What Is an Income-Producing Asset and How Does it Work?

What’s the first thing that comes to mind when you think about an income-producing asset?

Something that makes you money, right?

Well, that’s exactly what it is.

An income-producing asset is something that makes money for you without your active involvement — the essence of passive income!

An example of an income-producing asset would be a rental real estate property. In the UK, we call this “buy to let”.

These rental properties are occupied by tenants who pay a monthly fee for staying in your estate. This rental produces monthly cash flow for you so your property becomes an income-producing asset.

Anything that puts money into your pocket is an asset to you.

On the flip side, things that take money away from you are considered liabilities.

A liability is typically something that takes money away from you every month. Think car payments, household appliances and even your mortgage!

It may come as a surprise to a lot of people that their mortgage is considered a liability.

But it’s the truth. If you’re paying off your house every month through a mortgage (which let’s face it, 99% of people are) then it’s a liability to you because it’s taking money from you every month.

Wealthy people understand differences between assets and liabilities.

Unfortunately, this isn’t something we’re taught in school, but it is crucial to learn if you want to succeed financially.

How the rich get richer

Wealthy people have a sound understanding of how money works. They know that the ultimate path to financial independence and freedom is through building multiple streams of income.

These streams come in the form of passive as well as active income, with more emphasis on the former.

So instead of wasting money on depreciating liabilities, they will invest their cash flow into assets that can produce long-term gains.

Eventually, the passive income investments become quite substantial and can easily support monthly expenditures for a household. Once at this stage, smart people will continue to invest their money further to increase the amount of passive income they produce on a monthly basis.

The combined strategies of reducing monthly liabilities and increasing passive income investments provide the gateway to financial freedom.

How you can invest in an income-producing asset

You don’t need to be a genius to invest in an income-producing asset. You just to perform your due diligence and invest wisely.

You can start small, heck you could even start a blog and earn passive income through creating content that helps and serves people. There are so many ways of making passive income in this day and age. The internet is full of passive income ideas and the opportunities have never been so great.

I’d suggest starting with a few thousand dollars. Typically people invest this in the stock market or they start a business that has the ability to eventually being a passive income operation.

The choices are limitless and thousands of people have already leveraged the power fo the internet to create incredible businesses and income-producing assets.

Don’t be fooled by the traditional business models that require huge startup investments to get started. These businesses have high overheads and low-profit margins.

Instead, I would recommend online businesses because they have a low startup cost and can be scaled up rapidly into something extremely profitable. The plus side to having an online income-producing asset is that your overheads are almost non-existent.

So you can say hello to profit margins of up to 90%.

My personal favourite way to invest in income-producing assets

One of my favourite investment methods has to be real estate. You can’t go wrong with investment property. Nothing is going to change the fact that we all live in flats/house/apartments. No technology will replace the need for people to have homes.

So real estate will always be a great industry to get into.

Once you own your portfolio of properties, you can enjoy that sweet passive income for years to come. Of course, it’s not like it’ll be plain-sailing because there will always be obstacles but the very fact that we have the ability to create these income-producing assets is pretty amazing if you ask me!

So now you know what an income-producing asset is and how it works. You should also have a rough understanding of what is classified as assets and liabilities. I hope you found this post useful!

By | 2018-07-09T11:18:07+00:00 April 19th, 2018|