Ask any investor about the key to generating wealth, and they’ll tell you it’s through building residual income streams. The most successful investors operate on a model – Have your money work for you, rather than work for your money.
That sounds great, but how do you pull it off? We all want to earn free money, but is that a possibility in life, and why isn’t everyone doing it to get rich?
The truth of the matter is that while it may sound like an easy way to make money, it takes plenty of hard work to set up residual income streams, and not many people are willing to put in the effort required.
Most people are content with their day job, and they don’t want to spend their free time improving themselves, they would rather sit in front of the TV after work and relax.
However, if you’re reading this, then you’re a part of the tiny percentage of people that feel the pull of the possibility. Take your curiosity and use it to educate yourself on the strategies the wealthy use to create residual income streams.
Let’s unpack everything you need to know about residual income and how to start building your wealth using other people’s time, effort, and money.
What Is Residual Income?
- 1 What Is Residual Income?
- 2 How Do the Rich Use Leverage?
- 3 How Do You Start Investing?
- 4 Start Small and Build Your Residual Income Streams
- 5 What Are the Types of Residual Income Assets?
Residual income also goes by the moniker of “passive income.” Essentially, you earn residual income from income-generating assets. These assets pay you a monthly amount that’s higher than the cost of holding or maintain the asset itself.
Passive income comes through very little work on your part. For example, you could set up a landing page to sell an e-book or online course. You automate the site through the use of a sales funnel and checkout software.
As a result, you create the e-book, upload it to the site, and then start selling it online. However, the key here is that once the business is up and running, it takes little to no time or effort on your part to manage it.
You automate all of the systems, and sit back and collect the checks while you work on other projects. Your e-book continues to provide you with earnings, even though you’re doing no work on the business.
How Do the Rich Use Leverage?
You might have heard investors talk about “the power of leverage.” What is financial leverage? Essentially, leverage is using the money and assets you have to get access to larger amounts of money and assets.
For example, you might invest in residential or commercial real estate. The building is generating passive income because the rent your tenants pay is higher than your mortgage and costs of managing the property.
After a few years, you’ll generate a significant amount of equity in the property. You can then turn to the bank and ask them to mortgage you a second building based on the equity you have in your original investment property.
After a few years of continuing to use leverage in your deals, you’ll amass an empire of residual income-generating assets that generate more money than your total monthly expenses, giving you financial freedom.
How Do You Start Investing?
The key to successful investing is your education. It takes time to learn how to invest properly, as well as a cash pile to start taking risks on assets. Learning everything you can from successful investors helps you build a model to replicate their results.
Once you’re in a space where you have the knowledge to buy deals that generate positive cash flow from the beginning, bringing you residual income that you reinvest into your portfolio.
Start Small and Build Your Residual Income Streams
When building your residual income streams, you need to start at a place where you can afford to take a risk. For example, building your landing page to sell your e-book is a relatively low-risk venture. It costs a minimal amount for a domain and hosting, and a few bucks for design.
However, the majority of the investment in this example comes from your time, not your money. Time is all we have, but it’s better than losing a million dollars in a real estate deal gone bad.
As you start scaling your residual income streams, you’ll begin to amass a cash pile. As your cash pile grows, you can use it to take on more risk, such as buying your first investment property.
What Are the Types of Residual Income Assets?
Various assets can offer you passive income. In this section, we’ll look at the best assets for generating a residual return.
Investment Real Estate
We’ll start with the asset that everyone is interested in buying – real estate. Most investors have the bulk of their fortune in real estate. Sure, there are tech tycoons and stock market gurus, but all of them have a sizable portion of their wealth tied up in real estate assets.
However, it’s important to note that the home you live in is not the type of asset we’re talking about in this example. Your home comes with costs like maintenance and property taxes. You pay those out of your income, meaning that your primary residence is a cash drain, and therefore, a liability, not an asset.
There are also alternative methods of owning investment real estate as well. Today, there are crowdfunding platforms available online to non-accredited and accredited investors. These platforms allow you to take a small stake in a residential property project.
If you don’t have the cash for a down payment on a rental property, then these types of crowdfunding setups are ideal to start your portfolio. All the deals on offer in these crowdfunding sites have professionals go over the due diligence for you.
They present you the deal in its entirety, showing you what you can expect to earn in monthly revenue and capital appreciation on the property.
Real Estate Investing Companies
We have covered lots of Real Estate Investing companies, here are our reviews of the best options:
- Best Real Estate Crowdfunding Sites
- Equity Multiple
Cash businesses are ideal for building residual income. Once again, many novice investors make the mistake of thinking that starting a business means building a startup company. That’s entirely the opposite of what we’re suggesting.
You need to look for businesses that are already “going concerns.” In other words, these companies already have management teams, employees, and systems built into the business that make it profitable.
All you do as the investor is assume ownership. Therefore, you might never even set foot inside the business. You rely on the management team for the daily running of the company, and you monitor your account statement with your accountant to ensure everything is above board.
Founding a startup company is the worst investment you can make. A startup is like a never-ending cash sinkhole that will leave you broke. More than 95% of all startups fail. Do you think you have what it takes to beat those statistics?
With a cash business, you don’t have to worry about the operations or management, you sit back and collect residual income instead.
Some companies pay out their shareholders on an annual basis in what’s known as a “dividend.” Dividend investing allows you to buy a shareholding in the company, and then receive a return for taking the risk of loaning the company cash.
A dividend is nothing more than a distribution of a portion of the company’s profits to its shareholders. The board of directors decides the size of the dividend, or if the company will stop paying dividends and reinvest the earnings back into the company instead.
When you receive your dividend, it could come in the form of cash, stock, or other assets. By building a portfolio of high-dividend stocks, you acquire residual income through dividend payments while retaining the value of the underlying asset, the shares.
Passive Investment Strategies
Many rich people don’t have the time to handle their investments themselves. As a result, they give their money to an investment firm, such as a “hedge fund,” for management. The hedge fund charges the investor a 2% fee for all assets under management. Therefore, if you have a million dollars parked with a hedge fund, they charge you $20,000 per year in management fees.
Along with the management fee, the hedge fund also takes 20% of all the profits it makes investing your money. This hands-off approach to growing your wealth is known as a “passive investment strategy.” You don’t take any responsibility for making trades on the market, the hedge funds manager does that for you, and you pay the fees in return.
However, it’s important to note that hedge funds only work with “accredited investors.” An accredited investor is an individual with a net worth of over a million dollars or an annual income that exceeds $200,000.
Hedge funds put your money into the financial markets, using it to buy a range of assets. For example, your hedge fund might invest in commodities like oil, copper, or cotton. They might also invest in forex and stock markets, as well as government bonds and sovereign debt funds in emerging markets.
The point is that you don’t work for your return, your money works for you.
Another popular strategy for newbie investors is P2P lending. Numerous online platforms match you with people looking for money. You lend these individuals cash, and they pay you back an annual percentage rate (APR) on the funds they use.
There are P2P lending sites managed by central authorities that broker the deals for you, and assume the risk in the deal if the client defaults on their loan payment. However, it’s important to note that many P2P lending companies may leave you holding the bag if the client defaults.
Still, lending money to people is a great way to earn residual income and pout your cash pile to work for you.
P2P Loan Companies
We have covered lots of P2P lending companies which offer very attractive returns, take a look through the list here:
Online Information Products
We already discussed income stream ideas, like creating landing sites for e-books. However, dozens of online models also offer you’re the potential to create residual income.
E-commerce stores might require some involvement on your behalf. However, in most cases, you can automate procedures to the point where you barely have any responsibility in the running and management of the business.
If you have a specific talent, such as fixing motors on muscle cars, then there are people out there willing to pay you money for your knowledge. Record an online seminar on how to restore a muscle car engine, and sell it on a website. You could add more videos for each model, and charge people to view or download the video.
Once again, this is a prime example of a way to profit and create residual income using online methods that were not even available a few years ago.
In Closing – Taking Action Is Your Top Priority
This article gives you plenty of ideas to start building residual income. The only thing that’s holding you back from achieving your financial goals is you.
Many people want to create residual income streams, but they don’t have the drive and dedication needed to build the groundwork to get to the level where they can achieve it in their life.
Even the investor that’s sending their money to a hedge fund had to spend plenty of time building their cash pile, and that probably came through plenty of hard work.
Where most people fail in creating wealth through residual income, is in action required to make things happen. Taking massive action towards your goals is the only thing that will push you along and make you a successful investor.
Every day, you need to wake up with a plan to move your financial goals closer towards success. If you’re struggling to hold yourself accountable, sign up with an online mentorship course. These courses put you in contact with other successful individuals that can point you in the right direction.
A mentor also helps you with identifying threats to your investment strategy, because they’ve already been in your shoes.
With the right strategy and support, and plenty of action, you can attain your dream of financial success through building residual income streams.