11+ Best Cash Flowing Assets For Passive Income
With all the ups and downs of markets, the key consideration behind any asset comes down to whether it makes money and whether it represents a yield commensurate with what you need and what risks you’re taking on in order to achieve it.
In this article, we’ll look at various types of cash flowing assets to help generate income and even passive income.
Cash Flowing Assets For Passive Income
Timberland involves the purchase of large tracts of forest land with the intention of harvesting the timber for sale. This can be a very profitable venture, but it does come with some risk.
The biggest risk is that of fire. A wildfire can destroy all the timber on your property, leaving you with nothing to show for your investment.
Another risk to consider is the price of timber. Timber prices are volatile and can fluctuate significantly depending on market conditions. If you’re not able to sell your timber at a profit when you need to, you could end up losing money on your investment.
Despite the risks, timberland can be a great way to generate income and even passive income. If you’re able to find a good location and manage the property properly, you can earn a healthy return on your investment.
Like many forms of land and real estate, you can also buy timberland in REIT form.
That way it becomes totally passive and also offers more diversification.
Timerberland REIT examples
PCH | Spokane United States
RYN | Wildlight United States
WY | Seattle United States
#2 Rental Properties
Rental properties are another great way to generate income and even passive income. The key to success with rental properties is to find a good location and to carefully screen tenants.
If you’re able to find a good location for your rental property, you can charge higher rents and have less vacancy. A good location is important because it will help ensure that your property is always in demand.
Carefully screening tenants is also important. You want to make sure that you’re renting to responsible tenants who will take care of your property. Screening tenants can be time-consuming, but it’s worth the effort if it means having fewer problems down the road.
Rental properties can be a great way to generate income, but they do come with some risk. The most common risks are vacancy and damage from tenants.
If you’re able to find a good location and carefully screen tenants, you can minimize these risks and earn a healthy return on your investment.
Rental properties are a common alternative to investing in equities.
Many don’t have a good grasp of the stock market or get anxious about the volatility due to the mark-to-market nature of stocks.
There is, of course, still risk with private markets that doesn’t go away simply because shares aren’t traded on a public exchange.
One of the things people like about rental properties is the element of control they can have over their investment.
But it’s important to note rental properties can be time-consuming (or can consume around 10 percent of monthly rent costs for a property manager to handle most of the admin work). It also requires specific skills and experience.
For those who want something more passive in residential real estate, REITs are available.
Residential REIT examples
REITs that focus on rental properties:
MFA Financial Inc.
MFA | New York United States
New Residential Investment Corp.
NRZ | New York United States
#3 Dividend-Paying Stocks
Dividend-paying stocks are another great way to generate income that is almost entirely passive income.
When you invest in dividend-paying stocks, you’re investing in the company’s ability to pay out dividends.
If the company is doing well, it will likely continue to pay dividends.
However, if the company is not doing well, it may cut or eliminate its dividend.
But if you’re investing in a well-established company with a strong history of paying dividends, this risk is minimized.
One of the drawbacks of dividend stocks is that the yield is often low. Many only pay out 2 to 4 percent yields.
That yield can easily be wiped out in a day or two. However, what matters most is what the company is earning.
A 10 percent yield might sound nice, but if the company isn’t generating enough cash flow to pay out that amount, it’s likely not sustainable, which can hit the share price.
Even if a company is not paying high dividends it may be buying shares back instead, which shows up in the form of capital gains rather than a dividend.
The taxation is often different between dividend income and capital gains, but they both represent a distribution back to the shareholder.
So, don’t get too focused on just a company’s dividend yield. Always focus on what they’re earning.
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Farmland is another asset that can generate income.
Moreover, as the population continues to grow in most countries, the demand for food will only increase, which may drive up the price of farmland.
There aren’t a lot of farmland stocks and buying farmland can require a large upfront investment.
But more platforms are working on making farmland accessible to smaller investors, even though it’s not yet a mature space.
Bonds are another asset class that can generate passive income.
Bonds are debt instruments where the issuer agrees to pay periodic interest payments (coupons) and repay the face value of the bond (principal) at maturity.
Most bonds have a term of 10 years or less, but there are also longer-term bonds with terms of 20 years or more.
The coupon payments on bonds are generally fixed, which means the payments don’t change over time. This makes them different from variable rate instruments like floating rate notes and inflation-protected securities, where the coupon payments can change based on market conditions.
The price of a bond can fluctuate based on changes in interest rates and other factors. But as long as the issuer continues to make timely interest and principal payments, the bondholder will get their money back at maturity.
There are many different types of bonds, including government bonds, corporate bonds, and municipal bonds.
Bonds can be bought and sold on the secondary market through broker-dealers, but they can also be bought directly from the issuer in some cases.
Many investors like to invest in bonds because they offer a higher degree of safety than stocks. But it’s important to remember that bonds are still subject to credit risk, which is the risk that the issuer will not be able to make interest or principal payments when they’re due.
There is also interest rate risk, which is the risk that bond prices will go down when interest rates rise.
Investors can mitigate these risks by diversifying their bond holdings across different types of bonds and different issuers.
They’re not as popular among individual investors and traders as stocks because of their lower overall return and they tend to be less liquid.
But they are also a larger and more diversified asset class.
#6 Peer-to-Peer Lending
Peer-to-peer lending (or P2P lending) is an alternative investment class that is similar to equity investing.
P2P lending platforms match borrowers with investors who are willing to lend them money. The platforms act as a middleman to facilitate the loan and take a small cut of the interest payments as a fee.
P2P lending can offer higher returns than other fixed-income investments like bonds, but it’s also riskier.
Borrowers on P2P lending platforms are typically individuals or small businesses with less-than-perfect credit. This means there is a higher risk of default, which could lead to losses for investors.
P2P lending platforms usually require a minimum investment and offer a variety of different investment options, including auto-investing and manual investing.
Investors can also choose to invest in P2P loans that are secured by collateral, which can reduce the risk of default but may also lower the potential return.
P2P lending is a relatively new asset class and it’s still evolving. So, it’s important to do your research and understand the risks before investing.
#7 Intellectual Property
Intellectual property (IP) is another asset class that is somewhat under the radar.
IP includes things like patents, trademarks, copyrights, and trade secrets.
The owner of IP has the exclusive right to use it, sell it, or license it to others. This means they can generate income from it without actively working on it.
However, IP can also be expensive to create and maintain. So, it’s important to consider the costs before investing in it.
There are many different types of IP and each one has its own set of rules and regulations.
So, it’s important to seek professional advice before investing in this asset class.
Intellectual property is a long-term investment and it can take many years to generate income from it.
But for those who are patient and have the resources to invest, it can be a great way to generate passive income.
#8 Royalty Streams
A royalty stream is an agreement between two parties where one party agrees to pay the other party a recurring fee in exchange for the use of their IP.
Royalty streams can be generated from things like patents, copyrights, and trademarks.
The owner of the IP grants the user a license to use it in exchange for a royalty payment. The payment is usually a percentage of revenue or profit, but it can also be a fixed fee.
Royalty streams can provide a stead stream of passive income for the owner of the IP.
However, they can also be risky because the income can fluctuate depending on the success of the business using the IP.
It’s important to carefully consider the terms of any royalty stream agreement before entering into it.
For example, music could be considered a form of royalties.
Whenever someone streams the song on a platform, that royalty goes back to the owner of the music.
In some cases this is the music artist or band itself. Sometimes it’s a record label. But sometimes it’s an investor who bought this and owns the right to it.
For example, if someone streams a Beatles song on Spotify or somewhere on the internet, who is compensated for that?
It could be the legal entity representing the Beatles, it could be a record label, or it could be an investor who owns the rights to that particular song.
Books are another form of royalties.
Whenever someone buys a book, the author or the publisher gets a cut. And if that book is then turned into a movie, the author or the publisher could get another cut.
This is how J.K. Rowling of Harry Potter fame became worth a lot. Not just because she sold millions of books, but because those books were then turned into movies, merchandise, and other branded products, which generated even more income for her.
So royalties can be a great way to generate passive income.
Small-time publishers can also take advantage of this through platforms like Amazon.
Once they write a book, it can act like a form of passive income.
#9 Blogs and YouTube
Blogs and YouTube make money in a variety of ways.
Generally they make money via ads, such as Adsense. They can also make money via affiliate marketing by marketing a product that’s relevant and helpful to their audience. They could have their own product or service.
And finally, they could make money through sponsorships.
This is where a brand pays them to mention or talk about their product in a positive way.
YouTube channels and blogs can take some time to grow. But once they reach a certain point, they can start generating a steady stream of passive income.
The key is to create content that’s helpful and entertaining to your audience.
If you can do that, then you’ll be on your way to generating passive income from your YouTube channel or blog.
Billboards are another way to generate income from a real estate investment.
When you’re driving on a freeway and see an ad on a billboard, it’s simply a way for the owner of that land and billboard to generate a higher return.
Some real estate projects will try to get creative and have billboards in unconventional places, such as by using the entire side of a building, like Resorts World in Las Vegas.
There are regulations governing billboards (e.g., how many are allowed, etc.) that have to be understood before diving into it.
But if you have the opportunity to own a piece of land with a high visibility and traffic, then it could be a great way to generate passive income.
#11 Preferred stock
Preferred stock doesn’t get a lot of attention.
It’s a tranche of capital between debt and common stock that is basically a hybrid of both.
Preferred stock usually pays dividends while also being safer than common stock.
It also provides more upside than bonds because of the capital appreciation element. (Bonds can also appreciate in value but have a fixed duration, so they will mature at a price that’s already known.)
#12 Master limited partnerships (MLPs)
Master limited partnerships, or MLPs, are another way to generate passive income.
An MLP is basically a publicly traded partnership. It’s a tax-advantaged entity that owns and operates assets, such as pipelines, storage tanks, and other infrastructure related to the transportation of energy products.
One of the benefits of an MLP is that they pay out most of their cash flow in the form of distributions, which is similar to a dividend.
This makes them a great way to generate passive income.
With MLPs it is important to find ones that have a long history of paying out distributions and that are in industries with low risk of disruption.
Pipelines, for example, tend to be very stable businesses. And as the world continue to consume more and more energy (and oil and gas will be with us for some time), there will likely be a need for even more pipelines.
This makes MLPs a great way to generate passive income that is relatively safe and has the potential to increase in value over time.
#13 Mineral Rights
Mineral rights are the rights to extract minerals from a piece of land.
These rights can be leased to mining companies, which will then pay you a percentage of the revenues they generate from extracting the minerals.
This is a great way to generate passive income, especially if you own a large piece of land with minerals that are in demand.
It’s also a relatively safe investment because mineral rights tend to be long-term leases. So even if there are changes in the price of minerals, you will still receive payments for the duration of the lease.
But mineral rights can nonetheless be volatile investments and they tend to come in the form of smaller-cap equities, which are less stable.
Mineral rights can be a great way to generate passive income, but it’s important to do your research and understand the risks before investing.
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FAQs – Cash Flowing Assets For Passive Income
What are cash flowing assets?
A cash flowing asset is an investment that generates income on a regular basis.
The most common type of cash flowing asset is rental property, but it can also include things like bonds, dividends, and interest payments.
What are the benefits of investing in cash flowing assets?
There are several benefits of investing in cash flowing assets.
The most obvious benefit is that it can provide you with a steady stream of income. This can be especially helpful if you’re retired or looking to supplement your current income.
Another benefit is that it can help you diversify your investment portfolio. This is because cash flowing assets tend to be less volatile than assets that don’t produce their own income streams, such as cryptocurrency.
And finally, cash flowing assets may provide you with a hedge against inflation. This is because as prices go up, the income from your cash flowing assets may also go up, depending on the nature of the cash flow and economics of the business or asset.
What are some of the risks associated with investing in cash flowing assets?
There are a few risks to be aware of when investing in cash flowing assets.
The most obvious risk is that the income from your investment can fluctuate. This is especially true if you’re relying on rental income, as it can be affected by things like vacancies and repairs.
Another risk to consider is the potential for inflation to erode the value of your investment. This is why it’s important to invest in assets that have the potential to increase in value along with inflation. Are they going to hold their value in real terms?
And finally, you may also be subject to taxes on the income you receive from your cash flowing assets. This is something to keep in mind when assessing the potential return on your investment.
What are some of the best cash flowing assets to invest in?
Some of the best cash flowing assets to invest in include rental property, bonds, and dividend stocks.
Rental property is a great option because it can provide you with a steady stream of income and the potential for appreciation.
Bonds are also a great option because they tend to be less volatile than other investments, such as stocks.
And dividend stocks can provide you with both income and the potential for capital gains and dividend growth.
What are some things to look for when investing in cash flowing assets?
When you’re looking to invest in cash flowing assets, there are a few things you’ll want to keep in mind.
First, you’ll want to consider the potential return on your investment. This is important because it will help you assess the risks involved and whether or not the investment is worth pursuing.
Second, you’ll want to consider the stability of the income stream. This is especially important if you’re relying on the income from your investment to support yourself or your family.
And finally, you’ll want to assess the potential for appreciation. This is important because it can help you generate even more income from your investment down the road.
What are some of the best places to find cash flowing assets?
One option is to search for properties that are available for rent. This will give you an idea of what kind of returns you can get from rental properties by comparing rent with the price of the property and its recurring expenses.
Another option is to look for bonds that are available for purchase. This is a good option if you’re looking for a more stable investment.
And finally, you can also look for dividend stocks that pay out on a regular basis. This is a great option if you’re looking for both income and the potential for capital gains.
Final Thoughts – Cash Flowing Assets For Passive Income
There are many different types of cash flowing assets that can provide you with passive income.
It’s important to do your research and understand the risks involved before investing in any of them.
But if you’re able to find the right asset, then it can provide you with a steady stream of income that can help you reach your financial goals.