How to get Passive Income Part I

Passive Income

How to get Passive Income Part I

There are many forms of passive income. In this blog, we’ll look at ones you can buy.

  • Dividend Stocks.
  • Rental Properties.
  • High Yield Savings Accounts And Money Market Funds.
  • CD Ladders.
  • Annuities.
  • Invest Automatically In The Stock Market.
  • Invest In A REIT (Real Estate Investment Trust)
  • royalties
  • Bonds

Real Estate and Dividends

In this blog, we look at the two big investments I make. Real estate and growth dividend-paying companies.

Royalty Income

Royalty income is another big one for me, but that comes from other non-conventional sources like books. In other words, there are royalties like oil and gas you can buy into that are publicly traded, but I wouldn’t jump into those just for income because the appreciation is going south (down) not North (up).

Dividends and other passive Income for 2021

Check out my blog post on Dividends and other passive income streams. This will give you several bets for 2021.

The problem is passive income streams often come with a price. Therefore the price you pay may be in lack of appreciation, assuming this is a publicly-traded income stream like the many I refer to in the above-mentioned blog.

Take JP Morgan Chase for example (symbol JPM). So here’s the payout and the dividend. $3.60/2.83%. The problem is Chase didn’t appreciate the last year 2020. In fact, it got clobbered compared to the S&P 500 or SPY which is up 15% for the year and pays out a 1.57% dividend. So what’s the better deal? The SPY symbol for the biggest 500 companies in the USA.

Give up growth for income?

So are you going to take income on a public stock or REIT (real estate investment trust) because it has a great return? In other words, is it better to have income while your asset falls by 50%? So my answer is NO WAY.

What’s my alternative then? Well if I am looking at publicly traded companies I’ll go with MSFT symbol Microsoft and take the growth and dividend thank you, along with AAPL symbol Apple.

MSFT sits with a 1.01% dividend yield but it’s up 40% for the last 12 months. That’s right 40% is a whopper. Same for Apple which is up about 80%.

Does that mean these companies are still great buys today? The answer in my humble opinion is YES!

Other PASSIVE INCOME

The big mistake most people make the investing is they think because a company is way down it’s time to buy-in. So buy low and sell high. The only problem is it can go lower. And usually does right after you buy it from my personal experiences.

Real Estate

My choice for long term appreciation and passive income cash flow besides growth stocks that pay dividends is Real Estate. So real estate if bought right and you have someone that will manage it as I do is the best long-term bet in my opinion.

Crowd Funding is an alternative but I do not recommend this as the way to go especially in the current COVID economy. So it looks cool to buy into a $5000 bet with FundRise for example, but what’s your actual return? 5%, maybe 6%? Here’s what they say when you google FundRise.

Fundrise’s average annualized platform returns were between 8.76% and 12.42% between 2014 and 2019, according to Fundrise.

NerdWallet FundRise Answer

“Redemptions: Fundrise offers a redemption program that allows investors to sell shares back to Fundrise for a fee. That fee, which is paid into the eREIT or eFund, is calculated as a reduction to the share price value: 0% if in the first 90 days; 3% reduction if the shares were held at least 90 days but less than three years; 2% if shares held at least three years but less than four years; 1% if shares held at least four years but less than five years. There’s no share-price reduction to redeem shares held five or more years.

Fundrise may suspend or delay redemptions during periods of extreme economic uncertainty: It did so in March 2020, amid the economic fallout from the coronavirus outbreak, before returning to normal operations on July 1. Other companies in this space have similar practices, and it’s something worth knowing as you look into investing in real estate.

Non-traded REITs: Fundrise’s REITs don’t trade on a public exchange — they’re highly illiquid. That means there’s no guarantee there will be buyers for investors who want to sell shares. (Check out this warning from the Financial Industry Regulatory Authority, or FINRA, for more on risks to watch for with non-traded REITs.)

There are significant risks to investing in non-traded REITs, but there can be rewards, too. Fundrise’s average annualized platform returns were between 8.76% and 12.42% between 2014 and 2019, according to Fundrise.

Alternatively, you can invest in publicly-traded REITs, which trade on an exchange like a stock. Many top brokers offer a large selection of REITs.” NERDWALLET

Business Insider on FundRise

“One thing to look out for when investing with Fundrise is that your real estate investments are mostly illiquid. Unlike traditional REITs, this company offers eREITs that aren’t publicly traded on a major stock exchange.  This means you won’t be able to sell or cash out your investments as easily as you could with liquid assets such as stocks and mutual funds. This creates greater risk when the stock market is behaving unpredictably.

Another drawback is that it can be challenging to understand all of Fundrise’s fees. For instance, in addition to the 0.15% annual investment advisory fee and 0.85% annual asset management fee, Fundrise eFunds may apply development and liquidation fees. You’ll also run into other charges for retirement accounts such as IRAs.

Bottom Line: Fundrise could be a good fit for investors looking to make long-term investments in illiquid assets. The platform accepts clients regardless of annual income or net worth. You’ll simply need to meet the minimum balance requirements and be able to pay account fees.” Business Insider 

Conclusion

Easy big returns in real estate as in FundRise or other crowdfunding RE trust is not easy. So the best long term approach is to buy your very own property like I do and invest in big-name tech companies and possibly banks for 2021. This way you get the income and the appreciation.

Mike Addis, Carlsbad, California

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