Crowdfunding, peer to peer investing, and passive income

When I started this blog a few months ago one of the things I wanted to experiment with was generating income from sources other than my job. The aim is to reduce my hours a bit and have more time for artsy things. Actually I’ve not really got to the point of generating any extra income but I’ve pulled the trigger on the reducing my hours and will be doing so next year anyway now. That’s quite an incentive to try to get some of these internet income strategies to work a bit better.

Early on in this experiment I came across the phrase ‘passive income’, which doesn’t quite do what it says on the tin (you can read my carping on about this here). One of the ways you can generate passive income is to invest in things that pay interest or a dividend. This is actually something I’ve been having a go at for the last 3 years now, with tiny (but increasing) amounts of success.

I’ve been particularly interested in investing through peer to peer, or crowdsourcing platforms for investment, and have active investments now in three different platforms, Abundance (peer-to-peer lending for investing in renewable energy), Zopa (peer to peer lending) and Property Partner (crowd funded property investments). I like the idea of crowd funding and peer to peer as they feel a bit more democratic, and a bit more ethical (I know that none of my money here is being invested in fossil fuels or weapons for example), which has led my choices here.

 

From an ethical perspective I like investing in Abundance the most (this was also the first platform I ever did any kind of investing through, and made the process very easy without pretending to be risk free). This is a platform where companies seeking to develop and install renewable energy systems (wind, solar, biomass) can raise funds through the contributions of multiple investors in the form of debentures (long term loans). So many individuals invest little bits of money to make up they whole value of the loan. These are long term loans (up to 20 years) that are paid back twice a year in instalments with a good rate of interest (ranges between 5 and 7% on the projects I’ve seen). I really like the platform, and find it easy to use. You can also start with tiny amounts of money, and build up a little portfolio of projects over time, which is great fun. The issue I have had with abundance recently is that there haven’t been many projects to invest in, possibly in part because of the UK Government’s rather backward and disappointing approach to renewable energy in recent years.

I also lend some money through the peer to peer lending site Zopa. I only have a small amount of money in here so far but the return is relatively good (hovering at 4%). The idea here is you invest however much money you want to and Zopa slice that amount up into £10 chunks and lend it out to different people who are seeking loans. Again the loans get paid back to you over a period of years and you earn interest on them in the process. I find the platform easy to use, and there are a range of products available. It won’t make you rich but the rate of return is better than the majority of savings accounts at the moment. The risk with both Zopa and Abundance is that the people taking out the loans could default on them, meaning that there is a small risk that you can lose your money here. Both companies have strategies to minimise this and it is worth reading about these before you take the plunge.

Finally, I’ve actually really enjoyed investing in residential rental property through the crowd funding site Property Partner the most. Unlike the majority of routes into investing in property, through this site you can start with comparatively tiny amounts of money. The minimum investment amount is £50, and you can make regular contributions over time to build up a little portfolio. When you invest in property through the site you effectively buy shares in different rental properties (all residential properties). I really like that the site makes investing property accessible to people who are normally completely priced out of owning property.

There are 2 ways in which you can earn money back on your investment here. You can buy a few bricks in a property, hold onto if for a few years and hope the price of your shares go up, which given our current wobbly post-Brexit market is absolutely not guaranteed, indeed the value of your shares could go down. The second way, which I am more interested in, is to buy a few bricks in various properties over time, each of which generates a few pence or a few pounds (depending on the amount that you invest) in rental income each month. Even if you don’t have much to invest, if you can manage to invest a little every month, over time it could be possible to start generating a rental income that adds up to more than a few pence. There is always the risk that your properties can remain empty so will not earn rental income, although I’ve not had this problem so far. I’ve done my best here to invest small amounts of money in multiple properties to minimise the impact of empty flats.

At the moment both Property Partner and Zopa have a ‘refer a friend’ deal going on. If you use the links in this article to open an account and invest (or take out a loan too with Zopa) we’ll both get a £50 bonus, which is nice. The snag is that both sites require a minimum investment, £1000 for Property Partner and £2000 for Zopa, to earn the bonus. This feels like quite a lot to me, and is certainly more than where I started for any of these platforms. However I’ve not been disappointed by any of them so far, and have earned more in the way of dividends and interest than I have on other traditional savings accounts.

Business bites: Ethics and affiliate marketing

When I set up this blog one of the things I was interested in learning about was if it was really possible to earn a living by being ‘online’. I’ve been exploring how to do that and have read one or two (badly written) books about earning ‘passive income’ that didn’t really help me that much. I’m not going to name names, but I felt that had probably been written at speed, possibly as an attempt to create a passive income product in themselves, and lacked practical detail.  Both had an underlying passive aggressive tone that suggested that anyone who wasn’t trying to set up their own online empire was basically an idiot. This is of course rubbish. There are many splendid and enjoyable ways of making a living that don’t involve owning a website.

In the last 2 weeks I’ve been looking at the idea of affiliate marketing and found a bit more concrete information. The idea is that you can sign up for an account with programme like Amazon associates  and they will then pay you a small commission every time they sell something through a recommendation you make on a blog or other social media platform. For Amazon affiliates the process is that you open an account that will allow you to search for products that you have used. It will then generate a link for each product that you select. The link has a special bit of computer code in it that will connect to you and your account. You can then use this link in your blog posts – if anyone clicks through from your blog and goes on to buy the product you get a little kick back.

The psychological principle behind this is a simple one. People are more likely to buy something when someone they know and trust has already tried it, liked it and recommended it. I studied the principles of persuasion through my PhD and I think the evidence then (8 years ago now) was pretty strong in suggesting that personal recommendations will be far more successful in selling a product than advertising alone. So the psychology behind this is pretty straight forward, however it does leave the affiliate with an ethical problem. The more things you link to, the more your earning potential increases. This in itself isn’t ethically problematic, but it leads to the temptation to link to just anything you happen to see while browsing. Given that the principle is based around trusted recommendations, it’s a breach of that trust to link to things that you’ve not tried, or that you don’t like or didn’t find helpful. So I think it is possible to be an ethical affiliate, and but it takes a little thought about what you are linking to.

I opened an account last week (it was very simple to do this – I’ve linked the site above). I’m going to be using affiliate links in the blog to see whether in reality you can make much money this way. My blog currently generates very little traffic so I’m not setting high hopes for this experiment, but will update you if I turn out to have been wrong on that. My ethical line on this is that I’m only going to link to products or books that I have used or read myself AND have found helpful.

 

The secret to passive income? It’s not that passive

For a while now I’ve been looking at alternative ways to earn money. I have a good ‘day job’, in which I think the work I do is worthwhile and important. But it’s stressful and I’ve been having anxiety that is increasingly difficult to deal with. I wanted to find a way to ‘buy back’ a day a week for my self so I could go a bit part time. I was intrigued by this idea of ‘passive income’ as the name suggests that you can earn money by not doing much. That sounded pretty great, but I wasn’t convinced it was a real thing. So I started doing some research and discovered a whole industry composed of people doing inspirational things. Who’d knew? You are just one Google search away from a world of blog posts, kindle books and YouTube videos describing all the ways in which you can earn passive income. And there are loads, but there are catches to all of them;

Owning things that make you money – so owning stock or shares in companies that pay you a dividend on a regular basis, or property that you can rent out. So technically you don’t do a huge amount for that money. But here’s the thing, unless you happen to have already been born into wealth, have recently inherited money, or have been lucky enough to win a substantial sum of money you need to work pretty hard up front to get accumulate the kind of capital to make this work. You need to invest quite a bit for the dividends to significantly contribute to your income stream. That doesn’t mean it’s not worth doing, but it’s not that passive, it’s a big investment of time and money.

Lending other people money – so making loans to people through peer to peer lending and earning interest on the loans. Again you don’t do much but ditto the above regarding the money you need to invest up front.

Advertising revenue – so if you write a blog or own a website (that people like visiting) you can then earn money by selling adverting space there. So while you don’t create the adverts or advertised products, you probably need to work quite hard to create a popular enough site to create an environment that would be attractive to online advertisers.

Writing e-books, creating online videos, online courses – lots of work here. Creating quality content takes time and effort, if you already have a day job this could be tricky.

Licences for creative content – so if you take good photos or create art of some kind you can sell this to people through online channels. It may be enjoyable, but creative works can involve, well a lot of work

Running an online business, selling things through online platforms – you may do it from your bed in you pyjamas. It’s still work.

So there seem to be lots of ‘passive’ ways of earning money, but to me most of them look more like freelancing or working for yourself. I think all of these things are great, and worth doing. With the advent of crowdfunding approaches to investing (e.g Zopa, property partner) it’s possible to start really small and build up over time. But the big secret? It’s not that passive. Folks, you just don’t get money for nothing.