Are you searching for income producing assets that pay you consistently, often, and much more than the low dividend rate that you get from a stock portfolio nowadays?
In this article, I’ll share with you 9 income producing assets. We are currently using all but one of these income producing assets as of this post, but I have used all of them in the recent past.
After almost 40 years of investing, and over 15 with a focus on income generating assets following an accidental early retirement, this is an area I have grown to love.
Remember, the more income generating assets you have, the earlier you can live off your investments, and the less money you need to retire. Plus, having investment income that exceeds your living expenses is true financial freedom.
The key is to remember that income producing assets can be something that someone else has built which you purchase. or you can build your own assets that you can sell one day. This is very doable. Keep reading.
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What to Invest in for Income Besides Stocks
Stocks are excellent for easy passive income but in this post I’ll invite you to think about income producing assets beyond stodgy old stock and bond investing to new income stream ideas. These income generating assets range from fairly traditional to slightly alternative to way outside of the box.
Most traditional income generating assets either cost a lot of money OR take a lot of time to run. Not all of these income producing assets have these demands. Some of them require a lot of capital, and others require little or none. And some of them requires a lot of time, or a little time.
For example, a stock portfolio requires a lot of money to generate decent income, especially given the low dividend yields that stocks pay, but it requires little time. On the other hand, a small online business usually takes a lot of time, but almost no capital.
I like to ask financial coaching clients what they have the most of that they want to invest, time or money. This serves as the starting point to add another income generating asset to their portfolio.
Below is my list of 9 income producing assets that you can create, and maintain, from anywhere with an internet connection. This locale flexibility makes these income generating strategies all the richer.
Living Off Dividends
The most common income generating asset is a nice, big fat stock portfolio full of dividend stocks. Stocks are usually invested in for long term appreciation in value more so than income, especially during the wealth accumulation stage of life.
The key here is to invest in high dividend stocks that pay out significantly more income than the S&P 500 stock index since the yield of this index is quite low.
While there is more risk with stocks that pay higher income, diversification lowers that risk. This type of investment income is probably the most passive of all the income streams because you simply invest and get paid passive income..
Dividend income is usually paid each quarter, so the monthly income can be inconsistent. Investing in one or more of the other income producing assets below can help smooth out your monthly income.
The work with dividend investing is the initial research, which is always important for any investment you make.
Your work time can be minimal by finding good resources to do the research for you. Depending on the type of investor you are, this may include financial publications, dividend newsletters, mutual funds that pay monthly dividends, or financial advisors that focus on stock income strategies.
When purchased at value prices, stocks often increase in value while you own them resulting in both capital gains and income.
♦Wealth Building Alert – Always research and understand any investment you make!♦
Prefer Video? Watch my YouTube video Is Dividend Investing Worth It? (Please just click the little x if an ad pops up and it will vanish instantly:)
Master Limited Partnerships (or MLP)
Master Limited Partnerships are an ideal example of a passive income generating asset. These partnerships are in some sector of the oil and gas industry.
MLP’s tend to pay two to eight times the income that the S&P 500 stock index pays! Logically, the value of MLP’s tends to move with the price of oil, but not all profits that MLP’s generate are tied directly to the price of oil.
For example, “midstream” MLP’s are more involved with the transportation of oil and gas products. These products have to transported regardless of the price of oil so the profits of midstream MLPs are less affected by the price of oil.
Yet the prices of midstream MLP’s decline right along with the rest of oil related companies when oil prices decline. While the price of oil can affect midstream MLP’s, it’s usually doesn’t cause their earnings to tank.
When MLP’s are cheap, income from these assets naturally rise.
One caution with high income MLPs is that they sometimes cut their dividends. When this happens, the price almost always drops.
But then, all stocks drop periodically, too, during bear markets.
I call MLP’s slightly alternative investments, but they are held right inside your brokerage account just like stocks. And they are as easy to buy as stocks are.
These income generating assets can be bought individually or through a fund that specializes in MLPs, including ETFs.
I personally own MLP’s as of this writing. Sometimes, I sell covered calls on MLP’s to increase income. I do this for both MLP ETF’s (Exchange Traded Funds) and also for individual MLP’s.
Real Estate Investment Trusts or REITs
Real Estate Investment Trusts are trusts which invest in real estate. They are sold to the public. Like MLP’s, they are considered slightly alternative investments, but they can also be bought right in your brokerage account.
REIT’s tend to pay two to seven times the S&P 500 index yield. There are all kinds of REIT’s, including retail, industrial and apartments.
The rise of online retail has many investors questioning the safety of retail REIT’s. This higher risk profile leads to higher income.
Like the MLPs, sometimes the dividend yield is decreased. If and when this happens, the REIT price usually declines.
I personally own REIT’s, as of this writing, which I bought after much research. The online retail factor concerns me. Not only this, but since I own a home and real estate rentals, I limit my exposure to more real estate through REIT’s.
Sell Covered Calls
Another strategy to turn your stock portfolio into an income generating asset is to write covered calls. This is a bit more complex than simply owning dividend paying stocks, but it is the simplest and most conservative option strategy.
It takes little time and effort, however, once you learn how to sell covered calls.
Basically, selling a covered call means you are selling the right for someone to buy stocks from you which you already own, at a set price, on a set date. You must allow the option buyer to buy the stock from you on (or before) that set date, no matter how much the stock moves before the option’s expiration.
Here’s the great thing about covered calls: If the stock goes up, down or does nothing, you still get to keep the money you made by selling the call options.
What you give up, in exchange, is the possibility of making money in the form of a capital gain if the stock goes up before the option expiration date. Using technical analysis with stock charts can help improve this strategy.
Here is what I love: When you sell a call option, the money goes right into your account. This can all be quickly and easily done with an online brokerage account.
I sell covered calls throughout the year as opportunities appear. There is something irresistible about a 1.5 (to 3% or more) income rate over 6 weeks while the S&P 500 stock index paying only around 1.8% for an entire year.
The covered call return at 1.5%, annualized, is about 12%, based on selling calls every 6 weeks. If I own the stock anyway, and I am willing to sell it, I tend to sell call options whenever the numbers work.
In my IRA, if I get called, I don’t have to pay taxes. I can just buy back the stock and repeat selling covered calls.
Covered calls work best in sideways to rising stock markets. And you can even sell covered calls on ETF funds. For investors who have exposure to stocks anyway, covered calls can be an excellent income strategy.
There are also financial advisors and funds that sell covered calls but you can make more money if you do this yourself without much effort. Due to the low volume that many call options have, it can be difficult for funds and even financial advisors to get the results an individual investor can get.
But the fact that covered calls are being implemented by both financial advisors and funds reveals that covered calls are not some high risk crazy strategy.
Covered Calls on High Yield Stocks and ETFs
You can also sell calls specifically on high dividend stocks to increase your income.
Here’s the math: If you get another 2 to 5% from dividends, your annual income is in the 15% neighborhood, with no more risk than owning stocks outright. (Remember, risk is actually lower since the calls reduce your position cost.)
Another attractive covered call strategy is to sell covered calls can on high yield ETFs.
And if an ETF is high yield, this usually means that the call options can be sold at higher than usual prices, a perfect scenario for covered call writers.
This happens because higher risk investments generally pay higher yield to attract investors. When stocks are higher risk, they are more volatile.
Higher volatility stocks and ETFs naturally have higher option premiums. (Something called Implied Volatility affects options pricing.)
Of course, collecting simply 1% extra every 6 weeks from selling covered calls on a normal risk blue chip stock is also very respectable. (I don’t call any stocks “low risk” since they are all subject to bear markets with drops of 30 to 50% or more.)
Covered Calls in an IRA
Covered calls are even allowed inside your IRA for tax free (or tax deferred) income.
Covered calls can be ideal inside an IRA for an investor that owns a large position in a single stock with large capital gains. This situation often happens for employees with stocks in their current or previous employer.
Keep in mind that the income will be inside your IRA so may not be accessible without penalty, depending on your age. But if you have a mandatory required annual distribution anyway, you can make the income for that distribution by selling covered calls and leave your capital in tact.
♦ Wealth Building Alert – Always consider the overall market trend before investing in anything as it will have a huge influence on the value of your stocks, bonds, or real estate.♦
Create an Amazon Store
Many people still think of either brick and mortar, franchises or service type businesses when they think of nontraditional income producing assets that involve retail or services.
Examples could be anything from a retail store to a janitorial service. Both of these types of businesses generally require loads of capital, and a lot of work, or at least a lot of income to pay a manager.
Starting an online store on a website like Amazon is relatively low cost and can generate income for years. I personally launched an Amazon store a few years back. Like all income generating assets, there are pros and cons.
I import and brand my own products, but many Amazon sellers sell other brand’s products. Since Amazon does most of the work, the steady passive income is now relatively easy. The initial learning and set up did require some real work, however.
But is this really an income producing asset that can be sold? A business broker I spoke with recently said that Amazon stores were the most popular stores to buy at the time we spoke.
He said that the business can be structured for sale, contrary to what some of my research showed. The broker had completed several sales of Amazon stores.
So, yes, it appears an Amazon store is an income generating asset that has market value, but I would check with a business broker to confirm this first if you are interested in this income generation model.
To be honest, I’ll share that I do now prefer to build online small businesses that we own vs putting effort into someone else’s online business, such as Amazon.
Over the years since launching my Amazon store, I have realized how much nicer it is to have control of my on online property. My Amazon store has been profitable, but the rules can change whenever Amazon chooses, thereby making it unprofitable.
Plus, since running very small online businesses for 13 years now, I have realized the exceptional opportunity of creating and owning online property.
The magnitude of the fact that online businesses are, in fact, online property, makes them super cheap global real estate that continues to increase in value. It makes sense to own your own online property.
Having said that, if your knowledge is in physical products, an Amazon store may be for you. You can access an enormous $44 billion market complete with customer addresses, credit card numbers, customer profiles and eager shoppers.
Create Your Own Income Producing Assets
We have been creating intellectual property products for over a decade and are continuing to do so. Simply put, you create a course around something that you are have already learned. Then you offer it to others who want to learn the same thing.
Here is how it works. Find something that you have done successfully for yourself, or others (family members and friends). Then create your own process of instructions for how you did it.
You can now easily teach others with live webinars, recorded webinars, videos, audios or a combination of these elements.
We all mesh together and tweak our expertise and knowledge to figure out how to make things work for us. Guess what: Others are seeking that same solution. You can save them time, energy and money with your trademarked programs.
Most people shutter at the thought of considering themselves an expert. It feels like bragging. The truth is that almost everyone has mastered several things, and there are people who want to learn how to do those things.
Create a way for others to learn. Then connect with those seeking to learn. It’s that simple.
Like everyone, we assume everyone already knows what we teach. But when you start to teach or coach others, you see that you are helping them do what they wanted to do. It’s very rewarding.
This tends to be a joyful endeavor since you are helping others around your passions. You get to work on your own time, and sales can even occur while you’re sleeping.
I remember seeing new sales when we were on the ski lift at Wolf Creek one early January day years ago.
Remarkably, we created this income producing asset when we were in late midlife. Being late baby boomers, we had a strong aversion to technology when we began.
This means that anyone with the drive and desire can do this. And later in life is the perfect time to create your own courses because you tend to know a lot about a few topics.
Sell Your Time and Skills While Creating an Income Producing Asset
You can start offering your services with a small business. Eventually, you can expand to have employees or independent contractors (outsourcers) that do some of the work.
Service based businesses such as this can be an income generating asset that can eventually be sold. Common mainstream service businesses can include writing, catering, tax preparation, consulting, life or executive coaching, and marketing.
Popular technology-oriented types of businesses might include managing social media for someone, editing videos, graphic design, building websites or managing technology.
Work can be obtained from outsourcing websites, or your own website, with some marketing efforts. I personally have done limited consulting for years, mostly for financial professionals who found me online.
You can structure your business in a way that it can be bought by another company in the same industry. Or there may be a firm that wants to expand into the industry that your company serves.
This can set the stage for being bought my another company or individual for a nice capital gain one day. Sound too good to be true? It happens every day. Why shouldn’t it happen with you?
Just remember that you’ll have to create a business than can run without you, or be transferred to someone else. But this is done all the time. Build with the end in mind, a plan to sell.
Create an Online Property
As mentioned, online small businesses can become valuable property while being an income producing asset along the way.
Depending on your model and market, establishing an online presence can be one of the slowest ways listed here for generating income unless you have a big budget for writers or marketing, or a lot of time to devote to this pleasurable pursuit. If you do, however, this can speed up the time it takes to generate income.
This isn’t always the case, however. Our online trading education business, for example, became profitable within only a few months.
Not only this, but you can earn consulting income from others who want to learn what you just got through learning shortly after you get started.
Given the low cost of building an online business as compared to a brick and mortar store, or stock investing, for example, this can be an excellent way to create an income producing asset.
This online property can be a blog or other type of website that grows into an asset. Income can be accomplished in many ways, including consulting income, affiliate sales, sponsors, memberships, and online programs.
An online presence can often be established faster through social media channels, or with videos on YouTube, depending on your market. Since the website is your very own property, I highly recommend, however, everyone create a website to send visitors to from social media where they can check out your product or service.
This becomes your very own online asset.
Real Estate Rentals
Real estate rentals have become one of the most common income producing assets. They have many advantages which can escalate wealth building, including leverage, tax advantages and capital appreciation.
I currently own and manage two duplexes with hidden, wooded highway frontage just outside of Austin. I found them in a newspaper listing years ago.
The properties have generated positive cash flow since I bought them, even with partial financing. But the way I look at it, even if the properties were just breaking even, they would be paying for themselves.
This means that we would be getting a valuable asset for free.
While I do have to go to the properties occasionally, most of the work is driving to the bank to deposit the rent checks, which is nice. Honestly, I spend so much time with our online businesses, I enjoy the pretty drive by the lake and into the hill country on my way out to the properties.
Since I keep the rent slightly lower than market value, the turnover is low.
Low turnover means little work, lower vacancies and lower expenses. The more you take care of your properties, the better the tenants are.
We were thinking of selling our rental properties given the increase in value with the growth of Austin and economic expansion.
After estimating the taxes that we would need to pay on a sale, along with the broker’s commission, we decided to keep them. Of course, we could do a 1031 exchange to delay taxes, but it takes time and expediency to find the replacement property.
Right now, we are preferring to focus most of our time on passive investing and our online businesses. I am really loving writing and vlogging for Retire Certain and have found my online home here.
Every investor has to choose from the myriad of income producing assets which to focus on based on the lifestyle they want and their overall wealth plan.
One important thing for real estate investors to keep in mind, however, is that many of the tax benefits, such as depreciation, have to be deducted from your cost, to calculate your basis.
Generally, you pay taxes on the difference between your sales price and your basis unless you do a 1031 exchange.
This leads me to think of real estate rentals as long term investments. One day, when we choose to work less on our online properties, I think the real estate rentals will be a good source of almost completely passive income, especially now that we have local maintenance resources and tenants who do the lawn work.
Benefits of Alternative Income Producing Assets
As you’ve seen, there are extremely different types of income producing assets. I think that alternative income assets, such as the 9 described here, can be a saving grace for anyone approaching retirement short of funds to live off investments.
Here are a few benefits of alternative income producing assets that mainstream wealth building through long term stock and bond investing overlook.
1. All the income producing assets you see here can be created and run entirely from home. Creating income from anywhere enhances your lifestyle.
This is true whether you’re researching high dividend stocks or doing consulting. We love that we can take a walk in the woods with our labrador mid day, while brainstorming business ideas.
2. Times have changed with the digital age. This is a huge advantage for alternative income seekers. Expand your thinking about what an asset really is accordingly.
3. Most people don’t think outside the box. When thinking of income producing assets, they limit their thinking to stocks and bonds.
Both require huge capital and are subject to large market declines from occasional bear markets. By thinking differently, you’re at a huge advantage simply because thinking differently from conventional wisdom spells opportunity for those few willing to do it.
4. Most people think of wealth building in terms of capital appreciation (growth) over time, OR they think of income. It makes sense that when you structure your wealth building strategies around income producing assets, you can have the benefits of both growth and income to catapult your wealth accumulation.
I hope these income and wealth building ideas will help you brainstorm which strategies are best for you. Income generating assets are key to supporting a good lifestyle while also building wealth.
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