What is an Income Producing Asset?
When I first started learning about investing, I was continually reading about Income Producing Assets. As someone who had never done any type of investing previously this was investment jargon. I simply didn’t understand it. Eventually, the more I studied the more I learned and the more I practiced the things I was learning the more it started to make sense to me. I should clarify here, that when I was learning investing there was no internet to refer to. I just had to read, learn, practice and repeat until rich. Today there is a lot more information on the internet and a lot more interpretations of Income Producing Assets.
Simply put, an income producing asset is something that generates income for you. There are thousands of different assets but if you apply my investment filter to them you will discover that they fit into one of four categories – business, property, paper or cash. So let’s look at each category and what qualifies within each category so you have the understanding and opportunity to build a wide range of income producing assets.
Most people think of a business as something that generates enough money to keep a roof over your head and food on the table. They rarely think of business as an investment. However, business is the first investment you can create, quickly, cheaply and easily. My definition of a business is something that generates money for you to put into other investment categories.
With the advent of eBay, Amazon, YouTube and the ease of building websites most people have at their fingertips easy to set up businesses for little or no money. You no longer need to spend thousands of pounds creating a business when you can look around your own home and sell items on eBay. Items which you no longer want or use. Don’t underestimate the value of what you have in your own home. Your unwanted items, your junk is treasure to someone else who will willingly pay you something to acquire it. The cost to you of setting up an eBay business is zero. You just pay a small commission to eBay once the item has sold. This is a very basic business but still an income producing asset.
Drop Shipping companies have opened up the world of trade on both eBay and Amazon to the extent that you no longer need to buy or hold stock in the hope that you sell something. Drop Shipping allows you to digitally stock a shop online and earn a commission from anything you sell.
I personally have an eBay account where I sell items that I no longer want or items I have come across on my travels which are extremely low cost and which I can sell for profit. As someone who writes a lot, I create paperback books, ebooks and audio books which sell through Amazon. Cost to create these products is just my time in writing or recording them. Yet, these products generate income month after month for many years.
What could you create on YouTube? I have watched people who do product or song reviews who have millions of viewers and as such are able to earn a decent income off the advertising on their channel. What do you know something about? Could you create an income from sharing your experience about an item you purchased or a song you listened to?
Think of all the thinks you search for online. If you are searching for it then you can be sure someone else is as well. You now have a possible Business and an Income Producing Asset.
Property is another income producing asset. While most readers will say, they need a lot of money to make money from property this couldn’t be further from the truth. Lease Options, Rent to Buy Options, Rent to Rent Options allow you to control a property without needing large sums of money. You might not own the income producing asset but you do control it. By controlling it, you have the opportunity to make money from it with the aim of purchasing it some time in the future. It’s very much a try before you buy concept.
My own property portfolio is a combination of both owned and leased properties which generate a substantial income for me. The money I make from my businesses provides the cash to either lease or purchase a property.
When talking about buying property most readers will assume, we mean residential property, however, you have residential and commercial and within each of those categories a wide range of opportunities exist. Residential can be houses, apartments, student lets and HMO while commercial could be holiday lets, serviced apartments, garages, storage, warehouses, shops, caravans etc. A garage can be bought fairly cheaply and with little maintenance be let year on year creating an income producing asset. Sites such as Airbnb, provide the opportunity to earn income from your own residence.
You do not need a lot of money to make money from property. The income you make from your online business can provide you with sufficient income to lease property and make further income.
The Share Market
Investing in shares can be started with around £100. Investing in Dividend Shares will bring in an income each month at a higher rate than if you put your money into a saving account. Monthly dividend shares ensure you have income every month which you can then reinvest back into the shares so you grow your investment. Your £100 can be generated from your business and then used to buy dividend shares. Once you have invested sufficient into the share market, you can start drawing down a percentage of your dividend income each month as your own personal income. By drawing down just a percentage of the dividend and reinvesting the remaining dividend your income will continue to grow every month. I like to think of this like and inflation proof investment or as giving you a pay rise each month. For example, suppose you earn £1000 in dividends and draw down £250 (25%) reinvesting £750 (75%) the following month your dividend would be higher at say £1100. You still drawdown 25% which is £275 and reinvest the balance of £825. Your dividend would then increase the following month to say £1250 and you repeat the same process so each month the dividend increases, the amount you reinvest increases and the amount you drawdown increases. You are continuing to build an income producing asset while you have more and more income to leave on each month. In this example I have used a 75/25% ratio but you could apply any ratio to suit your needs.
Within the cash category there are two key investments we use Peer-2-Peer lending which can be started from as little at £10 and Gold/Silver investing which can start from about £20. Money you can easily make from your business and invest into other investments.
If you check my previous posts about fundamental analysis you will see that the cash category for investing is low cost entry with long term results. You are using Income Producing Assets to build your long-term wealth.
If you are making £10 per week from an eBay account you can invest £10 per week into Peer-2-Peer Lending adding to your weekly income.
Anyone no matter how much they make can start accumulating Income Producing Assets immediately. Today, you could sell an item on eBay and when the money comes in open a Peer-2-Peer Lending Account or a Share Market Investing Account and within one day you have started acquiring Income Producing Assets. The more income producing assets you acquire the wealthier you become.