Baron Rothschild said “buy when there is blood in the streets.” With all of the bad news around home prices, there certainly is sufficient blood in the streets to consider investing in the homebuilders. Much of the blood in the streets is red ink spilling out of the homebuilders' financial statements - they are losing a lot of money on their inventory of homes already built, and are selling vacant land that they purchased at higher prices for home construction. WCI Communities, a publicly-traded home and condominium builder declared bankruptcy recently, as did privately-owned Levitt & Sons. Homebuilders Tousa, Kara, and Neumann Homes also sought bankruptcy protection within the last year. However, despite the awful market conditions, not many publicly-traded homebuilders have gone bankrupt. Granted there are some that are weak, and the industry is clearly suffering the worst homebuilding environment in decades - maybe even generations, but the current bad news is already price into the stocks for these companies.

It is interesting to note though that with much less building housing starts on an annualized basis have declined to below 1,000,000, historically recessionary levels from which housing turnarounds have begun. Furthermore, single-family housing starts have declined to the point where there are fewer homes being started than are being purchased so that the inventory of new homes is starting to decline. Granted there is a large inventory of used homes (called existing homes) for sale, and with foreclosures rising there could be more.

This writer believes that Toll Brothers (symbol TOL), a luxury homebuilder, and an S&P homebuilding exchange-traded fund (symbol XHB) are reasonable purchases in today's risky homebuilding environment. There is a lot of risk in the homebuilding companies today, but there are also conditions being established for a turnaround. There will be further volatility in the sector, but with so much bad news already priced into the stocks of these companies, the downside risk seems bearable; whereas any good news in the sector could signal the end of a trying couple of years in a battered industry and reward patient investors with returns above that of the general market. By the time the headlines tout the positive trends for homebuilding companies, much of the stock price gains from the turnaround will have occurred.

Linear income is the type of income you receive when you go to a job, work and then get paid on payday. The effort you put in is directly related to the pay you earn. Unfortunately, if you cannot work anymore or don't want to work anymore, your income will cease.

Here are three of the best kinds of passive income strategies you can set up now and be paid for many years down the road.

Real Estate

How often do you hear about people getting wealthy from real estate? Or how many books have you read on how to buy investment properties? Real estate is a proven path to wealth.

With real estate, the safest strategy is to buy and hold. Mike Summey, the author of The Weekend's Millionaire's Secrets to Investing in Real Estate, advises the novice real estate investor to start out purchasing only single family homes in a 10 mile radius of where you live. This way, you will be able to familiarize yourself with the neighborhoods in which you will be buying properties.

As long as your cash flow is positive, even if it by only $50 per month, after you collect rent from your tenants and pay the mortgage, taxes, property manager and repairs, you will be on your way to investing in more properties.

Mike Summey states that because each year, you can raise the rent by a certain percentage and your mortgage principal will be lowered, your positive cash flow will increase every year until the loan is paid off. At that point, you will get to keep almost all of the cash flow from the properties.

Royalties

Another type of passive income is earned from royalties. If you are a songwriter, author or actor, it's possible to be paid royalties on your work when someone plays your song, buys your book or when your show is syndicated on television.

Another way to earn royalties if you are not a songwriter, author or actor is to write articles for websites like Associated Content or Triond. Associated Content pays you both up front for writing an article and per page view when someone clicks on your articles.

Triond does not pay upfront for articles but they do share one half of the residual income they receive when someone clicks on an ad shown on the same webpage as your article. Triond and Associated Content pay monthly royalties.

Dividend Reinvestment Program

Dividend Reinvestment Programs, otherwise known as “DRIPS”, are offered by certain companies to shareholders as a way to be able to buy stock directly from the company, instead of using a broker. You can buy stocks in small amount in this type of program.

According to Motley Fool (fool.com), the plans also reinvest all or part of the quarterly dividends back into the company's stock. This is an easy way to set up passive income because you can set up automatic deposit in to the company's stock account and then set it up to automatically reinvest the dividends.

If you invest in 3 different stocks that have a staggered quarterly dividend payout, it's possible to be paid dividends each month of the year. For example, General Electric pays dividends in January, April, July and October. Clorox pays out in February, May, August and November. 3M pays out in March, June, September and December.

If you have built up your volume of stock and are paid a substantial amount of quarterly dividend, instead of reinvesting the dividends, you can opt to be paid by check and use this as your passive income. A good resource to find out more about DRIPS is their website.

As you can see, there are many ways to build up your passive income so that you can avoid working for linear income. I have only touched the surface of this fascinating subject.

Key One is stick to the fundamentals

Base you budgeting assessments on guaranteed income. Don't make the mistake of predetermining possible flows of revenue. This kind of financial anticipation can lead you down the path of bankruptcy.

Key One A

Two out of three people who attempt a long term second job are able to sustain two jobs and a home life. There is also a good possibility that a second job may even yield less by boosting you into a higher tax bracket. That extra $150 a week may yield less that half after taxes. A point which can demoralize even the most positive person after a 60 plus hour week. If you do take a second job the best route is to wait and see if you can handle the hours physically and mentally. Then when you are certain you can budget in that money.

Key Two

Look at personal finance budgeting as you would goal setting. Map out short term, medium term and long term plans. Go over your budget history as you go along and adjust as needed. Don't be stubborn allow your goals to be flexible as you can't plan out for the unknown good or bad. Being rigid will only lead you down the road of despair. Brian Tracy a world renown business and life coach preaches the acceptance of things will go wrong. This attitude will take the edge off of anything thrown at you within reason. Again, the keyword is accept not expect or worse be paranoid about the what ifs.

Key Three

Don't mortgage the future for the now or mortgage the now for the future. As many people put the weight of world on their shoulders by overworking and living spartan lives to create the future as those that live in the now undermining their future. Either way destroys morale, family and relationships. Strive for Balance in your daily living. Plan at all times to have time for a life. We are not superheros. We have needs and reasons for relationships and purpose in life. Your financial planning has to take this into account. Yes, it may take longer to reach your goals. The benefits are maintaining relationships, physical health and the original objectives of your goals.

Key assistance

Do you need expensive software or have a need to hire a full time financial planner? Most of us regular folks (never say ordinary because you are not) really don't need to. Barbara Swenson in her article Budgeting Your Money So You Don't Go Broke points out this free (yes our personal finance budget loves that word) alternative: Instant Budget Maker hosted at CNN a trusted name in news and finance.

Infusing the keys into your personal finance budgeting.

This is an art not a given. Have a sit down with a financial planner if you can. Use resources like Instant Budget Maker. Think twice before buying a software like Quicken or others if you normally do not use software of this nature. Purchasing a software you will not use in the long time is not an investment (a common word use to justify frivolous buying). Unlike that exercise equipment you don't use, expensive software cannot double as a clothes hanger.

Do your homework and get as much information as you can. I avoided discuss risk taking here. The reason being is first before you can take risks, you need to build a solid foundation. Ask questions and don't go by the sit of your pants. If you are single your main concern is being realistic. You can't plan for suddenly being in a relationship. Whether single, in a relationship, or (worse) married you have to nurture yourself (or selves) and your environment. This is overlooked by many who on the surface are considered a success by reaching their financial goals but have little else than material things to show for it. "Sitting in the night savoring a vintage wine is satisfying moment. Sitting in the night savoring a vintage wine with the right person is a satisfying moment which you will savor over time."

There is something called risk pyramid, which shows that the more risk you are willing to take the more returns you may expect to target and vice versa. For example you are investing a major portion of your money in anticipation of greater returns. Also you are willing to lose that entire money in the face of a crisis. The reasons could be different. May be you could earn that money easily or may be you are so young that you need to bother. Whatever it is, that kind of investment is proper if you are willing to take risk.

On the other hand if you do not wish to lose all of your money but only a partial amount then you should invest most of your money in either balanced mutual funds or bonds. The rest, which you could afford to lose without any loss to your normal financial life, can be invested high risk equity funds or directly in stocks.

Stocks when invested in a particularly fast growing company could give a boost to your capital. But if you enter at wrong time or if you controlled greed and fear then it can land in ditch.

Knowing your risk vs. return attitude really helps you do proper asset allocation for investments to meet your financial goals.

After deciding a top level allocation like bonds, mutual funds and stocks, you should also decide to invest how much in certain type of bonds, balanced funds, equity funds, small cap stocks, mid cap stocks and large cap stocks. This division is important as it makes you disciplined and well planned in your investments. Often it is said that it is not important what your plan is but that you have a plan for your investments is very important.

Doing this, in the beginning of your journey of investing, will not make you regret later.