Examples of Income Producing Assets You Can Invest In

Income producing assets are businesses and investments that generate a consistent revenue. They often pay monthly, but can also do so on a quarterly or even semi-annual basis. Instead of trying to buy low and sell high, people can enjoy the cash flow that their investments distribute. They don’t need to guess or “play the markets” to create profits. However, many income opportunities can rise in value, too, and offer the best of both worlds.

Acquiring income producing assets is a commonly-followed investment strategy. It’s the method I used when I was a beginner and still is the cornerstone of my portfolio. Focusing on monthly revenue led me to reach financial freedom in three years, by age 26. 

Building passive income through business ownership and investment is an attractive concept to many. People often aim to generate enough revenue from income producing assets to replace their expenses. If they can get to that point, it then becomes easier to quit their jobs, explore new passions or simply live a more flexible, comfortable and enjoyable life. Owning a portfolio that creates monthly income can break the financial chains that weigh most of us down.

Examples of income producing assets

I originally wrote this article in February 2015. It’s since been edited (February 2017) to reflect updates and advancements in the world of investing. Below are 21 examples of income producing assets that you can purchase. Although this list is not exhaustive, it covers many of the options available to investors today. If you’ve got others in mind, please leave a comment at the bottom of this page.

Rent single-family homes and condominiums

Single-family homes and condos that are transformed into rental units can make for great income producing assets. If you purchase a property using only a small portion of your own capital (the rest is a mortgage borrowed from the bank) and rent it to a good tenant, the rental income you receive can create substantial cash flow.

Assuming that what you charge in rent surpasses the costs of your mortgage, property taxes and other expenses, this strategy can be a relatively quick path towards financial freedom. In addition to serving as an income producing asset, the house/condo can become even more valuable as your tenant pays off the bank loan for you. Assuming real estate prices don’t sag, your equity will increase each month. That can create favorable conditions to sell or refinance the asset in the future.

While this is a road traveled by many, you should be aware of some of the risks involved. For instance, if you lose your tenant and can’t replace her, then you’ll be stuck with footing the mortgage costs. That can quickly take it from an income producing asset to an income-reducing liability.

Rent your basement, spare room or attic to tenants.

If you own a property in which you live, you could consider renting out your basement, spare room or attic. I even know a guy who paid $500 a month to sleep in someone’s closet in San Francisco. His “room” was literally under someone’s hanger and shirts!

For some, this revenue strategy is there only to create a bit of extra cash. Others take it more seriously and closely monitor market rental prices. Further still, it can be turned into a bed and breakfast business.

Converting part of your home into an income producing asset is common. However, it can quickly turn messy if your tenant is unruly. As well, you should explore the local laws and regulations before going down this route.

Multi-family residential real estate

Make an investment into a duplex, four-plex or even an entire apartment building. Why have one tenant when you can spread your risk among two, four or even 400? In the USA, especially, these have proven to be lucrative investments because fewer Americans can afford housing in a post-2008 economy. The demand for apartments skyrocketed after the Great Recession.

Although the upside can be high, the downside is that the barrier to entry also is. These income producing assets typically require a substantial amount of capital to get involved with.

In spite of their cost, it can actually be easier to qualify for a mortgage to purchase multi-family residential real estate. Unlike single-family properties, where the loan is to the buyer and the property is collateral, apartments are often the reverse. Banks will assess the merit of the asset on its net operating income and essentially treat it like it’s a business. A profitable apartment building can secure favorable loan terms that are guaranteed by the purchaser. The challenge, of course, is coming up with a down payment for one.

Read Ken McElroy’s book, The ABCs of Real Estate Investing, before entering this space.

Commercial real estate

Just like people, businesses need a place to live. Commercial real estate can make for effective income producing assets because you can often charge high sums of rent. However, the risk is generally greater, especially when the economy is slow. If your tenant’s growth declines or becomes insolvent, it may not be able to afford what you’re charging. A good example is the Canadian city of Calgary, whose commercial vacancy rate reached 22% in 2016 after corporations were afflicted by low oil prices.

Many investors are beginning to reconsider commercial real estate as a viable option. As firms increasingly depend on technology rather than on employees, there is question over how necessary large office space will be in the future. Thus, the demand for these types of properties may fall in certain markets. On the other hand, if they are oversold it could present attractive buying opportunities.

Self- Storage Units

You can invest in a storage building that offers multiple units allowing the public to store their extra belongings.  If you have additional space in your home, garage, or an additional piece of property, you can allow people to sore their items for a monthly rate. You will need to ensure you can offer protection from damage and theft if you wish to earn rather than lose money.  Make sure you  find out about your local zoning laws that may affect what you can and can't do.

Limited Partnerships (LPs)

Limited partnerships are business structures used to acquire assets by multiple investors. They are frequently sold as securities by private equity companies and exempt market dealers. For example, if 20 investors wanted to pool their money to buy an apartment building, they might form an LP to do so. The real estate would be owned by the LP, but each investor would own a certain amount of units (shares) in the entity and therefore participate in the profits and losses.

Limited partnerships can be lucrative income producing assets, but they can also be disastrous investments. They are heavily dependent on their underlying asset as well as how they are managed. If you’re buying an LP through an investment dealer, read the offering memorandum or prospectus carefully.

Master Limited Partnerships (MLPs) 

Master Limited Partnerships are LPs that have been securitized and listed on a stock exchange. They are commonly invested in by income-seeking buyers, and have especially risen in popularity in the United States. They are often taxed favorably, too.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts are large companies that invest in a portfolio of properties. They generally focus on a specific asset class, like “grade A” commercial office space, and are geared towards creating monthly revenue for their investors. For that reason, they are a favorite among those who look for income producing assets. REITs can be both publicly-traded and privately-held.

Be careful not to be fooled by the glamorous holdings that some REITs possess. Large, big-brand tenants do not automatically equate to profitability. In 2013 a well-known British Columbia REIT called League, with tenants such as Cineplex, filed for bankruptcy. Thousands of people lost their investment.

Mortgage Investment Corporations (MICs)

Mortgage Investment Corporations are a lesser-known investment vehicle that can serve as an effective income producing asset. MICs pool money together from investors and lend it to borrowers, securing the loans as mortgages against real estate.

Unlike banks, they typically lend to borrowers that seek short term, bridge or mezzanine financing. MICs often charge a higher interest rate than do traditional lenders. Like REITs, MICs can be both privately-held or publicly-traded. 

Dividend stocks 

Large blue-chip stocks often pay dividends every three months. While the distance between payments might deter some investors, these can serve as safe examples of income producing assets. If you own a portfolio of securities that make dividend payments at various times, you could end up receiving revenue multiple times a month.

Bonds and Debentures

Bonds and debentures are loans issued by governments and businesses to raise investment capital. In exchange for funding the issuer typically pays interest on the loan, thus making it a popular income producing asset. Interest payments are generally made semi-annually.

Note that the risk profile for these investments can range between very low and very high. It depends on the credit-worthiness of the borrower (e.g. the government of Canada vs. the government of Greece). Companies like Fitch Ratings can help you make your assessments.

Peer-to peer-lending

P2P lending has evolved in the wake of large bank withdrawals from the unsecured loans business. While many traditional lenders are more cautious in a post-2008 economy, companies like Lending Club and Prosper have catapulted to the scene.

P2P lending firms connect retail lenders with borrowers. For as little as $25, you can invest in an interest-bearing loan, which pays monthly.

Although peer-to-peer lending has garnered popularity, it’s still relatively new and has kinks to iron out. It also hasn’t extensively permeated markets outside of the US. The first to break into Canada was Lending Loop. Given the ease to invest and its broadening of the credit markets, P2P lending will likely become a popular income producing asset in the future.

Private or “hard money” lending (secured) 

As this article indicated, there has been an emergence of new lending opportunities in recent years. The business is no longer controlled by banks. But if you don’t want to use “middlemen” like buying bonds, P2P firms and investing in MICs, an alternative option is to issue the loans yourself.

A secured loan is one that is backed by collateral, usually property or an automobile. If the borrower defaults under the loan agreement/promissory note, you can then attempt to recoup your capital by seizing the asset you secured it against.

Secured lending opportunities generally exist for mezzanine financing, real estate construction financing, second and third mortgage deals and higher-risk borrowers. It’s unlikely that you can enter “plain vanilla” first mortgage lending, because that industry is still dominated by banks.

Note: depending on where you live, there may be regulations that govern hard money lending. In most states in the US, you’ll need a license.

Unsecured private lending

An unsecured loan is not directly backed by collateral. But it can make for a lucrative income producing asset because the interest rates charged are generally high. Although these loans are riskier than others, there are plenty of ways to mitigate exposure. Moreover, if the borrower as assets you can attempt to seize them in default, even if they weren’t listed in the loan agreement. 

Royalty trusts 

Royalty trusts are popular income producing assets in North America. They often invest in energy, pipelines and real estate. These securities typically distribute most of their profits to investors each month. They can trade publicly or be privately held and sometimes come with tax advantages.

Mutual funds

Mutual funds invest in a basket of securities, usually stocks, bonds and even other mutual funds. There are plenty of options that focus on generating income for their investors. They often are lower-risk and concentrate on bonds and dividend stocks.

Note that mutual funds usually automatically reinvest income rather than distributing it to unitholders. You may need to contact your brokerage to request that cash is paid directly to your account.

Exchange-Traded Funds (ETFs)

Exchange-traded funds are an alternative to mutual funds. While they still invest in other securities, they are not actively-managed. Their fees are therefore typically a fraction of their counterpart’s.

ETFs are usually designed to replicate a certain index or commodity, such as the NASDAQ or gold bullion. Ones that invest in real estate, energy or financial services sectors can make for efficient income producing assets.

Short-term rentals

Online services like Airbnb, FlipKey and Tripping make it easy to rent your home for short periods of time. If you’re leaving town for a week, why not turn your property into an income producing asset for a few days?

As with all rentals, your experience will often be determined by your tenants. On balance, people usually have good things to say about those services. There have been some pretty disastrous stories, though, so approach this strategy with caution.

Invest in student housing

College and university attendance has never been higher. Investing in student housing can be lucrative. You’re almost guaranteed to have tenants in college towns.

Although many look to student housing for income producing assets, there are risks involved. First, college kids are well-known for wild parties, keg stands and smoking indoors. This can cause substantial damage to your property.

Second, students often return home for the summer. This can cause rental shortages for a third of the year.

Network marketing

Network marketing is a popular choice for those looking to start a side-business. While they generally require intense effort for several years, they can eventually become passive income producing assets.

Beware of scams and shady schemes, however. The network marketing/MLM industry can be a hotbed for bad ideas.

Online Businesses

Owning an online business offers a variety of opportunities to earn more money with passively earned income.  For many, an online business is the perfect option largely because startup costs and overhead expenses are much lower than a "brick and mortar" store.  To see for yourself whether you could afford to start on online business.  There are several avenues for generating passive revenue from online businesses.

Online Membership Sites

Internet users who would like access to the information on a membership site pay a subscription or one-time use fee. Membership sites are ideal for selling information that users can read or view online; or for selling information your customers can download and save to their computers or electronic devices.

Online Advertising

People create blogs, websites or newsletters that have a lot of readers, you may make money offering advertisement space to companies who would like to get their message in front of your readers. Advertising through Google AdSense is one of the easiest ways to implement advertising on your site because it looks at the content of your page and automatically places ads that are related.

Online Revenue Sharing

Using sites like Hubpages.com or Squidoo.com, you can write and publish articles that offer the opportunity for revenue. These sites will place pay-per-click style advertisements on your blog posts, and you get a portion of the revenue generated for your posts. Doing things the right way may not be as easy as the websites make things out to be.

Online Advertising

You can join an affiliate program and market a product online to earn commission. If the articles or website you create generate enough traffic, that work can sell over and over again without additional involvement on your part. Website owners often include affiliate marketing as just one of the many different revenue streams. These days it is important that what you are publishing online is unique and valuable in itself. If all you are doing is saying the same things about the same products that everybody else is marketing, it’s probably not going to work out for you.

Expert Writing Skills

If you have a specific talent, knowledge, or expertise in an area, you may consider writing about it in articles or e-book form. You can earn continued residuals by marketing your articles to relevant websites and blogs. You can also market and sell your e-book online to generate ongoing passive income streams from writing.

Online Drop Shipping

Drop shipping is method used by many online retail stores to avoid having to deal with inventory and handling product shipments. With drop shipping, you as the online store owner would be making sales and processing payments (both of which may be done automatically) and the wholesaler handles the shipping of the product to the customer.

Online Store

The process of selling electronic goods can be almost completely automated, making the sale of documents, e-books, music, videos, and whatever else can be delivered via electronic means a way to generate passive income. Some of the main costs involve initial creation, marketing (and everything that might entail such as creating and managing a website), and ongoing customer support (for problems with purchases, downloads, or using whatever it is you are selling).

Syndicated mortgages

A syndicated mortgage is a real estate-secured loan that is owned by multiple parties. For example, a group of 10 people might pool $50,000 each and create a $500,000 loan. As with other mortgages, the lender(s) profit through fees and interest payments.

Though syndicated mortgages have grown in popularity as investors seek property-backed income producing assets, there is some controversy about them. Retail buyers are often led to believe that they’re low-risk deals. But depending on the opportunity, syndicated mortgages might be in second or third position, thus reducing security. The risk profile of a syndicated mortgage should be assessed on a case-by-case basis.

Rent-to-own real estate investments

Rent-t0-own ventures can not only be good income producing assets, but there’s also often room for a healthy capital gain. As an investment partner, you can fund real estate deals that use lease options to lock in returns and hedge against risk. Some rent-to-own opportunities require the investor to purchase a property, which might mean applying for a mortgage. Others amalgamate capital from several partners.

Conclusion: the power of income producing assets

As mentioned earlier on, acquiring income producing assets caused me to reach financial freedom at 26 years old. By that point, my portfolio paid more than most earn from employment. 

Financial Advisors often recommend targeting revenue securities as you age. In your younger years, you should instead focus on equities that have a good chance for capital appreciation. I disagree. Since most expenses like rent, mortgage payments and phone bills are payable monthly, I think it’s prudent to build a portfolio that can support your lifestyle. I didn’t consider exotic investments or ones that require capital gains to profit until after reaching financial independence. Still to this day, the bulk of my holdings are comprised of income producing assets.