Many successful entrepreneurs utilize income-generating assets to ensure multiple, steady streams of revenue. By maintaining a diverse portfolio of income-generating assets, investors can ensure they are generating consistent money over time.
The best thing about income-generating assets is that they are not exclusive to experienced investors. With the right research and planning, anyone can get started investing today. Whether you are fresh out of college or are approaching retirement, there are opportunities to build wealth with income-generating assets and achieve financial freedom. Keep reading for our list of assets that generate income and learn how to get started today.
What Are Income Generating Assets?
Investing in an income-generating asset involves paying money now to acquire an asset or account with the intent of generating more income in the future. These assets are attractive because of their ability to generate consistent, stable income over time. While it is rare to find investments that are entirely passive, income-generating assets often require medium- to low-levels of involvement. The time frame and potential returns will vary depending on the type of investment chosen.
It is important to differentiate income-generating assets from non-productive assets. A non-productive asset refers to investments that hold value without generating any further income. For example, while a car may be worth a lot of money it is not classified as an income-generating asset. Even if this asset appreciates in value because it is not creating cash flow it is not considered an income-generating asset. Some examples of income-producing assets include real estate properties and real estate investment
The most common way to start investing in income-generating assets is to rely on income from a primary job or money from existing savings. Investors can simply choose to redirect those funds towards an investment that will generate passive income over time. Aspiring investors should take time to do some financial planning and determine the level of funds they will be working with, and how to best devote them to potential income-generating assets.
If you are starting out with minimal capital, there are still options for getting started. Be sure to check out guides on how to raise capital and get more familiar with fundraising for investments. Many investors will take a more active role at the beginning of their careers to set a strong foundation for future income-generating assets. If the idea of raising capital sounds intimidating now, there are also examples that require low levels of money to get started. For example, savings accounts and CDs often do not require minimum net worth’s from investors.
One of the most important things to remember as you get started investing in income-generating assets is the importance of a diverse portfolio. The most financially savvy investors often have investments across different platforms. A diverse portfolio can serve multiple purposes, but perhaps most importantly it can offer a degree of protection in the event one of your investments is not profitable. Diversifying your investments can also stagger your income and help you receive regular revenue across different sources.
7 Assets That Generate Income
There are several types of income-generating assets ranging from real estate, stocks, savings accounts, certificates of deposit to private equity. Each of these is going to have its own pros and cons, which are important to keep in mind as you consider which will be best for your portfolio. As you review our income-generating assets list, try and consider the cost of entry, potential returns, level of involvement, and feasibility of each investment opportunity.
Finding the right combination of assets to achieve your financial goals will be entirely up to you, but by doing your research you can help ensure you are prepared to make smart investment decisions. Here are some of the most common income-generating assets to be aware of:
- Real Estate Assets
There are several real estate investing strategies that can generate consistent revenue; however, one of the most common is investing in rental properties. This consists of purchasing a home or multi-unit property and marketing to tenants to earn rental income over time. Rental properties offer the opportunity to generate steady rental income over long periods of time. By hiring the right property manager, you can ensure your rental property runs smoothly—without a high level of involvement on your behalf.
One of the most attractive perks of investing in rental real estate is that it can enable investors to increase their wealth without significant capital upfront. Additionally, real estate investing can provide the opportunity to expand your portfolio more rapidly when compared to other investing opportunities. For example, you could purchase a single-family home to begin renting out. You could then use the income generated from this property to purchase another rental property, thus adding another income-generating asset and expanding your investment portfolio.
There are a few different types of real estate to consider, ranging from a single-family home to an apartment complex. The property type is based on the number of units available and depending on your investing goals some may seem more attractive than others. It is common for first-time investors to opt for duplexes, triplexes, or quads and live in a unit while renting the others. However, larger properties (meaning those with more units) typically signal larger amounts of capital required to get started and increased levels of involvement.
If you are intimidated by the prospect of owning properties, but still find yourself interested in real estate, REITs can be an attractive income-generating asset. Real estate investment trusts are like investing in stocks, but they are specifically real estate-oriented companies. Real estate investment trusts can specialize in apartment complexes, office buildings, storage units, or even parking garages. Entrepreneurs who choose to invest in REITs will be able to work in the real estate industry without walking through the up-front costs and set up of acquiring properties. Read our guide on REITs to learn more about how to get started.
Stocks refer to investments in business equity and allow investors to generate income through several means, not the least of which are dividends. More importantly, dividends are rewarded over time and do not require a significant amount of capital to benefit from.
It is important to know the difference between investing in individual stocks and investing in mutual funds. Individual stocks represent the opportunity to buy single shares in a company, as a way to test out the industry. On the other hand, investing in mutual funds involves investing in different stocks across several companies. Because mutual funds are more diverse than individual stocks, they provide less risk; however, individual stocks can yield potentially higher results. If you are interested in investing in stocks, be sure to familiarize yourself with the stock market and get a better idea of the types of companies you may want to invest in.
Among the best income-producing assets is large-cap dividend investing. Commonly known as the “Dividend Aristocrats,” these blue-chip companies in the S&P 500 are known for consistent increases in dividend payouts. Dividend stocks derive from companies that are well past their growth state meaning they exhibit much more stability than younger, growing companies. While dividend investing can be a reliable income-producing asset, several tech companies, including the internet and biotech, commonly do not pay dividends. Most of their retained earnings are reinvested back into their company to maintain further growth.
- Savings Accounts
Savings accounts are one of the most straightforward assets that generate passive income. Opening a savings account at your local bank will allow you to earn revenue from the interest your own money accrues over time. Depending on the type of account and interest rate, the potential income will vary. Typically, investors can expect between .01 and .30 percent back on the amount put into the savings account. While low-interest rates may result in lower returns (when compared to other income-generating assets), savings accounts do offer the benefit of liquidity. Investors will often be able to access these funds on short notice.
There are also high-yield savings accounts, which differ slightly from traditional savings accounts because of their high-interest rates. However, they are often only found at online banks, which leads to some downside. Investors may only be able to add money to the account through online transfers, and any support issues will often have to be dealt with online or over the phone rather than in person. The tradeoff between convenience and higher interest rates is something to consider as entrepreneurs' research savings account options.
- Certificates Of Deposits
Certificates of Deposits (CDs) are considered time deposits and can be thought of similarly to savings accounts. Investors simply invest a set amount of money and earn income through interest accrued over time. The main difference between CDs and savings accounts is that CDs will require set amounts of time before investors can access the funds without penalty. Due to the required time frame, CDs will often have higher interest rates when compared to savings accounts. Investors may be able to find a five to seven-year CD with interest rates up to 2.5 percent. While the timeframe may be longer than expected, one of the great things about investing in CDs is that there are not income minimums to invest. This makes CDS one of the more accessible types of assets to invest in.
- Private Equity Investing
Private equity investing refers to the practice of investing in private companies, many of which are in the early stages of development. This can represent an attractive opportunity, particularly if you find yourself in the midst of the next successful startup company. While private equity investing can offer attractive profits, there are several factors to consider. The most obvious is that it will take research on your part to identify the right companies to invest in. It is not uncommon for private companies to fail in their first few years, so mind due diligence as you look for businesses to invest in. There is also a lockup period for private equity investing. This refers to the time frame when investors will not be able to tap into the funds they invested. Lockup periods can range anywhere from six months to 10 years, depending on the company at hand. As you look into private equity investing, be sure to consider how a lockup period could potentially impact your finances.
- Peer-to-Peer Lending
Peer-to-peer lending replaces the role of banks and helps denied borrowers receive a loan at lower rates than large-scale financial institutions. Peer-to-peer lending has now become a multi-million-dollar business and a viable income-generating asset. According to leading peer-to-peer lenders, investors can make five to seven percent in annual returns. As with most income-generating assets, peer-to-peer lending does come with moderate risk as some borrowers are known to break their contract obligations.
- Building a Business
Among the best income-generating assets is a particularly interesting investment idea: opening your own business. This could be whatever you want it to be, a product for sale on Etsy or perhaps your own real estate investing business. Building a business is a great way to increase your cash flow, while also pursuing something you are interested in. Perhaps the biggest benefit is that you can devote as much, or as little, time as you want to this project. It could start as a side project to supplement your regular income, and one day turn into your focus.
There are numerous business options available that could be of interest to you. Perhaps some of the most common are opening franchises, whether for restaurants or gyms in your area. As you might expect, these businesses can take a lot of capital, time, and work before they begin operating successfully. An alternative business idea could be selling any of your skills online. For example, if you have experience in graphic design or copywriting you could pursue freelance opportunities until you have enough clients to start your own business. Another unique idea could be to buy and sell websites, through platforms such as Flippa.com.
Building a business of your own can ultimately turn into an excellent income-generating asset, it all depends on how much work you are able to put into it. I recommend researching new ideas, looking for a need in your market, and then finding a mentor to help with any questions you may have in the beginning. This route will take time to get started, but it could be a great way to pursue your passion while also increasing your overall income.
Which Are The Best Assets To Invest In?
As you familiarize yourself with the various income-generating assets on the market, you may be questioning which options are the best assets to invest in. The answer will depend on several factors including, but not limited to initial capital, timeframe, preferred level of involvement, and risk tolerance.
There will often be tradeoffs when selecting an income-generating asset to invest in. For example, while higher interest rates represent the opportunity to grow your money through a CD, there may be a period where you cannot access those funds. On the other hand, individual stocks can yield attractive results when managed correctly, but they do involve more risk. With any investment decision, it is important to weigh the pros and cons of each opportunity, as to ensure you get the results you are looking for.
Among the top income-generating assets, you may notice a trend: many opportunities will depend on the regulation of interest rates or your ability to predict stocks and business performance. These be barriers to entry for entrepreneurs looking to get started in investing. Real estate, on the other hand, is often dependent on the local market and the ability to find tenants. Due to these factors, real estate investing can represent an excellent source of passive income with relatively low barriers to entry. Investors willing to pursue real estate may even find they are able to grow their portfolio more rapidly over time when compared to more slow-moving income-generating assets.
No matter where you are in life, you can get started building wealth by investing in income-generating assets. There are numerous examples of income-generating assets that investors can choose from to yield profitable returns. With the right dedication, many entrepreneurs will find real estate offers attractive returns. By minding your due diligence and choosing the right income-generating assets, you can get closer to your goal of financial freedom.
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About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years. © 2020 Level 4 Funding LLC. All Rights Reserved.