Investing for income has become pretty difficult in the last decade.
The yield on 10-year U.S. Treasury bonds hasn’t been higher than 5 percent since before the Great Recession, and in the intervening years we’ve seen both government and corporate bonds yield less and less.
Yes, the stock market has been booming during that time. But right now, the Standard & Poor’s 500 index offers a dividend yield of less than 2 percent across its constituent companies. And while smaller and more volatile stocks offer the promise of bigger dividends, they also offer much bigger risks.
In this environment, many Americans are looking beyond traditional blue-chip stocks and bond investments to find the yield they desire.
And increasingly, some of those investors are turning to real assets. Here are five outside-the-box ideas for investors looking to generate a reliable and regular distribution from their portfolio:
[See: Hot Off the Grill: 8 Stocks for Tailgating.]
Rental properties. According to Pew Research Center, more American households are renting property than any time in history. That means now is a great time to become a landlord, if you can afford to purchase a property and lease it out to someone else.
Collecting rent checks is obviously a great way to earn regular income. But keep in mind that being a landlord means fixing anything that breaks — or running down deadbeat tenants if they don’t pay their bills. If you have a well-kept property and a high quality renter, however, there is a lot of potential payback from becoming a landlord.
That’s particularly true if you do your research and buy a property that appreciates in total value, too, over time; after the renter leaves, you may get a sizeable return on your initial investment by selling the property.
Storage facilities. Don’t want to mess around with background checks or fixing leaky faucets? Well, a less glamorous but equally attractive way to generate revenue is from the rental of storage facilities instead of a home or apartment.
The initial capital outlay may be bigger in many cases, but the good news is that an investment in storage real estate is much easier to deal with than rental housing. After you build the lockers, you simply collect checks from the tenants — and if and when those tenants don’t pay, a good contract shows you are within your rights to simply seize the contents of the locker and auction them off like you may have seen on some reality TV shows.
It’s not glamorous, but renting storage lockers can be a lucrative and reliable source of income.
Mineral rights. Another potential income stream from real estate comes in the form of mineral rights to resources on or under that property.
From the Marcellus shale formation in Pennsylvania to the Permian Basin in western Texas, many areas of the country have seen a boom in oil and gas exploration thanks to 21 st century technologies like fracking and horizontal drilling. That means if you have property in these regions, there’s a chance an energy company will pay you for the drilling rights.
Unfortunately, it’s hard for most small investors to scale this up. Real estate isn’t exactly a liquid investment that’s easy to buy or sell. And while missing out on a drilling deal isn’t the end of the world, there is serious risk that the property itself could lose value over time.
If you’re thinking of investing in a property for the mineral rights, make sure you do your research and have a ton of patience.
[See: 7 Dividend ETFs for the Income-Minded Investor.]
Farmland. You may think working a farm is hard work for the young, not for a retiree. However, the average age of farm operators has climbed to older than 58. That’s in part because many U.S. farmers are in rural areas while younger Americans are more apt to move to cities, but it’s also because modern farming technology makes it easier to work the land — so long as you can afford the tractors and other gear.
Also, deriving income from farmland doesn’t have to mean you have to get up at the crack of dawn and buy expensive machinery to tend the crops yourself. In some communities there are farmers who are more than willing to rent extra available farmland from nearby properties and use their existing equipment to simply increase the size of their harvest.
Of course, finding a tenant farmer isn’t a guarantee — and many acres of farmland is harder to buy or sell than a single-family home in an active real estate market. But the right properties can generate a nice return.
Intellectual property. It may not sound like a “real” asset, but make no mistake — intellectual property is indeed property. That’s true whether it’s a blueprint, a song or a patent.
The good news is you don’t have to be an inventor, best-selling author or recording artist to derive a generous stream of income from royalties. While it’s obviously great if you have the talent to create your own intellectual property, there is actually a pretty active market for the licensing of other people’s work.
Sites like Royalty Exchange auction off the rights to music — and not just lowbrow tunes, but work from artists including the Grateful Dead and Earth, Wind & Fire. Other middlemen like Ocean Tomo auction off intellectual property and patents from items ranging from 3-D printers to telecom hardware.
Obviously, the art or products or patents that see busy licensing activity will cost you the most money to acquire. Keep that in mind, since it’s probably unrealistic for a small buy-in to generate regular or substantial royalty payments.
[See: 12 Terms Every Investor Needs to Know.]
But if you have the cash and if you’re knowledgeable about a particular form of art or technology, getting paid via royalties can be a great way to derive regular income from your investment.
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