Each of us has thought about creating residual income sources at least once in a lifetime. There are plenty of people who are actually getting money from literally doing nothing. At least, this is how it looks like. So is it a myth or reality and what are the best investment opportunities for residual income?
Investment as a type of business
First of all, let’s get things straight. Residual income assets do exist. However, they are rare as most types of investment require your participation to a certain degree. While some assets may not require much, others will drive you to bankruptcy without proper management. On the other hand, you can always tune your portfolio the way you feel more comfortable.
So if you’re looking for the best investment opportunities offering residual income, you might get interested in real estate. But remember that not all types of property can give it.
For example, many people who have never dealt with these assets often think that renting out an apartment requires nothing but showing up and collecting money once a month. That’s not true.
Of course, once you’ve found a tenant and signed up a long-term agreement (say, for a year), that’s pretty much how it is. However, after the tenant moves out, you quickly turn into a real estate broker. You have to:
- post announcements about your vacant apartment;
- talk to candidates on the phone;
- show potential tenants your apartment;
- fill out paperwork.
In addition, from time to time, you have to make renovations.
Turning property into a residual income asset
Ok, now it sounds like purchasing a rental property is a really bad idea if you’re after residual income. But certain types of property can serve this purpose just fine. The trick is you hire a managing company of a sort.
Hotel investment illustrates this idea very well.
Nowadays, instead of buying a hotel business, one can purchase a room in a hotel already working under a well-known brand in a popular resort area. After that you sign up an agreement with the hotel operator (managing company) allowing them to offer your property to guests. Then you share the profit.
This scheme requires almost no participation at all and is especially handy when you invest in a foreign real estate market since managing a foreign property all by yourself is very hard and costly.Similar business models can be used with many other commercial types of property for creating residual income. It can even work with residential real estate (though somewhat less often), which makes such models one of the best investment opportunities.
However, one should keep in mind that such investments have disadvantages.
First of all, since someone has to do your work, you have to pay for it by sharing part of the profit with a managing company. But that sounds fair.
Second, since someone else manages your property, you have little and sometimes no control over your assets. On the other hand, if you have no experience in hotel business, for example, then trying to manage it by yourself may be even worse, so why not hand the reign to professionals?
Other benefits of real estate assets
- Property assets tend to rise in price over long-term periods. So after a while you can sell your assets for a better price.
- Property is a physical asset which means it’s different from papers and numbers on your bank account. Only total physical destruction can devaluate it to zero.