How To Invest In Royalty Income

For anyone that is looking to fund their retirement or diversify a portfolio, you may want to consider investing in royalty income.

How To Invest In Royalty Income

It’s a superb option for providing long-term returns to an investor that goes beyond the typical stocks, shares, and funds that are most commonly used.

Owning the rights to royalty can provide a steady stream of income that tends to be a safe option from a fluctuation in the bond markets, and can easily be required by purchasing royal trusts or by making a bid on royalty auction exchanges.

If this seems like a valid option for you, stick around to learn about the types of royalty income, and how you can invest in them.

What Are The Royalty Basics?

Royalties are any payments that are received by an owner from someone for the use of the asset.

One of the best examples to give is intellectual property, in which the owner may receive royalty payments from the intellectual property management manufacturer, and any unit made by that pattern.

This can also include trademarks and copyrighted material such as films, books, art, music, or any intellectual property. You can also include oil and gas leases to generate royalties through the use of natural resources.

It’s considered by the IRS, which means that it is taxed at a capital gains rate, meaning they are lower than rates paid by an individual who earns a salary or wage.

The Different Types Of Royalty Income

As we’ve already discussed, there how many types of royalty income, but here are the most common types that are typically used for investing:

  • Oil and gas are some of the most common types of royalty income, and landowners who can retain the rights will be able to receive royalties at a percentage of the value extracted from the property.
  • For investors who wish to provide money to new businesses why funding might be repaid via royalties with any revenue made from the products or services sold by that business.
  • Landowners who have obtained mineral resources such as gold and silver can be paid royalties via the process of mining.
  • Any publisher or copyright holder will pay the royalty consisting of a percentage of sale each copy of theirs sold, for example, and also receive royalties on books sold in hardcover, paper, audio formats such as audiobooks, and electronic copies.
  • Inventors will receive royalties for licensing the use of patents for anyone that uses the patterns for their products.
  • Movie and TV heads will be able to receive these, which include writers, directors, producers, actors, and actresses. There might also be other people that own the rights to the film or TV show. Anytime the product is streamed or shown, then royalties are given.
  • Trademarks can receive royalties for letting and licensing to use a logo or brand name.
  • Song composers are also included in this and any song can receive a royalty payment each time it is performed, streamed, played on the radio, or even used in a TV score, which also includes film. They also receive royalties for every CD or record sold.

As long as there is a copyright or patent in place, royalty investors will get their payment. This makes them a potential long-term viable option for those looking for a steady income with minimal downside or risk.

Investing In Royalty Trusts

Another way to invest in royalty income is to simply purchase a share of a royalty trust. These will be publicly traded corporations that will own the rights to any lease or deposits of a natural resource.

Income that is generated for all teas will then be spread out through shareholders as a dividend.

Royalty trusts that distribute up to 90% of the income as dividends will be able to escape from being double taxed, which is a burden on most corporations.

Rather than this, investors who put trust in royalty shares will pay taxes on dividends for their personal rates.

One thing to note is that royalty trusts actually don’t do any of the natural resource work, i.e. mining and drilling, as this process is handled by another company. You can belong to an energy and mining industry without even having to do the work.

Auction Sites

Another way to step foot into the royalty income world is to go through the auctions, where several sites will conduct an online auction for various types of royalties such as music and raw materials. The website may have a particular niche that it works with.

How To Invest In Royalty Income

For example, Songvest focuses on musical royalties, and potential investors have the opportunity to purchase shares at the fraction of the price for all the streams for a wide range of popular songs.

Royalty Exchange is another example, and it auctions write to a wide range of royalties which includes movies, TV shows, and natural resources.

Miscellaneous Tips

If you’re going to be exploring royalty income, then we recommend you speak to a financial advisor. They’ll be able to help you build an investment strategy to grow your portfolio.

Doing this on your own, especially as a beginner investor, might be a little bit too much to take on unless you are already comfortable with investing. 

As long as you are prepared, and you accept that there is always some form of risk when investing money, especially in some of the royalty income such as the arts where they can become unpopular, you’ll be able to manage your expectations

Final Thoughts

Royalties are a viable option for any investors that are looking for a steady and stable option for a long-term plan.

The good news is that there are many different ways to enter the royalty income sphere, and you may even find yourself gravitating towards a particular industry that you are interested in.

It’s one of the best ways to garner a passive income, and as royalties are taxed at a lower rate than a wage or salary, it’s an appealing option that shouldn’t be overlooked for any type of investor.

Luke Baldwin
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