In this second part of 20 sources of passive income we continue with private lending. Read about Part 1 here.
Private lending has taken on new meaning with the Internet. Several online services are now available to lend out private investors’ money. You can direct your money to be distributed to those you feel are qualified within your parameters. Simply search out person to person lending with the major Internet search engines and you will have a list to qualify organizations you can use. Lending has not always been easy as it takes some qualification to find a trustworthy person who needs it. The primary benefit of lending money person to person is the enhanced interest rate compared to a bank or CD.
Unit Investment Trust
As a pool of investors’ money, Unit Investment Trusts UITs are usually sold in amounts of $1,000 which pay dividends for set period time. While holding the units, the investor or unit holders, receive dividends that can supplant a passive income. The portfolio is unmanaged and fixed in the initial holdings of usually stocks and bonds. While most mutual funds can be held into perpetuity, UITs have a set termination date. At termination, the assets are sold and the proceeds are distributed to the unit holders.
Tax Liens and Notes
With a tax lien you can pursue a higher rate of return on your investment. Your principal is usually backed by the property; however you will not usually receive the property as part of investing in a tax lien or note. The main benefit is the high interest rate and security offered to your investment. Some organizations hint that you will be receiving the property. Avoid these organizations as usually the property is not part of the investment ownership. You can invest online from almost any state, and drill down to the tax lien that best meets your needs for passive income. As with most investments, be sure to review the deed requirements in the sale and while owning to ensure your lien, deed or note is valid.
Corporate Asset-Backed Securities
Backed by the assets of a corporation these securities provide cash flow from dividend payments to the holders. Any type of asset a corporation has may be used in the security held by investors. Investment banks create the asset-backed securities and sell them to the public. After the initial offering the securities may be bought and sold in the market.
The stereotypical bond owner, old, stodgy and afraid of the stock market is no longer the type of investor in today’s bond market. A bond is a debt instrument issued by government or business to fund operations. Corporations, municipalities, states, and the U.S. Government all issue bonds of varying quality. Depending on the quality, the bond sells for an issue price and you collect interest determined by the quality and market conditions. A bond can provide stability to an investment and also offer a consistent source of passive income. Some bonds are available as a group of bonds in a mutual fund bond fund. The rates of return are pursued by various institutional an individual investors as they can offer lucrative rates of return, exceeding some stock dividend returns.
Corporations issue a limited supply of preferred stock usually featuring a specific dividend rate. Preferred stock received priority over common stock holders when dividends are distributed. Preferred stockholders must be paid first. Also, if the company is ever dissolved, preferred stockholders receive preference to the distribution of assets over common stockholders. Although the dividend return may not be as high with preferred stock, the investment next egg is secured with preference in the corporate liabilities.
Income Mutual Funds
While there a variety of mutual funds traded on stock exchanges, Income mutual funds offer the best opportunity for passive income. These funds may be described and offered as growth and income funds, value funds, or simply income funds. Every family of mutual funds typically offers a type of income fund. Internet websites and Morningstar provide qualified third party analysis of the performance and quality of income funds available that will help you find the highest paying fund for your passive income. Every fund sends a prospectus with has the performance and description of the underlying pool of investments the funds hold. Review these carefully to understand how the fund will work.
Treasury Bonds, Bills and Notes
Considered to be the most secure investment backed by the U.S. Treasury Department, Bonds, T-Bills and Notes offer consistent but low returns. In exchange for the security backed by the U.S. Government, you will not receive a high rate of return. You may purchase the investments through your bank, broker or directly from the Treasury Departments online service.
In the music business the artist may get the glory, and money, but the publisher always gets the money. By owning rights to a song or sheet music you as publisher get paid whenever a song is played from a recording or performed in public. That’s right, all the radio stations, restaurants, bars, night clubs, and Internet websites that play a song you own pay you a publishing royalty. The going rate is only 8 cents per presentation and is administered by just three organizations worldwide, ASCAP, BMI an on the Internet SoundExchange. You need to bring your published music to the public domain by registering with these organizations to receive payment.
You probably know authors receive payment royalties on each book that is sold as the copyright holder. But did you know that if you publish public domain material, no longer under copyright law, with at least 20% new material you may publish it with your own new copyright. The hard part is marketing and selling the book. Any work that develops into a bestseller will turn into a strong passive income for you.
A patent allows and protects your right to receive payment for an invention of a thing or process. You will receive payment when an organization uses your patent, or when the patent sells to some other organization or individual.
What if you know how to do something, or about a particular process or procedure that no one else does? You can sell this to the market as a license to use your knowledge, process or procedure. You can research how to license your idea process at inventright.com.
That was twenty ideas for sources of passive income you can research and use in your life. As an added bonus for making it this far here is one more passive income source not that well known but highly profitable in certain situations.
Movie Production and Other Rare Investments
If you work in an industry and have esoteric knowledge of obscure processes you might have insight to an investment that meet the needs of producers ready to move on a project. Movies need financial backing and could turn out to be a great profit if you back a blockbuster, or not. Think about how many movies lose money. Other rare investments include commercials, TV shows, sports team ownership, exploration, water rights, mining leases and limited partnerships. To benefit from these opportunities find someone with excellent knowledge in the area and with a profitable track record in the field. Stick to what you know is a good motto. Never invest what you can’t afford to lose.
The objective of passive income is to secure income. Income is king, as cash flow is king. You can’t take future income and invest it. You can only invest the cash you have on hand today. Projected returns will not pay the bills, put food on the table, buy groceries, pay the mortgage or cover taxes. Capital appreciation provides security knowing the money is there growing. That helps the future. But cash flow now is preferred, right? Right. Passive income comes from cash flow, from cash on hand. The more cash available now the greater the tomorrow will be.
This article is written by Joseph Vietor.