The name of the game in wealth building is to acquire assets that generate income for you over time.
Asset accumulation is usually the fastest and most reliable way to achieve financial independence early.
Gather enough assets that put money in your pocket each month and eventually you’ll be able to live off of the cash flow without relying on earned income from a day job.
This list is meant to provide you with a selection of the most reliable and popular income generating assets.
At the end of the day, everybody’s skill set, interests, and risk appetite are different. So while all of these ideas might not be for you, odds are some of them might be a good fit.
What Is An Income Generating Asset?
What do we mean when we say “income generating asset”?
Simply put, an income generating asset is an asset that puts money in your pocket each month. In other words, it’s an investment that cash flows.
There are a lot of investments out there that appreciate but don’t cash flow. For example, if I bought a share of Meta stock, I’d expect the share value to go up over time as the company turns a profit.
But Meta doesn’t pay a dividend to their shareholders. Instead, they reinvest earnings back into the business – so any gains from the stock will come in the form of appreciation. Not a bad thing, but it’s not an “income generating” asset you can own.
With income generating assets, the key feature is that some form of cash flow gets paid out to you on a regular basis.
Best Income Generating Assets
Dividend stocks are ownership shares of a company that pays a cash dividend, usually on a quarterly basis.
That means if you purchase a dividend stock, you’ll receive a cash dividend each quarter.
Popular dividend stocks include the dividend aristocrats, a list of 60+ stocks on the S&P 500 that have only raised their dividend for the last 25 years. You’ll notice some household brand names on the list, which makes intuitive sense.
Most dividend aristocrats pay a 1-4% yearly dividend yield. While that might not sound like a lot, these stocks also tend to benefit from appreciation – so the dividend is only a portion of the return.
An Exchange Traded Fund (ETF) is an investment that essentially allows you to invest into a pool of stocks.
For example, if you didn’t want to try to pick individual dividend stocks, you could invest in $NOBL – which is an ETF that holds shares of all of the dividend aristocrat stocks.
This fund also pays a dividend close to 2% and benefits from appreciation.
Real estate is an asset class that can check all of the boxes you like to see. A good real estate investment will produce cash flow, appreciate over time, and provide significant tax benefits.
There are quite a few routes you can go with real estate – here are a few income producing real estate assets:
Multifamily real estate refers to residential properties where more than one family pays rent to live as a tenant at the property.
This could be as small as a duplex or as large as a 500 unit apartment complex.
Either way the idea is simple – the aggregate rent from your tenants should be enough to put money in your pocket after paying the loan on the property and expenses associated with maintaining the property.
Short Term Rentals
Buying a vacation property and renting it out to short term renters on platforms like AirBnB and VRBO is also a viable real estate strategy.
If you do pick a property in a sought after market and do a good job hosting your property, there is a lot of potential to earn with short term real estate rentals.
In fact, a fully booked short term rental will tend to cash flow more than a similar property that is leased out to a long term renter because the average nightly rental rates for short term rentals tend to be much higher.
Real Estate Investment Trusts are real estate investment funds that are registered with the SEC in the U.S. These funds typically invest in a particular type of real estate.
A REIT could invest in office, multifamily, industrial, or even self storage real estate assets.
The benefit of investing in REITs is that you’ll get many of the benefits of real estate investing – you’ll receive cash distributions and hopefully your investment will appreciate as well.
The tradeoff for the passivity of REITs is that you’ll pay an asset management fee, which can eat into your overall returns.
Crowdfunded Real Estate
Crowdfunded real estate platforms like Fundrise also allow you to invest into real estate without having to manage property yourself.
Accredited investors can invest in individual properties on these platforms but anybody, regardless of accreditation status, can invest in funds that buy multiple properties with money raised from crowdfunding.
These platforms can be a great way to earn some dividends while also having upside potential from owning real estate.
Self storage properties tend to be quite passive after the infrastructure is built out since customers are able to come manage their storage units themselves.
That’s why purchasing self storage properties can be an excellent opportunity to acquire an income producing asset. You should make cash each month from rents, and your asset has the opportunity to appreciate over time.
RV parks are another creative way to turn land into an income producing asset.
With minimal construction costs (many RV parks just have pads and electric meters), you can start to charge modest rent for RV’ers to come park their vehicle on your lot.
Typically raw land isn’t the first type of real estate you’d target if you were looking for an income producing asset.
However, it is possible to cash flow land with recreational and agricultural uses, depending on where the property is located. Raw land can be leased out to hunters in certain parts of the country, for example.
We love online businesses for a lot of reasons – and they definitely fall into the income producing asset category. While there are certainly more online business types than we are about to list out, these are some of the most popular types.
These days, online businesses with earnings below $1,000,000 tend to sell between 2x-4x yearly earnings. Because of the relatively low multiples, these assets have the potential to be big time income producers.
Profitable eCommcerce business are a great cash flowing asset that have the potential to be highly scalable as well.
The idea is simple – an eCommerce business develops products and sells them to people primarily through a website.
The ecosystem around eCommerce businesses has grown quite a bit over the past few decades, so it’s possible to automate and/or outsource many aspects of running an eCommerce business.
Software as a service businesses are excellent cash flowing assets because they tend to generate recurring revenue.
Most software businesses charge customers a monthly or yearly subscription to access the software.
One other highly attractive aspect of software businesses is that they typically have very low overhead and ongoing costs because it is relatively inexpensive to host and fulfill software to customers.
That means a significant portion of your earnings can be reinvested into marketing initiatives while you also put money into your pocket each month.
Content sites, whether it’s a blog or a niche authority site, are a popular online business model that can make money with display advertisements, affiliate relationships, and sponsorships.
Content sites have the potential to be great income producing assets because the ongoing costs are low outside of content creation. Hosting costs are relatively low and typically, a piece of content will earn revenue for an extended period of time after it’s been published.
Amazon FBA businesses are a subcategory of eCommerce businesses – the distinction being FBA businesses utilize Amazon’s Fulfillment By Amazon (FBA) program.
With FBA, Amazon warehouses products, fulfills orders, and handles customer returns. Utilizing Amazon’s competencies in this way makes an FBA business more passive than a traditional eCommerce business.
Of course, Amazon charges fees for the service, so your margins on a per product basis will be lower compared to selling on your own website. However, FBA businesses still present the opportunity to be a consistent income producer.
Small businesses come in all shapes and sizes, and many of them can be solid income producing assets as long as you aren’t the one having to do all of the work in the business.
Here are a couple of quick small business ideas that can put regular money in your pocket.
Local Service Business
Service based businesses like landscaping, window cleaning, or pressure washing typically have big margins and can make a great business to own.
These business types tend to be in demand no matter what the market looks like, and the customers also tend to come back for recurring revenue if your employees do a good job.
Self Serve Businesses
Self service businesses like laundry mats and carwashes are inherently more hands off than other small business types. While you’ll still need to hire some employees to manage these businesses, a lot of the work is automated with machinery.
That means you can earn mostly passive income from your investment after you have the right people in place to oversee the day to day tasks of the business.
High Yield Savings Accounts
High yield savings accounts haven’t historically paid enough interest to move the needle in your net worth. But in the post COVID high interest rate climate we have seen in 2023 and beyond, high yield savings have become a viable way to make some extra income.
Rates vary from bank to bank and change over time, but at the moment it’s possible to earn a yield of 4% give or take, depending on your bank.
If you don’t have any investments you are comfortable making at the moment, putting your cash in a high yield savings account is the next best option to produce some extra income.
Certificates of Deposit, or CD’s are another income producing asset that typically pay a slightly higher yield than a high yield savings account.
The tradeoff is that your money becomes illiquid for a certain period of time, as CD’s require a 3-month to 2-year deposit in order to earn your return.
With that said, this is one of the lowest risk options to earn some extra income with the cash you have on hand.
Issuing bonds is a key way that governments and corporations raise debt. Basically, a company or government will issue a bond as debt, which you can buy, that the bond issuer will pay back with interest.
There is a lot to learn about the bond market before investing, but if you’re interested in them they are a viable way to earn income. Bonds can pay interest over time or essentially pay all interest and principal at once when the bond matures.
Also, you’ll need to research who is issuing the bond before making an investment. U.S. Treasury bonds tend to be viewed as the safest. On the other side, junk bonds are issued by struggling companies. These tend to pay the highest yields but also run the risk of default, which means you won’t make your whole investment back.
Lending privately to borrowers on peer to peer and crowdfunded lending platforms can be a way to generate income by providing debt to others.
This type of lending tends to be more risky than other types, so be sure you are doing your due diligence and/or diversifying with a lot of loans to reduce your risk of losing money.
With that said, this type of debt financing can get you a strong return due to the high interest rates associated with making private loans to people and small businesses.
A royalty at it’s core is a payment made from one party to another for the paying party’s right to use a particular asset.
More simply put, royalties are essentially ongoing fees paid to the owner of an asset for the right to use the asset.
Royalties can take on many forms, but here are a couple of the simpler ones that can produce income for you.
Self publishing books on platforms like Amazon Kindle Direct Publishing can be a very passive way to earn income.
If you don’t want to start a self publishing business from scratch, it’s possible to buy existing businesses that have a library of self published books published that are already earning royalties.
Look for genere’s and subjects that are evergreen and unlikely to lose interest from readership with time. Health, wealth, and relationships are the 3 commonly thought of evergreen niches for book content.
I didn’t know this until recently but you can actually buy the IP rights to TV shows, movies, and music on platforms like Royalty Exchange.
The idea is pretty simple – you buy the royalty rights to various work and receive royalties when the work is used on TV, radio, and potentially live.
While the idea is simple there is a lot of legal acumen that goes into making money with these types of royalties, and you’ll potentially need an attorney to help you collect from people who use your property without your permission.
While buying a new vehicle is one an absolute wealth killer and one of the worst investments you can make, it is possible to turn some vehicles into income producing assets.
Used passenger vehicles that are 5+ years old but still in good shape can be leased out on platforms like Turo. This has the potential to generate income and provide some tax benefits as you can take depreciation as a tax expense when you are using the car in a business.
RV’s are another angle to consider using the same framework. Used RV’s can be purchased and leased out to people for short term rentals to put some cash in your pocket each month.
According to investor.gov, an annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future.
An annuity is an asset that guarantees future payments. Sounds great, but the downside is that your returns over the long run likely won’t ever exceed other popular investments like index funds.
With that said, annuities can be a good fit if you’re looking for an modest income producing asset that will guarantee you payments.
How Do You Buy Income Generating Assets?
It depends on the asset type. Financial products like stocks, bonds, ETF’s, REIT’s, and CD’s can be purchased on brokerage platforms like Fidelity or Schwab (there are many others, these are just two examples).
Some other types are bought privately. Real estate, online businesses, small businesses, and royalties would fall into this category. For these you’d need to look for active listings for sale with brokerages, or you’d need to reach out to potential sellers directly to strike up a relationship.
What Should I Do With The Income Generated From My Assets?
If your goal is to build wealth as fast as possible, you should plow the income generated from your assets straight back into more investments.
This is the fastest and most potent way to get compound interest working for you.
Of course, there are other considerations and that might not be the best course of action for everybody.
For example, if you have a ton of debt that you’re paying interest on it would probably a good idea to use the extra income to pay down your debt.
You may also have reached your income goals and want to spend the income on things you enjoy in life. There is nothing wrong with that!
Why Are Income Generating Assets Important?
Income generating assets are important because they reduce your reliance on earned income. Earned income is typically taxed at a higher rate than investment income, and you’re also dependent on an employer or customers to pay your bills. Building significant income from assets will greatly reduce your exposure to earned income.
The other big reason assets are important is because they are wealth builders. Very very few people get rich from income earned at their day job alone. Far more wealthy people achieve financial indepedence from asset accumulation.
Things To Consider Before Buying Assets
Why Are You In The Game?
Consider why you think you want to buy assets in the first place. Are you trying to become financially independent? Or are you simply trying to make some extra cash to help you pay for the things you love doing. Or perhaps something completely different.
Understanding your vision and why you’re buying assets in the first place is important because there are so many different routes you can take, and not all are created equal.
Some assets require more work than others. Some are much riskier than others. If you understand what you’re hoping to get with your asset, then it will be much easier to take a path that aligns with your goals.
Consistently investing in your education will pay huge dividends. Buying your first asset is a huge financial decision and you don’t want to do it ignorantly
While it’s impossible to be ready for every single thing that could possibly happen, it is important to prepare yourself as well as you can going in.
Educate yourself on the market, key aspects of the asset class you are going after, and the legal aspects surrounding your investment to set yourself up for as much success as possible.
Grow Your Skill Set
Learning new high value skills will help you become a better investor. You’ll gain a depth of understanding of how your investment works and be able to make better high level decisions because of it.
Think about running an eCommerce business for example. Successful eCommerce businesses have to be good at product development, web design, funnel development, marketing, PPC advertising, and fulfillment on the backend.
While I’m not suggesting you should be a level 10 expert in every single one of these areas, having enough skill to know whether or not your team members are doing a good job is invaluable and will help you be a better operator.
Same concept applies to other income generating assets like real estate, royalties, or investing in the equities market.
Hire A Tax Advisor
Taxes are the single biggest expense most people pay in their lives. Don’t be ignorant to how the tax law works! In the US, the government incentivizes certain investments by providing tax benefits when certain actions are taken.
Real estate investing in particular comes with a ton of opportunity to legally reduce your tax liability. Learn what those opportunities are and take advantage of them.
The best way to learn is to partner with a tax professional who has experience with the asset you are looking to invest in. CPA’s and tax attorneys can be great resources to help with this.
Be Wise With Debt
Debt is a great accelerator when it comes to investing.
Combine debt with good investments and you will greatly accelerate your wealth.
Combine debt with bad investments and you will destroy your wealth.
This one goes hand in hand with educating yourself – understand how debt works and the risk it entails before using a bunch of leverage to purchase an asset.
While all of these ideas for income producing assets can have a huge payoff, don’t be fooled that these are inherently passive or without risk.
All investments come with some degree of risk, and almost all businesses are not inherently passive.
Even assets like dividend stocks require some level of due diligence and understanding of equity markets before you make a purchase.
All of that to say, learn about some of these assets that sound like a good fit for your goals and stick with it. The ideas on this list are the exact types of assets that millionaires consistently invest in to build wealth.