They say that millionaires have 7 streams of income.
And most of them are boring. Common examples of income-generating assets include your classics like real estate (rental income, depreciation benefits, equity appreciation) and dividend stocks (dividend income is taxed favorably), which I love.
But every so often, there's one in there that sounds as exciting as going to Vegas and always betting on black.
Today, I want to talk about those obscure investments. Those weird, you only hear about them in the movies, oddball investments that can produce cash flow. I don't want the obscure ones 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 equities.
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 EstateCrowdfunded 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.
You have some companies, like RealtyShares, that curate deals and offer you a piece of the investment. There are others, like Fundrise, that run funds that do the investing and you can buy shares of those funds. In both cases, you diversify your risk across several investments and can generate passive cash flow in the process (as well as equity appreciation).
(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.
Mineral RightsMineral rights are exactly that – the rights to extra 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!
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. Or they don't want to wait. That's when an investor can offer to buy it from them. At this point, it's really 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 aboveboard.
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 like Lending Club 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 TreesIf 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.
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 crow to about 12-14′ (2 years worth) and then 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 and sell that wood in the process. Eventually, at maturity, you can harvest the entire stand for a windfall.
Trees are everywhere and they can generate an income if you're patient.
Want to talk really obscure income producing assets? How about race horses? 🙂
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 race horses?
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 $1,000.
When the horse wins, you win!