead of countering what I said, or even providing input (which I would value, since you present that you know about this subject) you resorted to challenging the source of my opinion...the very opinion I'm trying to become more informed about. This is a red herring, and I tried to say as much. If you considered my response "emotional" then I'm sorry, but you misread my tone.

But all that said, I have given this independent thought and have come to the same conclusion: that by all I've come to understand about domain sitting, the act of buying domains that you don't wish to develop in order to sell them at outrageous markup later does not provide value to society, and in fact has negative value as it raises the cost of doing business without compensating by contributing value elsewhere.

Perhaps you misunderstand what I mean by domain-name sitting, which would seem to be true given the completely irrelevant link you provided above. The Fairwinds Partners' FAQ talks about having a cohesive domain-name strategy as part of a greater branding and trademark initiative. I fail to see its relevance to domain-name sitting.

"the act of buying domains that you don't wish to develop in order to sell them at outrageous markup later does not provide value to society".

First of all friend (may I call you that?), please chilax. No need to be flabbergasted.

A couple of points I'd like to make. To begin with, in my belief system, as the owner of an asset, you (me or WHOMEVER), has the right to do with that asset whatever you wish.

If you buy something - for whatever intention - I have no right to project my beliefs about what is or isn't appropriate use for YOUR PRIVATE PROPERTY.

As an example, if you were to buy a plot of land (whatever your intention), does someone have the right to say, "you're not adding value to society" because you don't develop it?

I'm a firm believer that if a person doesn't know or appreciate the value of something, they are not the best owner of it.

But that's another issue.

Imagine this. You and I both have an equal amount of free time per week - say 20 extra hours to do what we so desire.

I decide to play online scrabble, write random HN posts and yell at the screen when people get answers wrong on Jeopardy.

You on the other hand, decide to use your time doing other things. You spend hours: -reading through scientific journals (a good source of emerging technologies and future generic domain names that will be popular) -analyzing data from keyword research tools -charting data you found on DNSalesPrice.com

etc etc After putting in the work, you find and invest in a small portfolio of domain names.

Now, one day I read The Lean Startup and decide I want to have a go at this thing called a "start up".

Doing whatever research I so decide, I think up a domain name.

Now, it turns out that the domain name has been registered.

By whom?

By none other than you.

So, I send an email and ask you to quote me a price.

When I get an email from you quoting a price that's in my mind at an "outrageous markup" - I start blasting you on forums.

Forget the fact that: a) neither of us had some kind of unfair advantage. You decided to put in the work it takes to find and acquire these assets - I on the other hand decided to enjoy my leisure time

b) Another party comes along who sees the value in your "outrageous markup" and happily pays you. Not only that, they turn the investment they made into the asset they bought from you into a 25+% ROI (or more....far better than the stock market, wouldn't you agree?)

c) They also substantially lower their customer acquisition costs via their media buys with the right strategic domain investment (content on this relationship here - http://www.ozdomainer.com/domain-names-podcast-episode-19-wi... 15:30 difference between good domain and a bad one is [approx] 4 to 1)

One could go on, but I'll stop here.

I find it shocking when people blame other people for "extortion" for making smart business decisions that, had they had either the foresight or the work ethic, they could also have done.

It's one thing if one fraudulently stole someone's domain then demanded they pay you for its return. Bu when one party takes on the inherent risk involved in ANY kind of investment - then have others lambast them for doing so?

That I can't understand. Having said that, I'll end with a favorite quote of mine (paraphrased Emerson) - "I may not agree with what you say, but I shall defend to the death your right to say it".

Er, nothing you said contradicts what he said, and everything you said could be applied to NPE patent portfolios as well.

Try again?

Shhhh - you're breaking the code (of silence)!

Renting quality generics is a good way to go these days as well. Frank Schilling's portfolio collectively pulls more traffic per month than Twitter but he's still managed to largely stay under the radar screen....

How does domain renting work? My first thought would be as soon as the party paying the rent achieved some measure of success, the party receiving the rent could essentially extort them.

Not extortion, usually just a lease to own contract. Say you have a $150,000 domain and a startup wants it, they can lease for $4k/month and pay off the rest when they've raised their next round.


How often do you make a sale?

What kind of process do you use for the exchange? Do you have some kind of escrow, and if so who do you use for that?

Sales - depends on how many domains you own and how good they are. I make 5-10x returns on every sale though. For the exchange, I usually transfer within registry and only after receiving payment. I've used escrow.com twice for high value domains.

Can you elaborate more on how you make money from them? I have some interesting domains I've had for years -- selling or otherwise trying to monetize them seems interesting.

I sell through domain marketplaces like sedo/afternic/flippa/dnforum. I also reach out to startups directly that correlate to domains I own, it's a very effective way to sell domains. You can also develop them into SEO/amazon referral sites for product-related domains. I know a lot of people that make thousands per month off of pure referral sites, mostly auto-generated.

While interesting, actively buying/selling does not sound like "passive" income, though.

It's not my primary income, it's something I do on the side. Once you've bought a domain, you don't need to do much work after the initial parking setup, which takes about 5 minutes.

Poker. A good player has a pretty huge advantage over average players given a decent sample size.

I would say that poker is one of the least passive "investments" one could make, unless you spend your time training a bot.

Do you have a way to make money from poker that isn't a linear function of the hours you spend at a poker table?

Open a casino?

Don't average players not play for money? Also where do you find people to make money from, you can get a few K out of your friends but is it worth it?

There are plenty of people who play for money that are horrible players. I am going later today to play at a live spot in Ebro, Florida. The demographic is largely working class folks playing for the thrill and they're not the best players in the world. You can make 50 to 100 an hour there if you play your game right. As they say in Rounders, win one big hand an hour.

One big hand an hour is the definition of a linear return on time.


The point of the post is to discover passive investment opportunities, not employment options.

do you play live or online? and at what stakes?

Buy a house and live in it.

Personally i think a house you live in is a liability rather than an asset, it costs money, ties up a hell of a lot of capital and these days is a gamble on whether you'll get your initial investment back again.

I would tend to agree with that.

This being said, investing in real estate is the only way for a regular person to achieve a high leverage ratio, which is probably why people see it as such a good investment.

Joe Sixpack can also have high leverage through options contracts.

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