Diversify. You’ve surely heard this advice over and over again from financial planners. Diversifying your investments is not only a safe investing strategy but also one of the best ways to build wealth. In fact, most self-made millionaires have at least seven streams of income making them wealthier every day.
It may seem impossible to create multiple sources of income when you are struggling with producing a single source of income, but you’d be surprised what a little motivation can do. In any case, getting started as early as possible will help to build wealth over time.
Investor and UHNWI Robert Kiyosaki advises in his book Rich Dad, Poor Dad that the best way to get rich is to reduce your liabilities as much as possible and focus on acquiring income producing assets.
What is an Income Producing Asset?
Income producing assets are investments that generate consistent revenue, referred to as passive income. Acquiring income generating assets is one of the best ways to build wealth, and many self-made millionaires have used this strategy to grow their net-worth.
Spending your money on earning assets, as opposed to static or general assets (or worse, depreciating assets), can put you on the right track for financial freedom, help you save for retirement, and potentially make you very wealthy. Perhaps the best benefit of all, income earning assets can be passed along to the next generation of your family, ensuring their future security.
Top Income Generating Assets
Where do you start when it comes to acquiring these income earning assets? I will guide you with my comprehensive list of the top income-generating assets.
High-Yield Savings Accounts
Many people start their incoming producing asset journey here. The problem is that most people will not move past this step. High-Yield Savings accounts are relatively low risk: you just put your money in a savings account and collect interest. It’s low risk, and your money is relatively accessible. The bad news is that you won’t make as much passive income this way.
Still, it’s a great place to start. Interest rates are better than a checking account. It also might create better spending habits on your end.
Certificates of Deposit (CDs)
Our next low-risk income-producing asset option is certificates of deposit (CDs). CDs are comparable to a savings account, but you agree not to access the money for a set amount of time. You earn interest in what you have invested.
They are a safe choice because they are insured by the FDIC up to $250,000, but they often don’t make that much when you factor in inflation.
Bonds
Bonds are very similar to CDs because they are IOUs that get your money back with interest. You are loaning it to a business or government instead of loaning to a bank.
Bonds are considered a safe bet because you get your money back and they are stable. Many investors observe that when the stock market falls, then there is a rise in bonds. So it’s a great way to make a well-rounded portfolio.
The bad news– bonds alone will not make you wealthy. But consider them for their interest and stability.
Dividend-Paying Stocks & Index Funds
Dividend-paying stocks are one of the most effective income producing assets. These are stocks that pay a dividend over some time. This is where you really switch from saving to investing, and real wealth can be built here.
If the idea of playing the stock market feels too risky for you, consider index funds. Index funds are a group of stocks that pay a dividend. Typically one company’s stock can be volatile, but a collection of companies will tend to be less volatile and follow typical market trends.
Stocks are riskier, but they can produce wealth.
REITs
Real Estate Investment Trusts (REITs) are a method of investing in real estate without having the responsibility of being a landlord. Real estate is a great investment because it is finite and in high-demand.
REITs can be considered the mutual fund of the real estate world. REITs typically pay dividends, making them a popular income generating asset. By law, they are required to distribute 90% of their income back to shareholders. You can own different REITs that focus on apartments, commercial real estate, and even hospitals.
REITs are risky, though. Remember the mortgage bust? Real estate investing took a considerable dip, but it did recover. If you are comfortable enough to invest in index funds, this might be an excellent additional option for your portfolio.
Investment Rental Properties
Investment rental properties are income producing assets that come with tremendous rewards. The biggest con is that you will have to put in work to be a landlord.
This can be an option for a person who has more time than money. You can buy investment properties with a loan, and then have your renter pay off the mortgage (and then some) with rent. This allows you to make money each month, and your property value will appreciate over time.
You will have to put in work as a landlord. This will include repairs and maintenance.
Commercial Real Estate
Most people think of residential properties when they think of real estate investment opportunities, but the world of commercial properties can be just as much, if not more lucrative than residential homes.
Investing in commercial real estate such as strip centers can provide you with monthly passive income in the form of rent from businesses.
By using a Triple Net Lease (NNN), you aren’t responsible for any maintenance inside the unit. All property expenses are handled by the tenant, including taxes, insurance, and utilities.
Businesses typically lease for a much longer time than residential tenants giving you more stability and peace of mind.
Tools like loopnet.com can help you find commercial properties to buy, but it’s best to work with a qualified broker who can find pre-market deals. Most commercial properties will require at least 30% down, too.
Other commercial real estate investing opportunities include coworking spaces and malls.
Farmland
For the investor that wants to diversify away from the stock market, Farmland is an excellent income producing asset.
Millions of acres of farmland in the U.S. is rented out to farmers and agriculture corporations each year. This is a great way to be a landlord without having to worry about repairs and maintenance.
Typically income from farmland and farming does not correlate with what is happening in the markets since people always need food.
If the idea of buying farmland in the right place seems complicated, an easier approach might be purchasing a farmland REIT. Either way, land and rural real estate are tangible assets that can be sold later on for a profit.
Small Businesses
This is another option for those investors that have time on their side. A person can invest in a small business in two ways: as a silent owner or as an owner and operator.
Investors who invest in a small business tend to see higher returns when they are more hands-on with the operation. So consider what you want to invest in. Will it be worth your time and money?
There are dozens of creative ways to start a small business from self-storage units to laundromats. Don’t hesitate to dig around for an idea that speaks to you!
Another more passive option is to invest in a franchise. This allows you to use the business model of an already successful brand to generate money. Franchising means you do not have to manage your investment actively, and many successful franchises have high returns, making this a great income generating asset.
Websites
Websites can be very profitable, and you can choose how passive you want your income to be from websites. Once you build up a blog to a good level of traffic, you can either let it sit there and reap the benefits or you can continue working on it and grow its value. Either way it’s a great asset to have a piece of the world wide web!
Websites can be bought and sold like many other income producing assets. If you have an eye for e-commerce, journalism and media, you might be able to spot a good deal and eventually sell it for a great return.
If you own websites generating revenue from ads or drop-shipping, then income can be very passive.
Royalties
Royalties to things like movies and music can be bought. This is something that is linked to culture and not linked to the stock market. So as long as you choose a piece of media that can maintain consistent play or use, you should see returns from this investment.
Have any questions about these income-producing assets? Leave us a comment below.
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