Money is king!
This aphorism from real estate investing perfectly describes the little-known method the rich actually use to accumulate millions of dollars. This report reveals 20 sources of passive income. Put one or all of these sources in place, and sit back and watch dollars roll on without any (or very little) additional effort on your part.
If you really want to get rich and live a luxury life, you have to master the ability to generate cash flow from passive income sources. Without this opportunity, your income will be limited to traditional ways of making money, such as working. Working will never free you from having to work. You need to do something other than work to get the income you need to live the lifestyle you want. Passive income is key.
Before embarking on an investment plan, the first rule is to consult a qualified investment advisor. By talking about your plan and considering opportunities that you may not have considered, you will protect your capital to the greatest extent possible and help protect it from potential loss as you multiply your return.
This article does not consider the cost of access to investment, nor do we look at return rates. These will fluctuate – possibly every year or even over a year – depending on the economy, matters set by the SEC and other regulatory agencies and the IRS. This article will address only the 20 possible sources of passive income; you will need to do further research to determine if an investment is right for you.
1. ETFs – Exchange Traded Funds – This is a fund that tracks the performance of an index like Dow Jones or Standard and Poor 500, a basket of assets or a commodity. Trading the same way as a stock, its price will vary depending on the days of trading required. The benefits of owning an ETF include the ability to buy cards, buy on margin and buy as little as a stock. Expenditure ratios are often lower than mutual funds. A regular ETF is called a spider – SPDR – and tracks the S&P 500 index. Look for the symbol SPY to research or buy.
2. REIT – Real Estate Investment Trust – One of my favorite investments because you own a portion of real estate (or mortgage) that the trust invests in. These also act as a stock on the stock exchanges. An equity REIT buys ownership (equity) in properties, while a mortgage REIT buys mortgages on properties. Two key benefits of owning a REIT are the tax benefits and the liquidity of the security – you trade it just like a stock.
3. Canadian Oil and Gas Trust – This is an organization that invests in oil and / or gas production and possibly mining in Canada. Several of these are now trading on the US stock exchanges. Buying is the same as buying a stock in any other company. Tax benefits equate to a REIT and a major benefit – the one I like the most – is that some of these trusts pay ridiculously high dividends – and they pay monthly! My advice: do your research, find a Canadian oil and gas trust you like, and invest as much as you can.
4. MLP – Master Limited Partnership – Want a limited partnership that you can sell or trade as easily as a stock? Enter into the Master Limited Partnership. These hybrid organizations have a limited responsibility for a partnership while allowing you to trade with the partnership entities – investment entities – just as you would a share. What could be better? An MLP offers distributable cash flow as well as income, and these conditions must be mastered and understood before a reasoned decision can be made to purchase an MLP for your investment portfolio.
5. Annuities – Who hasn’t heard of an annuity? But do you know how they work? Let’s keep this simple: an annuity is nothing more than a contract you sign with an insurance company that guarantees to pay you a set amount of income over a period of time. You pay for an annuity upon signing, and then the insurance company repays you the investment amount plus the “profits” (we keep this simple and don’t use the technical term) over a period of several (or many) years. These are generally considered as safe, stable investments suitable for a conservative portfolio.
6. TIPS – Treasury inflation-protected securities – Offered by the U.S. Treasury, these are securities that are indexed to inflation, which means your dividend will increase as inflation rises. A TIP pays interest every six months and pays the principal at maturity. Also a conservative investment, it might be a good idea to consider these if you want to preserve and protect capital against invalid inflation while providing a consistent and reliable income, but your money may not grow at the rate you prefer – but then we are not at all capital value.
7. Dividend Paying Shares – Finally, we come to what is perhaps the best known method of passive income. Anyone who knows anything about Wall Street knows that companies pay dividends to people who own their stock. Right? Well, most of the time if it is a well known and established company. Many newer and smaller companies will use their income to grow the business rather than pay dividends, and any company that incurs financial problems can stop paying dividends. So, if you want to buy shares to acquire the income, make sure the company has a record of dividend payout. The best known American companies – often referred to as “Blue Chips” are also the companies that have traditionally paid the best dividend. As with any other investment, research is needed to capture the best return and target those companies with the best potential in the coming years.
8. Covered Calls – This is a passive investment instrument that is often considered risky. But it is not. A covered call sells the opportunity to buy shares that you own. You do not sell the stock, you only sell the opportunity to buy this stock at a future price and time. The person buying the covered call buys the option at the price you agree on – actually to which the market agrees – and you just have to return and forget it. Well, not quite. The person who purchased the option has the right to purchase your stock at any time between the time you sold the option and the expiration of this option. Writing (selling) a covered call are the only investment options considered safe enough by the IRS to be included in a 401K or other retirement plan. But you must do your homework and thoroughly understand the world of possibilities before using this method.
9. Real Estate – Everyone knows what real estate is and everyone knows – or at least is intuitively aware – that real estate can make big money. Real estate provides tax benefits as well as the ability to greatly leverage your investment – leverage is a factor that is limited or absent in many other investments. Many real estate advisers and gurus insist that one house at a time or the flipper strategy or fixer upper or wholesale method or other month flavors is the absolute best way to make money on real estate. In general, avoid all that. Making big money – which means massive income – in real estate is possible with highly leveraged agreements that are only a certainty in commercial real estate. Multiple family properties, office buildings, retail facilities and warehouses would all constitute commercial property. Of these, the best strategy is to invest in multiple family properties. The bigger the better. This requires knowledge and education more than it requires capital. Capital can always be acquired through your network, but knowledge is the ingredient that makes this passive investment method work. And with a large property, the income from that one property can be all you need to secure your pension – today!
10. Business Ownership – No, that’s not what you think. Owning a small business for most people is worse than working 9 to 5. In your own small business, you get caught up in the details, try to get the business going, search for a market, trade with customers; it quickly becomes more than a full-time job. It’s OK if that’s what you love to do. But what we mean here is to start a business or franchise with the short-term goal of handing it over to someone to run. The faster you can do this, the better. If you can do it all the way from the beginning, the better – the more time you release for yourself, the more time you’ll enjoy and / or create more passive sources of income. One book that will help you is The E-Myth Revisited by Michael Gerber, another is Four Hour Workweek by Timothy Ferris. Both of these books will help you structure your business ownership in a way that frees you from actually running the business yourself – margaritas on the beach anyone?
All of these sources require setup work, but once established, they can be structured to run hands-free. The two books mentioned in paragraph 10 above will help you structure your passive income sources to be truly hands-free income.
11. Private Lending – Private lending has been around since people have been there. In essence, private lending is nothing more than lending some of your excess cash to a reliable person who needs it. This has not always been easy or fruitful for the person who has had the money they wanted to invest. As a result, there are now several online services available that accept your money and distribute them under your direction to those you feel are qualified person-to-person lending on the major search engines to identify organizations you can use. The main advantage of private lending is that interest rates are often much higher than you would get by parking your money on a CD or bank.
12. Tax Collection and Notes – A primary benefit of tax loans is the highest interest rate you receive on your investment plus the fact that your principal is backed by real estate. Note that you will almost never receive the property by investing in tax liabilities, mortgages or banknotes; The primary benefit is the favorable interest rate and collateral arising from a real estate transaction. Avoid organizations that suggest you receive the property against which the tax instrument is against. Another benefit of this type of passive income is that you can invest online from just about any state in the country – be sure to review Texas tax filings, interest rates can be as high as 50% annually in some cases.
13. Bonds – Okay, you know about bonds – they’re a conservative investment for old people and people afraid of the stock market, right? Wrong. A bond can provide a secure and stable source of income for anyone. By definition, a bond is a debt issued by an authorized organization – often a corporation, municipality or utilities company. A bond sells for the issue price, becomes due (repayable to you) to the principal (face value or nominal price) and in between you collect interest called the coupon rate. Bonds are often bought in the form of mutual bonds. Some of these can be very lucrative with dividends exceeding equity funds, but they are often difficult to find. But they are there!
14. Mutual Funds (Income Funds) – Since we only consider sources of passive income, we only consider income funds. These can be called “growth and income” funds or “income” funds or “value” funds. Almost every Gensel fund family has their own set of income or growth and income funds. Morningstar and other services provide third party assessments that you can use to identify the safest and highest paid income funds. Invest wisely and always consult a qualified investment adviser before investing. Mutual funds are also required to send you a prospectus (a formal disclosure of the fund objectives and operating guidelines) for your review before you can invest. Carefully review the prospectus and consult with your terminology financial advisor you may not understand.
15. T-Bills, T-Bonds & T-Notes – Treasury Bills, Treasury Bonds and Treasury Notes – Considered to be the safest of all investments because issued by the US Treasury, these vehicles are also among the lowest. But you sacrifice returns for security every time you invest. T-bills, bonds and banknotes are most often purchased through your bank, broker, or they can be purchased directly from the US Treasury through their Treasury Direct online service. Even if you do not want to receive a high return, the security of your investment cannot be higher than it is with these investments.
16. Unit Investment Trust – An Investment Investment Trust is one of three different types of investment companies, the others being a closed-end fund and the well-known mutual fund. ITU offers securities in the form of “units” representing a unit in their investment portfolio. This portfolio is often an unmanaged portfolio of equities and bonds. Units are usually sold in quantities of $ 1,000 and investors or “unit holders” receive dividends from the units they own. A unique feature of an ITU is its termination date. Unlike most other corporations and investment company organizations that exist forever, an ITU has a defined termination date set at the start. When this date arrives, the ITU will be terminated and the activated assets will be sold. The proceeds from this sale are then distributed to the unit holders.
17. Preferred stock – A preferred stock is a security issued by a company that usually has a certain dividend rate. Preferred stock usually does not have voting rights, except sometimes in extraordinary events. Preferred stock is also given priority over common stockholders when dividends are distributed – preferred stockholders must be paid first. And preferred shareholders also get preference if the company ever dissolves. Your rate of return on the preferred stock may not be high, but the security of your investment is higher than that of more risky investments.
18. Corporate Backed Trust Securities (CABCO) – Also known as Corporate Asset-Backed Securities, these investments are issued by companies and are based on a pool of underlying assets. The cash flow from these assets yields the payments made to the security holders. The asset pool can consist of almost any asset that generates a cash flow. Usually sold initially to an organization by a market maker, such as an investment bank, these securities can be resold to the public by the broker. Contact your broker for more information on these types of investments.
19. Music Publishing – Don’t Know About Music Publishing? The artist may get the credit (and often the money), but the publisher always gets the money. If you own the rights to a song or sheet music, you are a publisher and you get paid every time that song is played or performed publicly. Although the current rate is only 8 cents (US) per “Performance”, think of all radio stations, bars and clubs in the country where your song may be playing right now. Yes, bars and restaurants have to pay you when your song is played in their establishment. You don’t have to worry about going to every bar, hotel lobby or elevator or restaurant (More places!) In the country to collect your eight cents – this is handled by any (or any combination) of only three organizations that manage virtually all music around the world – ASCAP, BMI and the Internet SoundExchange. Yes, you need to register with these organizations so they know where to send your checks, but this can be a very lucrative source of passive income.
20. Copyright, Patents and Licenses – If you are an author, you get paid every time a book of yours is sold. OK, this is obvious, but you can also re-publish public property under a new copyright if you change it by at least 20% or add at least 20% more material to it. The easy part (some would say not easy) is to write the book itself. The hard part is getting other people to buy it, it involves marketing that is out of the reach of this article, but if you can get a bestseller on your hands, they can receive royalties (payments you receive from being a copyright owner ) be very high.
A patent is an innovation (process) or invention (thing). You get paid when the product represented by the patent is used or sold by another organization or the public. The patent protects your right to the exclusive ownership of this process or invention for a specified period of time.
A license is also possible to sell to the market. What if you know a particular process or procedure that nobody else does? Can you sell this knowledge? Yes you can. And the way to do that is to license an organization to use your knowledge in the form of a process or procedure. Check out inventright.com for a guide on how to do this.
21. Movies and other obscure investments – We live in a dynamic world and there will always be investment vehicles that are thought of as a need. There are also several obscure investments, but generally they are unknown outside their particular industry. Movie investment is one of these. Films often need financiers who are ready to finance the production of the film project. When the film is released to the public and starts making money, the financiers get their capital and return on investment. This can be a great way to make a lot of money if you back a blockbuster or a good way to lose a lot of money – look at how many movies are doing poorly. Do not invest in this vehicle unless you are an insider in the industry.
Other obscure investments include exploration financing, water rights, coal leasing, limited partnerships, advertising and commercial financing (yes, TV commercials and infomercials), debt financing, sports team property, etc. Contract. If you have an interest in investing in one of these areas, find someone with excellent knowledge of the area and with a good track record in investing in this industry. Consult them intensely so that you can guide your investment decisions. In general, the best policy is to invest only in the areas you are familiar with and never, never invest more than you can afford to lose.
Passive income investment is the key to securing income. Income is cash flow. The cash flow is king. You cannot invest future income or an expected return or any equity position; You can only invest the cash you have today. Likewise, you cannot pay bills or buy groceries or pay the mortgagee or taxman with anything other than cash or credit. An expected return or equity position does not pay today’s bills or put food on the table. Capital value is great – tomorrow. I prefer cash in hand today. The more cash flow you get in now, the bigger the tomorrow. Guaranteed!