If you want passive income from your hard-earned investment capital, there are a ton of options. In this article I'll give you my top 5 investments for passive monthly income in 2022
Published On: May 3rd, 2022
How to Invest 100k for Passive Income in 2022
From dividend stocks and bonds, through various forms of real estate, if you are lucky enough (or have worked hard enough) to have 100k to invest for passive income, there are more options today than ever before.
In this article, I’m going to give you my personal top 5 investing options that are delivering a great rate of passive income in 2022.
The term passive income is fairly subjective. Some folk say that rental property income is passive… as an owner of over 100 rentals I personally disagree.
In fact for me, there is really no such thing as truly passive income. At the very least you need to continue to keep an eye on things after you make an investment no matter what it is.
For example, you might buy shares in a REIT stock. Your monthly dividends will turn up automatically, but you still need to keep an eye on the market, as well as the stock you’re invested in. that’s just common sense.
That said, You’re not going to have to micro manage that investment, or check on it every hour of every day.
For the purposes of this article, let’s define passive income as income from investments that do not require any active day to day management.
With that said, there are plenty of passive income investment options today that fit this description, so where exactly should you put your money?
Again, the answer is subjective…
It really depends on you, your tolerance for risk, and your requirements in terms of things like liquidity and your long-term investing goals.
What’s makes for a good investment for you might be the wrong choice for your neighbour, so make sure you put the effort in to understand your own preferences and parameters first.
So, now we have a broad definition of what passive income actually is, let’s get started…
The Power of Compound Interest
Before we get into the actual investing options I have chosen, it’s definitely worth covering the importance of how your passive income is paid because that is going to be a big deciding factor in my choices.
Unless you are investing for income to spend today, you are most likely looking for passive income in order to leverage the power of compound interest.
Compound interest is the most powerful force in investing. It is by far the fastest, most efficient, and simplest way to build long term wealth.
Simply put, compound interest occurs when you immediately reinvest the income from your investments into more assets. Those assets then generate even more income, which is again reinvested. Before long your income snowballs and you are getting interest upon interest upon interest.
The difference this makes to your overall portfolio value over the long term is staggering.
This great chart from Wealthy Corner shows the difference between investing in the S&P 500with and without investing dividends.
Using this model, if you had invested just $1,000 in 1971, by 2021 (50 years, you would now have:
1. $39,000 without dividends reinvested (price return); or
2. $131,100 with dividends reinvested (total return).
Over 70% of the total return is attributed to reinvested dividends.
Now consider that the more regularly you receive income to reinvest, the powerful and rapid the effect of compound interest becomes.
Let’s get down to brass tacks. This is my personal list of investments that passive monthly income in 2022.
Remember, this is my list. These selections work for me, they are not intended as investment advice or financial advice. As I have already stated quote clearly, you make your own investing decisions that are appropriate for you, your family, your risk tolerance and you personal investing goals.
I have been involved in well over 100 private lending transactions as a lender and a borrower.
When it’s done right this can be a great way to earn passive monthly income, while at the same time holding a piece of insured real estate as security for your investment.
Essentially, a private lender works with a real estate investor and acts as the bank.
The lender provides funds to the RE investor to purchase a property, which typically then the RE investor will renovate and either sell or refinance to pay back the lender and take their own profits.
There are plenty of risks involved as onw might imagine, but let’s be honest, probably the lowest risk position in the real estate investment cycle is the bank, so it’s a great place to be if your specifically want to earn passive monthly income in the form of interest check.
If you like the idea of asset-backed monthly interest income, but you don’t want to set up your own deals, you can buy performing notes from other investors.
A performing mortgage note is simply a mortgage note, secured against real estate, where the borrower is up to date on their payments.
When you buy real estate notes like this, you become the lender, and (all being well), you simply sit back and collect monthly interest and principal payments from your borrower via a loan servicing company.
The secondary market for mortgage notes is worth billions upon billion of dollars, and note are traded freely between investors every day on online note trading platforms like Paperstac.com.
Remember, if you are investing in mortgage notes, there is always the risk of borrower default, but then you always have the underlying real estate to fall back on if you have to foreclose a loan.
Continuing on with the real estate theme – and why wouldn’t we? real estate produces monthly income, so it fits pretty well with our investing theme of passive monthly income here, right? We turn to real estate syndications.
Syndications are simply pools of investors that club together to to purchase much larger real estate assets than they would be able to afford alone.
For the most part, syndications are set up by a General Partner or Sponsor to purchase large commercial real estate assets such as multifamily apartment blocks.
The GP/Sponsor will find a suitable property, put together a value-0add plan, do the due diligence, secure financing, and negotiate the purchase. Then, they will raise money from passive investors to fund the cash required to purchase and renovate the property.
In most cases, the GP will also invest some of their own cash in the deal.
The passive investors in a syndications will often receive a preferred return, which means they are paid out of any property income first up to an agreed amount (6% for example), then any income after that is split between the GP and the passive investors (also known as Limited Partners or LPs).
Often, the end goal is to sell or refinance the property to create a large cash distribution for investors.
because the GP does all of the work, and the LP literally just puts up some cash, syndications are a great addition to this list of passive monthly income investment.
If you are going to invest in a real estate syndication, make sure you meet the criteria (many are reserved for Accredited Investors), and make doubly sure you do your own due diligence on the project and the Sponsor/GP.
Peer to Peer lending, or P2P for short, has exploded in both popularity and accessibility in recent years.
Quite simply, P2P lending involves one person providing a loan, or part of a loan, to another person via an online platform that matches borrowers with lenders.
The borrower will make a loan application via the platform. They will provide basic information such as loan amount and purpose of the loan. They will also consent to a search of their credit file.
Investors can then access that information and select which loans they want to invest in. As an Peer to peer lender, you can fund entire loans, or smaller pieces of multiple loans in the form of notes. Some platforms have notes as low as $25. Investing in multiple loans like this is a great way to reduce risk of default with any single borrower.
The P2P lending platform handles all the admin such as underwriting, loan closing, distributing loans to borrowers, and collecting monthly payments. Monthly distributions are made to the investors, and the platform will usually deduct a management fee of around 1%.
Returns vary from site to site and loan to loan depending on the quality/risk of the borrower.
As a general rule, you should be able to generate an overall 10% p.a. return on your money if you invest in a portfolio of loans across a range of borrowers.
Remember that unlike private lending or performing mortgage notes, most P2P loans are unsecured, so if your borrower defaults you may lose everything.
Whether you choose to invest in individual stocks, or via a collective investment such as an ETF, There are few different kinds of stocks that pay monthly dividends to their stockholders, including:
Real Estate Investment Trusts REITs
Master Limited Partnerships (MLPs)
Business Development Companies (BDCs)
Royalty Income Trusts
All of these stocks have different underlying business activities and investments, and all of them pay monthly dividends.
The great thing about long-term investing for passive income is that you can be less concerned with value fluctuations. Just simply keep on reinvesting those dividends, and over the long-term the value of good companies generally goes up regardless of short term market fluctuations.
In fact, if you are reinvesting dividend income while the stock price is low, your income is buying you a bargain which will make you even more money when the stock price goes back up.
Remember, never invest more than you can afford to lose in any one investment, and make sure to take investment and financial advice from a properly qualified and licenced advisor before parting with your hard earned cash
So there you have it… My top five investment options if you want to invest 100k for passive income right now.
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