Look up terms you've never heard of or brush up on your terminology to stay up-to-date with modern trends.
How to qualify as an accredited investor for an individual:
- Have an earned income that exceeds $200,000 individually or $300,000 with a spouse for the previous two years. Additionally, one expects the same earned income for the current year.
- Have a net worth that exceeds $1 million with or without a spouse. However, this is calculated without the value of your primary residence.
How to qualify as an accredited investor for an entity:
- Any trust with more than $5 million in total assets, as well as not forming a trust to solely purchase the subject securities.
- Any entity where all equity owners are considered accredited investors.
Active income is what most of us work for each week. In other words, it is effort put in for income earned. Thus, input is directly related to the output received.
On the other hand, residual or passive income is income which is earned even when the work is completed. This comes from building assets, which pay out long after you’ve completed the work.
Active Income Examples:
Active income can be seen in the form of a weekly paycheck, tips, commissions or income from a business that you actively contribute to.
Generally, amortization refers to the paying off of debt over a period of time. This is done through installment payments. Most often, these are setup as a way of leveling out your monthly payment. To do this, the payments cover both interest and principal each month. At first, payments will mainly go to interest and very little to principal. Then, as the loan is closer to being paid off, the payment goes more towards principal than interest.
Understanding Principal and Interest
In order to better understand why amortizing loans are setup this way, lets take a look at principal and interest. Since the interest on a loan is calculated off of the most recent statement balance each month, the interest gets smaller as you make payments. This is due to making payments that exceed the interest owed on the loan, thus reducing the overall principal. Therefore, decreasing the amount going towards interest too. From this, one can see that as you make payments, the amount going to the principal increases. While on the other hand, the amount that goes to interest decreases.
Amortization In Real Estate
In real estate, the term also describes how one repays certain types of loans. An amortization schedule determines these repayment terms. Within the amortization schedule, one will receive a breakdown of exactly how much of each payment is going towards interest and the principal. In addition to this, the schedule will show the time period in which the loan should be paid in full.
Over the period of the loan, the principal is paid back in full through the installment payments. Most commonly, the periods on commercial real estate loan include 20, 25 or 30 years.
Use BankRate’s amortization schedule calculator by clicking here.
Capital is any financial asset or the value of financial assets. Even more so, capital produces wealth through investments, which generate a cash flow or capital appreciation for the investor.
Examples of Capital:
Additionally, some examples of capital include vehicles, commercial building, residential homes or software.
Capital appreciation is when the value of an asset increases. Generally, the increase is due to an increase in the market price. This typically occurs when an investor purchased an asset for one price and now demands a higher price. Furthermore, you calculate it by subtracting the original investment cost from the new market value.
Capitalization Rate, also known as the CAP Rate, is the rate of return on a specific real estate investment. This rate is based on the income the property is predicted to generate. Furthermore, when estimating the potential return on investment for the investor, you use the CAP rate.
In order to calculate the capitalization rate, you simply divide the investment’s net operating income by the current market value of the investment.
Calculating the Real Estate Cap Rate
Often we hear the term Cap Rate when it comes to real estate investments. Let’s learn
about its impact in real estate investments, as well as its benefits for investors in the
current real estate market.
What is the Real Estate Cap Rate?
It is the rate of return on a real estate investment property centered on the income that
the property should produce. You can use when you are trying to calculate your
potential returns on your investments.
It is a simple tool, that if you use correctly, can result in valuable information for you as
the investor. The capitalization rate (a.k.a. cap rate) is the ratio between the Net
Operating Income (NOI) or the gross income versus the property assets value. This tool
is used to measure the current value of properties. One benefit of using the real estate
cap rate tool is that it can show the investor’s return on investment (ROI) for one year.
How can you Calculate the cap rate for your investments?
Remembering this easy equation for calculating the real estate cap rate will put you in
front of the market. Let’s say that the NOI was listed at $600,000 and the property
assets value was generated at $100,000:
$600,000 (NOI) / $100,000 (PV) = 6% cap rate
Simply divide the property listing into the NOI to give you the cap rate percentage.
Now let’s say that your NOI was $1,000,000 and the property asset value was $13,000,000. This would equal a cap rate of 7.6%. In other words, this tells you that an
investor would receive 7.6% return on a cash investment.
Taking into consideration, that the NOI is accurate. Any operating expenses will reflect
an inaccurate cap rate.
Moreover, are property taxes current, maintenance fees, utilities, and insurance current on the property? If the property has been financed, annual finance charges need to be subtracted. These operating expenses must be subtracted from the NOI (gross income) before dividing the property assets value. This will give a more definite NOI resulting in an accurate cap rate.
What’s the benefit of using the cap rate?
The cap rate tool is beneficial when comparing property market values. The cap rate will determine if you’re at a higher risk with one property versus the other. The real estate cap rate tool is also useful when determining past and present market trends.
Typically, when you compare property investments you may have a problem because
not all investments are the same. Therefore, the cap rate is a good starting point for you
to compare profit percentages.
For example, let’s say you have 2 investment opportunities in front of you. Property A
has a market value of $230,000 and Property B has a market value of $3 Million.
Additionally, estimates that their NOI values will be $40,000 for property A and $300,000
for property B. Moreover, property A’s cap rate is 17.39% and property B’s cap rate is
10%. While the first investments cap rate is much higher, the second one will earn much
more money annually. Thereafter, you can make a more accurate decision as for which
property to choose if you had to go for one or the other.
How does it benefit Investors?
Essentially, a high cap rate for buyers or investors is a good sign. This means that the
property value is low, so the annual return will be great. On the other hand, having a
high cap rate for sellers means that the asking price for the property is too high.
The cap rate is also a tool that you can use to get a rough idea on the payback period.
You are able to calculate it by dividing 100 by the cap rate when expressed as a whole
number. For example, if your investment has a cap rate of 5%, divide 100 by 5, for an
estimated payback period of 20 years. This method is only recommendable for a rough
estimate of the investments’ payback period because few real estate investments retain
a contact cap rate over a long period of time.
While this is a great tool, it also has its limitation. One of them being that it is not very
useful for short-term investments. Having a little time to produce a trustworthy cash flow,
it can make it almost impossible to get an approximate number in a limited amount of
Although it provides important and useful information when making your decision for an
investment property, it can also misguide you. It is important to use this great tool
keeping some of its drawbacks in mind.
Finally, a point to remember, is that cap rates are most often considered to be cash
transactions and that cap rates differ depending on cities and neighborhoods. If
assessing trends and market values, compare properties that are identical. For
example, same size, same location, and same age. Do not try to use a cap rate tool for
an apartment building with renters versus a single-family home rental. This will give a
false cap rate.
From your credit report, credit reporting agencies calculate a score. Then, the score the agency calculates is your credit score. Additionally, this score allows lenders to easily see an individual’s credit worthiness. Therefore, when you are assigned a score between 300-850 based off your credit history information each weighs differently. Thus, an 850 is extremely credit worthy and a 300 means quite the opposite.
Credit Reporting Agencies:
Crowdfunding is the method of obtaining capital in small amounts from a wide base of people to launch a new project. Through the use of social media and online platforms, businesses have easy access to a wide number of people that are interested in their next venture.
Types of Crowdfunding:
Within this method of raising capital, there are a few different types. These types include the following:
Additionally, some examples include popular websites like KickStarter and GoFundMe, which were some of the first online platforms. Now that this mechanism of raising funds allows both businesses and individuals to raise funds for their next venture or be the investor, the market continues to see many new ideas come to life.
Crowdfunding Real Estate
Crowdfunding real estate is a relatively new method, which utilizes crowdfunding to raise capital for real estate investments. Through this type of real estate investing, investors are able to invest in a wide variety of properties without having to deal with mortgage brokers, real estate agents or contractors.
Instead, the crowdfunding platform will take care of the day-to-day tasks to ensure successful completion. Thus, allowing you to gain the returns without all of the hassle of “fixing and flipping” homes on your own.
Types of Investments
Furthermore, within these real estate investments, there are typically two distinct types of investments an investor can make. These two types include, equity and debt investments, which you can learn more about here.
Of course, you can learn more about how crowdfunding real estate works here.
The old way to invest in real estate
Before crowdfunding real estate was an option, investing in real estate depended mostly on business connections. It was all about who you know and how much money you had. Under the Securities Act of 1933, private securities could not publicly solicit investments. Plus, the minimum threshold to invest in these deals was usually in the six-figure range. The high amount needed to invest coupled with a ban on investment solicitation made it impossible for any average investors to earn a spot in the real estate market. For developers, the pool of investors was very restricted which made earning capital difficult.
The future of real estate investment
When the Jumpstart Our Business Startups Act of 2012 was passed everything changed. Now, developers can directly market to accredited investors. Real estate developers have adopted the crowdfunding model to find new investors who are eager to enter the market. Potential investors can literally choose where to invest their money from their smartphones and tablets. Plus, they don’t have to fork up $100,000 or more. While the SEC is still reviewing a few materials in this process, the hope is that this method of investing in real estate development will continue to thrive. Even more so, that it will provide some great alternatives for investors in the future.
How can crowdfunding real estate affect you?
However, the great news is that you can now gain access to the real estate market without having exclusive business connections. Additionally, by participating in crowdfunded real estate ventures, investors now have a voice in the development process and can be more involved than ever. With so many more options available and all at different price points, investors can now be choosey about where they want to invest their money.
Debt forms when one entity borrows money from another. Often, debt forms to cover the cost of a large purchase, which otherwise one can’t afford. These types of debt arrangements allow the borrowing entity to borrow funds by setting up installment payments and generally includes interest.
In accounting, depreciation is the method of distributing the cost of an asset over the period if its lifespan. This is determined with the assets useful lifespan. For businesses, taxes and accounting use depreciation on long-term assets. Furthermore, businesses can deduct the cost of these assets. However, the assets must depreciate and follow IRS regulations when doing so.
Conducting due diligence is, often, an overlooked and misunderstood process when you’ve decided the route you’re going to take when investing. Having a good idea and money making mindset is not all it takes to make a meaningful and profitable investment. What comes first is understanding the steps and processes it takes to knowledgeably make an informed investment decision.
How to Conduct Due Diligence Before Investing
With due diligence comes many steps towards making a meaningful investment. By following these steps, you’ll be well on your way toward making well thought-out investments.
Analyzing the Destination of Your Investments
Before investing, you should do your research on the type of company, stock, etc. that you will be investing in. If it is with a company, be sure to analyze that company and determine what their markets look like. Are they a big company? How many employees do they have? How much do they pay their employees? What is their return rate? What do the fluctuations look like?
These are all questions you should be asking yourself. There is no judgement here, because knowing what you’re getting yourself into is the first step toward making a high-quality investment.
What do the Numbers Look Like?
Margin trends, profit and revenues. What do they look like? What is your ideal return rate, and what does the profit look like if you decide to follow through with your investment? Once you analyze the investment location, find out what the normal, day-to-day numbers look like. Is it worth your investment?
Competitors and Contenders
Wherever your investments will land, you should do a comparison between potential contenders and competitors. Who has the best rates of return profits? Which one seems more reliable and steady? Not only should your profits be apparent, but they should be stable as well. There is no point in investing if your profits are not safe in the hands of the investment.
Find out the history of the company, stock, crowdfunding opportunity, etc. you will be investing in. Figure out what prior investor’s return rates look like. Was their investment worth it? It’ll help you determine whether or not your investment will be worth it.
What are you getting yourself into? Is it worth it, High-yield investments are not always a bad thing, but just what exactly is the high-yield aspect of your investment. If the history looks good and the investment location looks good, then finish your research and go for it.
Just remember, not all investments will make miracles happen. High yield or not, you shouldn’t expect all investments to double your profits, especially not immediately.
Proper research should be conducted prior to any investment. Due diligence is important when it comes to investing, and as there are more steps than the ones stated above, these are the most basic. The numbers should be greatly looked into, and any risks should be appropriately acknowledged.
Equity is the value an asset holds minus the value of any liabilities on that specific asset.
Generally, you will find it defined by the following equation:
Equity = Assets – Liabilities
Furthermore, when speaking about it in real estate, one is looking at the real property value. Usually, this is calculated by subtracting the current market value of the asset from the amount owed on the property.
However in crowdfunding real estate, the investor becomes a shareholder in the property. Therefore, the investor either collects returns when the property sells or via rental income. Of course, these returns are directly proportionate to how much is invested in the property.
When two parties begin a transaction that involves an asset, a third party holds the asset for the other two parties until the transaction is complete. Until the escrow agent receives specific directions, they hold on to the asset(s).
Escrow in Real Estate
Often in real estate, these accounts are used. This is to ensure the buyer has enough time to conduct their due diligence. Additionally, this allows the seller gain assurance the buyer is capable of closing on the transaction.
For example, when selling a house, one generally creates an escrow account. This ensures that if specific conditions exists, that they are met prior to the transfer. Once all terms are met, the sale is final and funds transferred from the account to the seller. Likewise, the buyer receives the title at this time.
An illiquid asset refers to an asset that is not easy to sell. Generally, this is due to a lack of interested investors in the marketplace.
Illiquid Asset Example
An investment opportunity is available for a single-family residential home. However, comparables in the area sell for less than what the opportunity is projecting the sale value to be. Therefore, the interest level from investors is likely going to be low.
Internal Rate of Return (IRR)
Internal rate of return, abbreviated as IRR, is utilized when budgeting capital to determine how profitable potential investments will be. Even more so, it is considered a discount rate. This is because it makes the net present value (NPV) equal to zero for all cash flow from a certain project. Furthermore, internal rate of return is calculated in the same manner as the formula for net present value uses.
Here is how to calculate NPV:
Ct = net cash inflow during the period t
Co = total initial investment costs
r = discount rate, and
t = number of time periods
Therefore, in order to determine what IRR is equal to using the above formula, you would simply set NPV to zero and solve for the discount rate. However, IRR is typically not calculated analytically, but through trial and error or specialized computer programs.
Usually when a project has a high internal rate of return, it is more desirable to take on the project. Many use the internal rate of return to rank the project opportunities available to make a decision on which is most optimal to take on.
There are items you may also here the internal rate of return referred to as the economic rate of return.
An investment property is any real estate property which the primary reason for purchase is to generate a return on the investment. This can be through rental income, future sale or both. Furthermore, an investment property can be a long-term or short-term investment.
Investment Property Examples
For example, “fixing and flipping” houses is generally a short-term investment. This is because the purchase of the property occurs. Then, the home undergoes renovations and sells immediately for a profit.
However, property utilization plays a large role in the overall value of the investment. For this reason, many investors carefully inspect the area and asset uses prior to investing in the property. An example of this is if you were looking to purchase a property that has use for either residential and commercial. Here is where you want to weigh which property use will generate more profit for you in the long run.
Jumpstart Our Business Startups Act
The Jumpstart Our Business Startups Act, also known as the JOBS Act was signed into law on April 5th, 2012. This act reduced restrictions for small business for how they raised capital for their ventures. Thus, the law allows businesses to go to the general public, so long as they have less than $1 billion in annual gross revenue. Additionally, the JOBS Act aided many crowdfunding platforms, as they can now solicit for investments from a variety of investors.
Raising Capital After the JOBS Acts
Once the JOBS Act was signed into law, crowdfunding real estate platforms gained the ability to advertise anywhere they please. In addition to this, the platforms are now able to bring the investments to the general public with ease.
Limited Liability Corporation (LLC)
A limited liability corporation, abbreviated as LLC, is one type of corporate structure. This type of structure allows the members of the company to not be held personally liable for liabilities or debts that the company creates.
LLCs in Real Estate Investing
Oftentimes, limited liability corporations are setup when investing in real estate for tax and risk purposes. Additionally, LLCs are setup when investing in real estate for the following reasons:
- First of all, LLCs provide protection to the investors, as well as exempting them from certain taxes. Most importantly though is the tax exemptions, as this allows investors to easily benefit from debt deprecation deductions.
- Secondly, this type of entity allows the members of the LLC to comprise nearly every aspect of the management and financial structures of the entity. Even more so, an individual, corporation or other partnership can become members of an LLC. Therefore, easily allowing real estate investments to meet their fulfillment requirements by individual investors or institutions.
- Another reason many real estate investments structure themselves as an LLC is due to the removal liability. This means members and managers cannot be held responsible for the debts of the entity simply because they are a member of the LLC. Of course, the LLC does not protect any member or manager from their own misconduct.
- Lastly, the tax exemptions LLCs receive is another reason many real estate investments structure themselves this way. Since under federal income tax rules LLCs are not subject to federal or state income tax, disbursements won’t necessarily make the income tax liability of the LLC rise. Due to this, each member reports the income on their personal tax returns instead.
Liquidity can easily be translated into the amount of time and cost it will take to turn investments or assets into cash. A liquid investment can be directly related to retirement funds or a child’s college funds. It is very possible for your investments to become too liquid or not liquid enough causing the end result to produce little to no return. Improper liquidity, or investing in short-term investments for long-term goals, can lead to insufficient funds when you thought the turnout would be the opposite. Therefore, liquidity is the leading cause of financial problems compared to other financial options.
Understanding liquidity is the first step toward determining investment liquidity. The easiest way to find liquidity in your investment is through determination. How long will it take for the funds to be easily accessible and in your pocket? For example, a retirement fund is not very liquid, especially at the beginning of the fund’s generation, because accessing it takes years and paperwork and won’t be in your pocket within a few days or hours. Investing in stocks, however, is very liquid because although you can’t sell your stocks over the weekend, you can easily hire a broker to quickly return your investments during business days.
Type of Liquid Investments
Savings accounts are one of the most liquid investments you can make today. They offer the same amount of liquidity as a checking account, giving you access to the funds 24/7. It is a very traditional investment form and offer high interest rates giving you sufficient funds as time passes.
Stocks and Bonds
Stocks and bonds can be seen from both sides, having little liquidity to having massive liquidity. This is because the sole purpose of stocks and bonds are to be untouched as revenue increases, giving it little liquidity. You can, however, easily access the funds in your investments by hiring a broker, giving it much liquidity. This generally isn’t always a good idea, because stocks and bonds tend to take at least a year to return your original investments.
Money markets are known for their versatility and, therefore, high liquidity. Investing in money markets can be compared to investing money into a savings account. However, money markets offer a higher return rate without impacting the liability of profits. They are both safe and dependable, as well as very accessible.
Annuities are great for retirement funds, because they allow for a steady and stable income on a fixed and set schedule. However, they are known for their lack of liquidity. This is because investments are only accessible on a quarterly to annually basis. Removing the original investment amount is nearly impossible, giving it an extreme lack of liquidity. The ability of an annuity changing rapidly depends on whether your investment is with a money market and/or stock.
Investing in crowdfunding is a low-liquidity opportunity. It offers great returns via yielded investments, but funds are not accessible until your returns are made clear. You are investing in someone that has the power to double or even triple your initial investment, and the lack of liquidity makes this possible. In the end, your return rates are much higher than your investment rates.
How to Easily Determine Investment Liquidity
It’s pretty simple at this point. Simply determine the amount of time it will take to access your investment and/or funds. If it is easily accessible, then the investment and account is liquid. If the investments or accounts take months, even years to access, then they are not at all liquid. Liquidity is not always a good thing. For example, with crowdfunding or stocks and bonds, it is necessary to leave your investments untouched to increase your profits.
Mezzanine debt typically happens when one debt issues is of less importance than another debt from the same lender. Furthermore, this type of debt is intertwined with equity instruments. These are often referred to as a warrant. These equity instruments usually increase the overall value of the less important debt. Therefore, when handling bondholders one has more flexibility.
For example, in the case of a bankruptcy, the new owners of the property receive precedence over the previous owners.
Net Operating Income
Net operating income, often abbreviated as NOI, examines real estate investments, which produce income for investors. NOI is equal to all profit from the asset minus any operating expenses, which were a necessity.
While the most obvious revenue generated from a real estate investment is rental income, properties also have the potential to generate revenue from parking, laundry services and other maintenance related services. In order to keep these services available and generating a return, there are operating expenses to upkeep the building.
Even more so, when calculating net operating income, one must remember this is a before-tax number and does not include the principal and interest payments on any loans, depreciation or amortization.
Definition: Net worth is the amount one’s assets exceed liabilities. Most often, it assesses the worth of an individual or business. When one steadily increases their net worth, they are in good financial health. However, when losses are steadily reports, the entity’s financial health is poor.
A lot of us, day by day, wonder just what our worth is in the financial world. Not many know how to access this information, while others just don’t feel the need to bother. But what about those of us who are wondering and want to know?
With many networth softwares and calculators out there, you can easily find your net worth virtually anywhere. This is easy, yes, but what’s the point if you don’t understand just how you were given that golden number. Whether it’s $1,000 to $1,000,000, understanding how to calculate it is important.
What Determines Your Net Worth?
The entire makeup of your net worth is composed of your assets and liabilities. This sounds easy to calculate, sure, but what exactly are your assets and liabilities?
To calculate your net worth efficiently, you’d need to get all of your assets in order and listed. Your assets are basically everything that you own that is of financial worth. It also includes any savings or checking accounts you may have. A few more examples are as follows:
- Checking account funds
- Savings account funds
- Retirement funds
- Market value of your home/apartment
- Market value of any vehicles you own
- Appraisable/notable items (jewelry, artwork, furniture, collectables, etc.)
- Cash value of insurance policies
- Business interest
Your liabilities, also known as your debts or what you owe, are also needed to correctly identify your total net worth. Basic examples of what these numbers consist of are the following:
- Credit card balances
- Car loans
- Mortgage loans
- Outstanding medical bills
- Personal loans
- Student loans
How to Calculate Your Personal Net Worth
Calculating your net worth is fairly easy, just total your liabilities and assets then subtract your liabilities from that amount:
Assets: $501,690.00 – Liabilities: $19,712.00 = Net Worth: $481,978
Being precise and specific helps get the most realistic, actual number. It is possible to have a negative net worth. This means that you owe more than you have, making the value below 0. Having a negative net worth means that you need to settle any debts or money you owe to increase it.
But how can you raise your net worth? Since calculating it is a good way to find out your financial value and standing, you can sort out any debts and/or make financial changes to increase it. Although it doesn’t calculate any yearly income, it clearly states what you have and what you owe. The process of totalling your assets and liabilities alone can tell you a lot.
Settling your debts can increase your net worth, and so can investments when you’ve gotten a good amount of return as a result. Investing in things such as DiversyFund’s crowdfunding real estate opportunities offers returns that could lower your debt while increase your assets. Consider this option the next time you calculate your net worth.
Preferred equity is different from common equity. This is due to investors receiving preference when distribution of the common equity occurs.
Generally speaking, all profits in a preferred equity investments will pay out to investors once all of the debt are repaid. After investors receive their preferred return, the remaining profits go back to the common equity holders.
A preferred return is a profit distribution preferences. To put this more simply, an investment’s profits disburse to one equity class prior to another in this distribution structure. Furthermore, investors continue to receive disbursements until the agreed on rate meets fulfillment. Due to the structure of the profit distribution, many investors find comfort in these types of returns. This is because their profits are of more importance than the sponsor’s profits.
Pro forma stands for “for the sake of form” or “as a matter of form” and is a Latin term. Within the investment world, pro forma calculates financial results. Most notably, this type of calculation draws one’s attention to present and/or projected financial figures.
Regulation A+ provides an exemption to registration requirements for public offerings of securities. However, these must not exceed $5 million in a twelve month timeframe. Additionally, this was instituted through the Securities Act and requires companies to file offering statements with the Securities and Exchange Commission (SEC). Even more so, the companies using Regulation A+’s exemption receive specific advantages, which un-registered companies do not receive.
- Jumpstart Our Startups (JOBS) Acts
- Regulation D
- Securities and Exchange Commission (SEC)
- Title III Regulation Crowdfunding
Regulation D is a regulation developed by the Securities and Exchange Commission (SEC). Even more so, the new regulation aids in governing private placement exemptions. Most notably though, the regulation allows smaller companies to raise capital via the sale of both debt and equity securities without registering these securities with the SEC.
Real estate is any property that has both land and buildings. Additionally, any natural resources on that properly is included in the real estate. Furthermore, real estate is categorized as follows:
Definition: Once the individual pays all debts and expenses, the remaining income in their possession is the individual’s residual income. This can include, a mortgage, car loan or other type of debt. Generally, one calculates their residual income after paying all expenses for that month. Furthermore, an individual calculates their residual income on a monthly basis.
Believe it or not, there is such a thing as getting rich overnight. Don’t take it too literal, you won’t wake up with millions in your bank account. Instead, anyone can greatly increase their income within the year. Look at the successful business people of today and do your research. You’ll notice a trend, that a majority of them were not born into wealth and, instead, earned their riches as time went by. They now make enough money to last for generations. But, how exactly does that happen, and can it happen to anyone?
Residual (or Passive) Income
To sum it up in one sentence, residual income is the money you generate after completing the task at hand. It’s the money you make while you’re at home, with your family or snoozing away the night. It doesn’t require anything as much as a lift of the finger and can be done by anyone, anywhere. That should answer your question, even you can do it.
A good example of someone who made residual income was Steve Jobs, prior to his death. The initial Macbook Pro was released in 2006 and, believe it or not, Steve Jobs was still earning money off of this product for years after its release. This passive income required no additional work to be done to the product, instead the sales just came rolling in. But in between the release of the product and Steve Job’s death, things such as manufacturing, marketing and more were required to make quality passive income.
It’s NOT A Get Rich Quick Scheme
Don’t get the wrong idea about residual income, it requires work, and it’s not a way to get rich quick while sitting around doing nothing. In order to get the ball rolling, you’ve got to do hard work. Once you do get the ball rolling, your attention is needed to ensure things run smoothly.
If you are to begin the process of making residual income, you should get the fairytale version of lying around and doing nothing out of your head. Don’t let the name fool you, passive income requires work, no matter how much the word “passive” is thrown around. Lying around once the funds begin generating, in fact, gets a bit boring. Not everyone enjoys working, but many of the billionaires of today continue to work even after their residual income takes effect.
How to Make Residual Income
There are many ways one can begin making their passive income such as creating/selling a product, leasing/renting out properties, selling the rights to a product you own, etc. One of the top ways a person makes residual income is through crowdfunding real estate.
Crowdfunding real estate works simply by investing money with one of DiversyFund’s top real estate properties – as little as $5,000. Once you’ve invested, any funds you make off of the investment is immediately deposited back into your account. Your investment and its returns are given back to you to make reinvesting simple and easy.
This is where the work comes in, investing and getting your return is only half of the residual income process. Before you start investing, you must be sure to conduct the proper research. This is also referred to as due diligence. By doing so, you can be sure you’re investing in a sound investment. After that, simply start investing and earning the residual income you’ve been looking for. To keep the income coming, we’ve made reinvesting as simple as possible for you too!
Now that you know what it takes to make residual income, why not begin now? Investing with DiversyFund makes things as passive and easy as they can be.
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission, also known as the SEC, is a government organization that the United States Congress formed. Furthermore, the commission’s overarching goals are to protect investors, maintain fair and orderly operations of the securities market and aiding in capital formation. Recently, the SEC continues to assist startups, such as crowdfunding real estate platforms with new regulations allowing average investors to take part in real estate investments.
A sponsor is an individual or entity that provides the necessary funds for a particular venture. Additionally, another individual or entity carries out the venture. For example, in the case of real estate crowdfunding, the developer is the sponsor for the investment opportunity.
The term of an investment has two distinct definitions.
- The life cycle a specific asset or liability has. In this care, the value is predicted to either increase or decrease.
- The timeframe the life cycle of an investment has. For example, in a debt investment, this would be the amount of time it takes to pay the lender back. On the other hand, in an equity investment, this is the amount of time that passes between acquisition of the investment and sale of the investment.
Title III Regulation Crowdfunding
Title II Regulation is within the JOBS Act in 2012. Within this regulation, it directed the SEC to form an exemption from registration. Thus, allowing issuers to more easily use crowdfunding for equity offerings to the general public.
Now with the Title III Regulation Crowdfunding, crowdfunding offerings simply mandate review of financial documents. Furthermore, this is for any offering that’s between $100,000 and $500,000. Then, for offerings that exceed $500,000, audits must be provided of all financial documents. Additionally, there is a maximum offering amount set at $1,000,000.
Transparency is the readiness of financial information about a company to their investors. Furthermore, these documents can include, price levels, market depth and any audited financial records. Therefore, by having transparency, price volatility decreases greatly, as it allows all to base decisions on the same data.
An unaccredited investor is any investor that does not meet the requirements set out by the Securities and Exchange Commission. Furthermore, these requirements are in the SEC’s Regulation D.
Even more so, these requirements mandate anyone who has a net worth over $1 million (including spouse). In addition to, the individual must have earned more than $200,000 annually ($300,000 with spouse) in the last two years to be an accredited investor.
Underwriting is a process, which investment bankers utilize to raise capital for their investments. Generally, these are for large corporations or governments, who are issuing equity and/or debt securities.
Underwriting: An Age Old Process
Centuries ago, individuals would write their name down with the amount of risk they were willing to accept responsibility for. Today, the same practice is still in effect. Now, when new items come to the market, each firm has a specific amount of responsibility and risk within the specific investment.
When talking about the yield definition, one is referring to the income return on an investment. This can include, interest earned, dividends received or other profits generated. Generally, one calculates this as a percentage. It is based off of the investment cost, current market value, as well as its face value.
Understanding The Yield Definition
Every investment comes with some risk. This is what the yield is associated with. Therefore, if the risk is high, the higher the returns. Besides secure investments like zero coupon bonds, the yield is never a guarantee. Since it is not a guarantee, it can be classified as an estimate of the investment’s future performance.
High yield investments are the grounds for a greater income. But, we all know increasing your revenue means taking greater risks. This is why finding high yields today generally includes investing in products or services that most do not invest in. That’s exactly where the high risk aspect comes in.
Understanding High Yield Investments
Investing in a high yield product or service requires extensive research. You may be walking into risky business. This is why being prepared is the first step toward making quality, long-term outcome investments. You should also evaluate potential investments with skepticism. That way you can get an idea of the possible outcomes taking the risk could produce. While the possible income from high yield investing may be great, be aware that your initial principles may fluctuate.
So where does one actually begin their search for high-quality, high yielding investments?
Preferred stocks are mostly known for paying a fixed rate dividend at very regular intervals. In technicalities, preferred stocks are equity investments. However, many refer to them as being part bond and stock. This is because of their interest rate sensitivity: their interest values rise when the rates fall, and vice versa.
A real estate investment trusts allows you to invest in mortgages, property, office space, storage and more. REITs then offer you a share as a result of exchanging government tax breaks. They model mutual funds and produce regular income.
High Yield Bonds
These type of bonds have the potential of producing drastically high return rates. High yield bonds have a reputation of being junk bonds, but when investors go for mutual fund high yield bonds they have a better chance at lowering the risk and increasing profit.
The financing of startups with long-term potential are what venture capitals are. The risk comes in with the fact that venture capitalists have a day in every decision that the startup makes. They can, in the end, make it or break it for a startup.
Master Limited Partnerships
MLPs are limited partnerships that progresses it’s income through the investor. The company you are investing in then avoids paying income taxes. Therefore, requiring you, the investor, to pay company level taxes on any profit. This where the yield comes in, risking you to pay income taxes despite the revenue amount.
Crowdfunding Real Estate
DiversyFund offers high yield crowdfunding real estate investment opportunities for as low as $5,000. The profit potential from crowdfunding real estate investments can be anywhere from 12-18%. This is higher than standard real estate investment revenue. Plus, you don’t have to be the one to purchase and flip the home. Instead the crowdfunding real estate platform does all of the work while you simply generate income.
Of course, none of these high yield investments guarantee to double your income instantly. Instead, they are a reference on where you should begin your research. High yielding investments bring great risk to any investor. However, they have the potential of driving massive income into your pockets if planned out well and correctly.