Many successful entrepreneurs utilize income generating assets to ensure multiple, steady streams of revenue. By maintaining a diverse portfolio of income-producing assets, investors can ensure they are generating consistent money over time.
The best thing about income-generating assets is that they aren’t 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.
[ Are you interested in learning how to flip houses? Register to attend our FREE online real estate class and learn how to get started investing right in your local area. ]
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. As a result, the time frame and potential returns will vary depending on the type of investment chosen.
Robert Farrington, founder of The College Investor, suggests that “The most common types of income-generating assets are cash-flowing real estate and investment-grade bonds. Bonds are a great choice if you’re seeking income-generating assets with a paper portfolio. Investment-grade bonds are “easy.” You simply buy the bond (or bond fund) at any brokerage firm, and you’ll receive dividends or interest on the bond. Depending on the bonds or fund, this could be paid out monthly, quarterly, or annually”.
Nathan, the Marketing Director at DiggityMarketing, acknowledges that income-generating assets can take many forms. “Mutual funds with monthly income, savings accounts with high interest, fixed deposits, property and dividend-paying stocks are some examples of income generating assets,” according to Nathan.
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 trusts (REITs).
The most common way to start investing in income-producing assets is to rely on income from a primary job or money from existing savings. Investors can 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 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 at the moment, some examples require low levels of money to get started. For example, savings accounts and CDs often do not require minimum net worths 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 if one of your investments is not profitable. Diversifying your investments can also stagger your income and help you receive regular revenue across different sources.
12 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 will 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
Certificates Of Deposits
Private Equity Investing
Building A Business
Money Market Accounts
1. Real Estate Assets
Several real estate investing strategies 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 enabling 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. For example, 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 similar to 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 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 much 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 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. Instead, most of their retained earnings are reinvested back into their company to maintain further growth.
3. 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 (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.
4. Certificates Of Deposits
Certificates of Deposits (CDs) are considered time deposits and can be thought of similarly to savings accounts. Investors 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. For example, 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.
5. 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.
6. 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 have the opportunity to make five to seven percent in annual returns. As with most income-generating assets, peer-to-peer lending has moderate risk as some borrowers are known to break their contract obligations.
7. 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 main 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 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 can 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 increasing your overall income.
Farmland is among the best income-generating assets for several reasons. Unlike many investment types, farmland does not experience the same level of volatility. Farmland has a low correlation with the stock market because it provides a necessary resource: food. For this reason, the demand for farmland has been relatively consistent throughout history.
Investors interested in benefiting from this asset can take one of two approaches. First, you can purchase land directly and lease it to a farming company. This strategy will require research to ensure the land is in the right place and have a consistent renter. Another approach is by investing in an REIT or crowdsourcing platform that focuses on farming and farmland. Keep in mind that you will want to research these companies before investing, as there may be fees associated that could undermine your income potential.
Annuities are essentially a lump sum investment paid to an insurance company that is paid back to the investor over a period of time with a return on investment. This strategy is popular with retirees as the funds can only be withdrawn after the age of 59.5.
Another income-generating asset, and one with a relatively low cost to entry, is websites. Investors can purchase domains related to a popular topic or upcoming trend and eventually sell the websites to interested buyers. An alternative strategy is to take time building up the website through content creation. Once the website has increased traffic, investors can use paid ads and sponsorships to earn income through affiliate marketing. This can generate consistent revenue over time, as long as you maintain the site.
11. Money Market Accounts
A money market account can be thought of as something in between a traditional checking account and a high-interest savings account. Account holders can utilize the account with a debit card, while at the same time earning higher than average interest on their funds. Money market accounts can be opened with banks or credit unions. Money market accounts have variable interest rates, accruing more or less based on market fluctuations. Often these funds are extremely liquid, and account holders can opt to close their account at any time.
Royalties can be earned on any form of media or intellectual property, including books, music, images, artwork, photography, copyrights, and patents. As an owner of one of these mediums, you can generate royalties over time as others contract the usage of the item. Typically these earnings are generated as a percentage of the fee charged. Real estate owners with mineral and water rights can also earn royalties for allowing the usage of these resources.
[ Ready to take the next step in your real estate education? Learn how to get started in real estate investing by attending our FREE online real estate class. ]
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 actually 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 of time where you cannot access those funds. On the other hand, individual stocks can yield attractive results when managed correctly, but they involve more risk. Therefore, with any investment decision, it is important to weigh the pros and cons of each opportunity 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 can be seen as barriers to entry for entrepreneurs looking to get started in investing. On the other hand, real estate is often dependent on the local market and finding 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 can grow their portfolio more rapidly over time compared to more slow-moving income-generating assets.
Income Producing Assets And Taxes
Anytime you earn income, whether through a salaried job, side hustle, or other asset, it must be reported to the IRS for tax purposes. As you explore the above income-generating assets, remember to research the proper reporting protocols. Some assets will actually send tax reporting documents at the end of the year, though in other cases it will be your responsibility to report the appropriate information.
As you research certain taxes you will be required to pay, also look out for various tax deductions. Real estate is historically known for providing a number of tax deductions but there may be other opportunities as well. Finally, always review tax and income information with a qualified professional if you are even unsure about something.
No matter where you are in life, you can start 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-producing assets, you can get closer to your goal of financial freedom.
Ready to start taking advantage of the current opportunities in the real estate market?
Whether you’re brand new to investing or have closed a few deals, our new online real estate class will cover everything you need to know to help you get started with real estate investing. Expert investor Than Merrill explains the best real estate strategies to help get you on the path towards a better financial future.
Register for our FREE 1-Day Real Estate Webinar and get started learning how to invest in today's real estate market!