Did you know that royalties can provide you with a stable stream of passive income? Let’s go through this together as we explore ways on how you can buy royalties.
How to Buy Royalties to Make Passive Income (Books, Music, And More)
Whenever someone thinks of earning some extra money, the first thing that comes in most minds is getting a part-time job. Many people will advise you to work several jobs if you want to create an extra stream of income.
But what if your job already takes much of your time and energy, that you can’t afford to work any more hours?
Does that mean you can’t grow your income? Not necessarily.
There are multiple ways you can still make money without you being there physically, or putting any more hours to your busy schedule. For example, you can buy royalties.
That’s right, buying royalties means that you can earn from the work of other people, without you having to work yourself. Use a tool like Personal Capital to manage your cash flow and income.
It’s completely free and comes with a net worth tracker to help ensure you are building a proper personal financial plan.
And since you need something that will guarantee the safety of your money, royalties becomes one of the best sources of passive income that can easily lead to financial freedom.
What Are Royalties
For this article, royalties are payments made to the owner of intellectual property, by someone who uses the property. They are payments made by a licensee to a licensor to earn the right to continue using a certain property.
Royalties are usually used to stand for payments made to allow the use of certain intellectual property such as patents, copyrights, or trademarks.
For example, in music, the owners of copyrighted music receive royalties for any use of their music. These forms of royalties are known as performance royalties.
There are also royalties for art and online use of images, which we sometimes refer to as “stock photography.”
In addition, there are royalties for books that are usually paid to authors of these books by the publishers. Typically, since patented products are licensed, royalties should be paid to the patent holder if that product is in use.
Royalties on products such as books, music, as well as many other patented products are paid depending on how many items are sold.
The good thing with royalties is that the asset is produced once, but forms a continuous stream of income. Therefore, they form a great option when searching for investments that guarantee passive income.
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Benefits of Royalties to Investors
Here are a number of the advantages of investing in royalties for income.
- Uncorrelated – Some Royalty payments, such as music royalties, are independent of public markets. This means that they perform independently and are not affected by public market dynamics.
- Yield – when it comes to profits, royalties generate better revenues than bonds or dividend-paying stocks.
- Consistency – with royalties, you are almost certain of earning. This is because they have shown a high level of consistency in terms of earning and payments. This is a desire for any investor to receive consistent payments for their investments.
But How Do You Invest In Royalties?
Many people would wonder how it is possible to earn from royalties of something that is not originally yours. Well, this is possible. For example, even if you have never written a song, you can still invest in a song and start earning some money.
There are numerous instances when artists who own royalties for a certain song or asset may need quick money. This may be because they want to purchase a house, a car, or even grow another business.
Therefore, instead of waiting for the regular royalty payments, they opt to sell their rights to get the money they require to cater to their needs.
Investors are therefore free to purchase a certain percentage of the said royalties and start earning. If you are looking for a stable passive income stream, you can then invest in these music royalties.
Royalty Investment Options
Royalties have become a unique alternative to the known forms of investments like stocks and bonds. Unlike stocks, royalties offer a stable and relatively low-risk option for investors.
Instead of investors buying a company’s shares that are prone to daily fluctuations, they opt for an almost guaranteed income from the company’s revenue.
When investing in royalties, you can do so in one of the following three ways: oil and natural gas, venture financing, or entertainment income.
Oil/Natural Gas Royalties
When you own oil or a natural gas royalty trust, it is similar to possessing a part-ownership of an oil or natural gas well. Apart from the standard operational cost such as staff, overheads, and management, a large portion of profits goes to the shareholders.
In this case, the cash flow is linked to the commodities generated by trust. For this reason, the business assets, such as vast oil reserves, are highly valued in inflationary environments.
The essence of these royalties is to distribute the earned profits to shareholders, after deduction of the operational costs.
The principle idea in venture financing is allowing investors to invest in a company, in exchange for owning part of the business. This offers the business owners with enough capital to grow their business, while it also offers an investor a chance of earning money, when the business is sold, or listed on the stock market.
However, when the financing is royalty-based, it is not a requirement for the owner, to have joint-ownership with the investors. Instead, the investors receive monthly payouts depending on the company’s revenue. This is a form of hybrid business loan for small businesses, which combines assets, both from bank loans and venture-capital funding.
Royalty-based funding is a more flexible deal as the investors earn profits for their investment while the owner doesn’t have to share their ownership of the company.
When it comes to entertainment royalties, investors now have a chance to invest in the entertainment industry and earn passively. They can invest and share in royalties generated from various mediums of entertainment such as music, book publishing, TV shows, and more.
And although the royalties are initially owned by the originator of the asset such as the songwriter or a book’s author, the owners do sometimes sell part of their ownership. This allows investors to earn from assets they didn’t produce themselves.
By auctioning royalty income, the owner allows the buyer to earn subsequent royalties from the asset, in exchange for their investment.
List of Places to Buy Royalties
Now that you have learned about royalties and want to invest, where do you buy these royalties? If you are looking to buy royalties, here are some of the best marketplaces that offer such services.
Without such companies, royalty owners can only liquidate their assets by selling their entire work or by locking up all their future royalties revenue to enable them to collateralize a loan.
However, through these market places, the royalty owners can easily sell part of their work to investors and raise the amount of money they require.
The Royalty Exchange
The company considers itself as the number one marketplace which connects the royalty buyers and sellers. The Royalty Exchange was initially founded as a private company in 2011, in Denver, CO. It is an online marketplace for royalties, where one can buy royalties in various industries, including music, books, film, TV, pharmaceutical, intellectual property, oil, and more.
Through this company, the royalty owner puts up their asset (music, book, and more) for auction and sets a minimum bid that they are ready to take. When the royalties are bought, the firm that pays royalties will deposit that money into an escrow account. From there, the royalties are now paid per quarter or after every six months.
As a buyer, you will get access to a dashboard that helps you to track both your purchases and earnings.
For example, an investor used $56,000 to purchase 25% of the total royalties for a song, “If You’re Gonna Play in Texas.” The Royalty Exchange website indicates that this song earned royalties worth $4,992 with 12 months. This shows that it’s a good source of passive income.
In some cases, the royalties may rise due to various occurrences like the use of a song as a soundtrack or when an artist dies.
The good thing with song royalties is that they are totally independent of the stock market. This means that what affects stocks, doesn’t affect the royalties.
How Royalty Exchange Works
The platform includes auctions that allow patent owners to sell part of their royalties to interested investors. The process includes online bidding with numerous interested buyers who are looking for stable alternative investment opportunities.
Here, the seller has the option of retaining their copyright, are not obliged to sell their entire work. Therefore, they can decide to sell just a portion of it according to how much money they need.
- The firm identifies, qualifies, and packages the royalty assets together to avail it to the auction through their online platform.
- Investors with interest, bid on the asset during the auction
- The team of experts from the Royal Exchange effectively closes the deal
- The investors gain the right to receive royalty income, while the sellers get their payment
Royalty Flow Inc. is yet another company that acquires, holds and manages royalty interest generated from intellectual property in the entertainment industry. These royalty interests relate to music catalogs and therefore include revenue created from downloads, streaming, album sales, usage of monies, and more.
Therefore, if you want to buy music royalties to make passive income, Royalty Flow is an excellent platform to visit. Investors can invest in music royalties as it offers attractive traits, including consistent cash flows which are ideal for investors.
Royalty Flow seeks to help investors to access media royalty streams through the publicly traded stock. They continually review various opportunities to obtain existing royalties.
SongVest brands itself as “the stock market of music.” The platform allows both the investors and fans to earn from their favorite music. You can now invest in your brand and make some good money.
SongVest offers a platform for artists and investors to sell and buy royalties, respectively.
Fans can invest in new and upcoming albums using a crowdfunding model, which in return offers them a portion of the royalties.
The money collected from investors allows artists to create albums and proceed to market them.
How SongVest works
The first step for SongVest is to package various albums into a single IPO, which allows the public to purchase stock. These stocks pay a dividend every time songs or albums are streamed or sold.
The platform also offers tools that help to grow sales, as well as the streaming of the albums in your portfolio. Soon, artists will be able to trade their shares in SongVest in a similar manner as in real stock.
As soon as the platform starts offering trading options, individuals will be able to purchase stock after an IPO. They will also be able to make money by trading their shares.
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Are Royalties An Alternative Passive Investment Opportunity?
When we think of royalties, they form an excellent alternative to acquiring an extra stream of passive income. If we compare royalties with stocks, royalties offer a more stable and considerably low-risk investment opportunities for investors.
Also, since some forms of royalty earning are not affected by the market fluctuations, they tend to provide the investor with an almost guaranteed income.
Therefore, it’s clear that royalties can be an excellent alternative investment opportunity that can pave a way for you becoming independently wealthy.
Difference Between Royalty And Equity
The major difference between royalty and equity lies in the ownership. For investors who own equity in a certain organization, they earn either through capital gain or dividends. The investors here are paid based on the percentage of equity they hold.
On the other hand, payments in royalties are made to the legal owner of certain work or assets. While equity income is affected by market factors, royalty incomes are not.
The most common assets in royalties include:
- Natural Resources
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Conclusion On How to Buy Royalties to Create Passive Income
If you are looking for an excellent, stable investment opportunity to create a passive income, royalties are a good one. They tend to be more stable, and you also don’t have to be there to earn.
I believe that this article offers you enough information on how to buy royalties and the ideal places.
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