Most often than not, the idea of creating a passive income source must have crossed our minds. However, many quit in the process of where to start and how to start. Creating a passive income will help you maximize your earnings and reach your financial goals faster.
Before getting into the topic, it is important to understand what Passive Income and Alternative Investment are.
In financial terms, passive income defines money continuously generated by a one-time investment without requiring the investor to track or change their holdings.
What is Alternative Investment?
Any investment in asset classes other than shares, bonds, and cash is considered alternative income. Alternative investments can be classified broadly into two types. First are private assets such as, private equity, private credit, infrastructure, and private real estate. They are more complex and less commonly traded. Offering investors access to additional return sources than public stocks and bonds. The second category is hedge funds, which primarily operate in public markets but useless common instruments such as, short-selling and leverage.
Below is a list of passive income investment strategies that can diversify your portfolio and help reduce stock market exposure.
Dividend stocks are one of the easiest ways to build passive income for investors. A part of these revenues are siphoned off and funneled back to investors in the form of dividends when public corporations earn profits. Investors may decide to pocket the cash in additional shares or reinvest their earnings.
There are two primary methods of investing in dividend stocks: through mutual funds that hold dividend stocks, including index funds or Exchange-Traded Funds (ETF), or through buying individual dividend stocks.
Dividend ETFs or index funds give investors access to various dividend shares within a single investment, meaning you can buy a dividend stock portfolio with only one trade. The fund will then regularly pay out dividends to you, which you may take as profits or reinvest. If one stock owned by the fund cuts or suspends the dividend, you can still rely on others’ income.
Real estate remains a favored option for investors seeking to produce long-term returns amid volatility in recent years. Specifically, rental properties may provide a regular source of income for apartment owners. For a 20% down payment, the investor can easily acquire a house and add loyal tenants to keep the cash flowing.
Those who do not want to handle rental properties can invest in the real estate note funds. Generally, investing in real estate notes means the acquisition of an existing mortgage. And when the investor buys the mortgage note, the investor becomes the lender. The buyer continues to pay their mortgage payment before, but now it’s paid to the investor. This way, the investor receives passive cash flow monthly or annually.
For those seeking passive income, mortgage notes may be a profitable real estate investment. But, investors should know what they’re buying. It takes some analysis to understand the borrower’s financial condition, property prices, and the various types of notes available to invest in real estate notes successfully.
Individual investors trying to buy mortgage notes straight from banks might be tough. So many use brokers who can find both public and private deals. Companies like MWMfund, specialize in real estate note funds. Helping both accredited and non-accredited investors invest in residential property without having to deal with the responsibilities of being a landlord.
Peer-to-peer (P2P) lending services are web-based alternatives to conventional credit sources, including banks and credit unions. They make rate shopping simple and fast and can be a more affordable choice for some loans. The biggest attraction for P2P borrowers is that they can usually find lower interest rates than banks or credit unions normally offer. Apart from this, P2P also offers advantages such as a quick loan application process.
Generally, for an investor, the P2P projects have fewer entry barriers than other forms of investments. Investors can finance loans with investments as small as $25. While Title III of the Jumpstart Our Company Startups (JOBS) Act enables both accredited and non-accredited investors to invest via crowdfunding. Each P2P platform has its own set of participation criteria.
Equity crowdfunding works similar to sites such as Kickstarter and GoFundMe. A business advertises itself on a website for equity crowdfunding. A large number of people each donate a small sum to raise funds needed.
Unlike crowdfunding platforms, the money put into equity crowdfunding is more of an investment than a donation. In essence, before it goes public, you invest money in a company, and the company in return offers investment options.
The crowdfunding platforms’ investment options are, Simple Agreement for Future Equity (SAFE), Convertible Note, Revenue Share Loans, and Preferred Equity.
While non-accredited investors are now allowed to invest in equity crowdfunding; the SEC still restricts on the amount of money they can invest.
An index fund is a type of mutual fund or exchange-traded fund (ETF) that holds all of the securities. In a particular index, intending to match that benchmark’s performance as closely as possible.
The most noticeable advantage of index funds is that they have consistently beaten other types of funds in terms of total return. Passively managed, they typically have much lower management costs than other funds. The index fund portfolio merely duplicates that of its assigned index. Rather than having a manager actively trading and a research team reviewing securities and making recommendations. This means lower management costs and lower turnover rates for investors, making them more tax-efficient vehicles than many other investments.
Do you need help investing in real estate mortgage notes? Reach out to our team firstname.lastname@example.org. Or schedule a chat with TJ Osterman, Co-founder, and CEO of MWMfund. Also, check out The MWMfund Learning Center for more educational content.
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