“Don’t look for the needle in the haystack. Just buy the haystack!.” -John Bogle
This quote resonated with me as I began to research “Royalty Income Investments” I saw someone mention them on an Instagram post. So I wanted to know more about them and it is my belief they are another form of passive income. What is a royalty income investment? Royalty income comes from payments one receives from a patent, a copyright, or some natural resource that you own. Royalties are slightly different that stocks they provide a stable, fairly low-risk alternative for investors. Investors are guaranteed a monthly payment based on the company’s revenue.
Royalties are often used as alternative investments in three key areas: entertainment, oil/natural gas, and financing.
Venture financing- Traditionally, lenders invest in a business in exchange for part ownership of the company, which provides the business owners with funding to further grow their business. The investor makes their money back if the business is acquired or has an initial public offering. In royalty-based financing the business owner does not have to share ownership of the company with the investors. Investors receive a monthly payout based on the revenue of have to share ownership of the company. Additionally, royalty-based financing is a hybrid small business loan that combines assets from venture-capital funding and bank loans.
Gas and Oil – Owning a natural gas or oil royalty trust is similar to having partial ownership of a natural gas or oil. Majority of the profits go to shareholders. However, cash flow is tied to the commodities produced by the trust. Oil reserves, becomes more valuable in an inflationary environment. Company cash flow are protected from inflation.
Entertainment- Entertainment royalties include streams of music, movie, television, book publishing, etc. Songwriters, producers, artist, screenwriters, and organizations such as BMI and the Screen Writer’s Guild for screenplays. Currently, for the royalty owner is available only by selling their entire works or locking up all future income using the royalties as collateral for a loan. With The Royalty Exchange, the owner may sell any percentage of their royalty income at auction to buyers who are interested in streaming. The owner is able to set the minimum price they will take the reserve price, so there is no cost or risk for them as the seller.
Royalty Exchange is an American company that operates an online platform for buying and selling royalty assets of any type, mostly, music where royalty owners can sell their future payments to investors as alternative assets. Find out more here https://www.royaltyexchange.com/
It is my belief that is another way to generate both passive income and wealth. The stock market is not the only method for investments. I am not minimizing the stock market but this is also a lucrative investment method.
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