7 Income Producing Assets You Need To Know About

They say that millionaires have 7 streams of income.

You’ve heard of most of them. These classic income-generating assets include things like real estate and dividend stocks, which I love. We know those generate income.

But every so often, you hear of a new one that sounds as exciting as going to Vegas and putting it on black. Or 23. Or 15.

Today, I want to talk about those less-popular investments. Those weird, “you only hear about them in the movies,” oddball investments that can still produce cash flow. I’m not talking about the obscure investments that don’t produce cash (invest in whiskey, art, or some other collectible… that just makes you eccentric), these have to produce a stream of income.

Maybe the stock market has you spooked. Maybe you simply have enough in the market and want an alternative. Maybe you just want to see what’s out there.

Maybe you want income but all the income producing assets you know of are boring (or you have enough) – who really cares about certificates of deposit, Treasury bonds, and dividend stocks. If you wanted them, you would’ve gotten them by now (or you have and want even more diversification).

(personally, I think investing in yourself should be your first thought)

Today, you’ll read about some truly interesting assets that you’ve probably never heard of before:

Crowdfunded Real Estate

Crowdfunded real estate is a relatively new phenomenon. It’s when you can invest in a little piece of real estate as part of a “crowd” of investors. This lets you diversify your real estate holdings without the work of buying and selling properties.

It’s investing in real estate but instead of one big bet, you make several smaller bets.

I’m a big fan of this way of investing in real estate because I have zero interest in being a landlord.

With crowdfunded real estate, you have two types:

1. Invest in a real estate fund – Through a platform, such as Fundrise, you invest in funds that buy and sell real estate much like a typical REIT.
2. Invest in specific properties – Rather than investing in a fund, these platforms offer specific properties that you can buy shares in. A company like Arrived offer single family homes, AcreTrader offers farmland, while RealtyMogul offers commercial real estate.

In both cases, you diversify your risk across several investments and can generate passive cash flow in the process (as well as equity appreciation). The platforms are all free to join and see what they offer and they have low investment minimums, which is a good way to dip your toe in the water.

The risk is that there’s limited liquidity. You can’t buy shares and cash out whenever you want, sometimes you have to wait for liquidity windows or until the investment is liquidated. Read the fine print carefully so you’re aware of the rules.

(if you aren’t an accredited investor, here is a list of real estate investing sites for non-accredited investors)

Peer to Peer Lending

Peer to peer lending is older than crowdfunded real estate investing but follows the same principles. You act as a bank, lending money to borrowers, but are able to diversify your loans across a variety of different borrowers with varying levels of risk.

By funding loans with $10 and $20, you can deploy thousands of dollars across hundred of borrowers that, hopefully, are not correlated.

Personally, I’m not a big fan of this because it’s difficult to assess a borrower’s ability to repay a loan. Whereas real estate is backed by real estate, these loans aren’t typically backed by any collateral.

Mineral Rights

Mineral rights are the rights to minerals from the earth for a specific plot of land. They may be called mineral rights, mineral interests, or mineral estate – but the term is clear. It gives the owner the right to mine and extract minerals from the land.

This is lucrative because when you own the mineral rights, you own any valuable minerals trapped in the land. The most valuable minerals are oil and gas, gold, copper, diamonds, and coal. In the United States, most of the value is in finding oil and gas.

When you own a mineral right, you can reach an agreement with a miner or extractor to receive a royalty based on production. For example, it’s not uncommon for the Lessee (the miner) to pay the Lessor (owner) 1/8th value of what is produced.

If you want to buy mineral rights, do your homework!

✨Related: How to Invest in Copper

Structured Settlements

Structured settlements are an interesting asset – let’s say you slip and fall in a store. You sue the store, because they were negligent, and you reach a settlement with the store. They offer to pay you $5,000 a year for 20 years. You see this a lot whenever there is a settlement on a massive scale with multiple claimants. The responsible party has to do this or they might go bankrupt. If they go bankrupt, no one gets paid.

Structured settlements are fine except sometimes the person getting the money needs the whole sum. Maybe they were seriously hurt and need a large lump sum up front to pay for medical treatment.

Or they simply don’t want to wait. That’s when an investor can offer to buy it from them. It becomes an annuity to the investor.

This area has a bad reputation because sometimes the parties involved don’t behave honorably. They might take advantage of someone in a bad situation and offer a lowball amount for a settlement. Whatever the case may be, the instrument itself is not the problem.

Royalties

A royalty is a payment made to someone who holds a patent or copyright for use of that patent or copyright. If you want to play a song on the radio, you have to pay the artist a small royalty. If you want to publish a book, you have to pay the author a royalty. In the case of some products, the royalty may be a percentage of sales. Patents last only 10-20 years but copyrights can last up to 70 years after the death of the creator.

Ever wonder why they don’t sing “Happy Birthday to You” in restaurants? It’s because it was copywritten in 1935 and said to be owned by Warner/Chappell Music. It’s said to have earned approximately $50 million since registration!

Remember when Sony bought Michael Jackson’s music catalog for $750 million? This wasn’t a catalog of Michael Jackson’s music… the King of Pop had acquired the rights to music by The Beatles and Bob Dylan (among others). That’s how valuable royalties can be.

If you’re interested in buying an individual royalty, there’s a company called Royalty Exchange that will let you bid on these streams of income.

You can go to Peer to peer lending marketplaces to facilitate the process. They not only fund original loans but some will even let you buy and sell loans on a secondary market (on their platform) before they mature.

Black Walnut Trees

OK this is really out there but I went on a deep dive into this one and had to share it. I’m never doing this but I find this absolutely fascinating.

If you have some land, think an acre or more on which to grow trees, it’s possible for you to turn that into a stream of income by planting black walnut trees. Depending on the size of the trees, you can sell them for anywhere from $1,000 to $20,000 per tree. This all starts with a seedling that costs just five bucks a piece.

All you need is decades and patience. Oh and the land.

Black walnut is one of the most valuable hardwoods because of its versatility. You can turn it into cabinets, flooring, stocks, and other furniture. This article on the Outsider Club explains contemporary strategies for investing in black walnut.

The basic idea is that you plan the saplings in 12’x12′ rows, or 300 plants per acre. Let them grow to about 12-14′ (~2 years) and you prune them so it grows faster. The trees will begin to produce walnuts, which you can sell. You will also need to thin out the trees (especially the ones that don’t grow straight) and sell that wood in the process. Smaller trees get processed into items like gun stocks, bigger trees get used elsewhere.

Eventually, at maturity, you can harvest the rest of the stand for a windfall.

Trees are everywhere and they can generate an income if you’re patient.

If you want to invest in farmland but don’t want to do it yourself, give these two startups a look – AcreTrader and FarmTogether. They give accredited investors the opportunity to invest in individual farmland properties. I’ve invested in a few farms on AcreTrader. You earn off the cash yields from the business plus any price appreciation after a holding period (when they sell). Both are free so if you’re interested in the category, sign up to each one so you can see their deals.

Race Horses

Want to talk really obscure income-producing assets? How about racehorses? 🙂

I don’t watch much horse racing but every year, without fail, we tune in for the three races of the Triple Crown – the Kentucky Derby, the Preakness Stakes, and the Belmont Stakes. I’ve also been known to place a bet or two on the ponies… but did you know you can invest in partnerships that own racehorses?

Those three races are some of the more famous ones but there are races throughout the year with hefty purses. You can invest in a racehorse by joining a syndicate with as little as $1,000.

In my research, I found Funky Munky Stable’s Racehorse Partnership agreement. I do not endorse this in any way, I just wanted to have a real example to look at. They have a series of partnerships available where you can acquire ownership in a single horse with a minimum of just $2,000. Not saying it’s a good idea but it’s certainly something worth looking into.

When the horse wins, you win!