Do you know that you can invest in various types of royalties? This article will give a brief overview of this passive investment and where and how to buy royalties.
Engaging in passive investment is a good idea when you want to work toward financial independence and retire early. If you like music and want to get paid, you may want to get into royalty investing.
Royalty investing is one of the sources of passive income you can build over time.
What Are Royalties?
Every time someone uses an asset or intellectual property (e.g., mineral rights, real estate, patents, or copyrighted works such as music, video, written works, etc.), the user is legally required to pay the owner for its use.
The royalty holder or investor with the property rights will receive the payment or earn royalty income.
Royalties are a very popular alternative investment. As soon as you get ownership of the royalty, you start getting compensation for the product in ownership. Getting paid through payment of royalties is one sure way to make some extra money for yourself.
When you buy royalties as an investment, you can earn money passively from other people’s work. Unlike stocks and bonds, royalties can provide steady cash flow, offering a regular income stream regardless of fluctuations in the stock market or changes in interest rates, making it a great passive income source.
Most property owners sell their properties to get funds for an ongoing business or investment. If you want passive investment, keep an eye out for the best royalties in the market and receive royalty income payouts.
Where Can I Buy Royalties?
SongVest, as the name suggests, is said to be the stock market of music. You can find one of the best up-and-coming music to invest in and generate passive income here.
The platform is a marketplace for buyers and sellers. If you are a music producer, composer, or songwriter, you can look for investors on the market to grow your music business.
Most people usually invest in their favorite music to support rather than generate income. However, we suggest you look for artists with high growth potential to generate flawless streams of extra money.
2. Royalty Exchange
Royalty Exchange, founded in 2011, is the best marketplace for buying and selling royalties. You can find almost any type of royalty here. From entertainment to performance to minerals, there is almost everything you desire.
Exchanging royalties is completely safe. Royalty owners selling royalties are first required to place their money in an escrow account. The payment is then made after every 6 months.
Established in 2021, Royal is another marketplace that allows investors and fans to support their favorite artists, earn royalties, and hold rights to musical works that stream on digital platforms such as Apple Music and Spotify.
A non-fungible token (NFT)-based music platform, Royal designed a mechanism that lets anyone buy part-ownership of music directly from the artist; they will also receive limited edition, autographed NFTs recorded on the blockchain as well as curated benefits from the artist, such as content, collectibles, and experiences.
How Many Types of Royalties Are There?
There are many different types of royalties, so before you buy one, it is better to have good knowledge about them.
1. Copyright Royalties
Copyright royalties are the ones that include works from other artists or songwriters, etc. Some examples of copyright royalties include art, books, and music. Once you buy one of these royalties, you get the license to use them.
2. Performance Royalties
Performance royalties allow you to use someone else’s work publicly. For example, restaurants and bars play music after buying the performance royalty for the song.
Streaming services such as Spotify also use these royalties to get rights to someone’s digital music.
3. Franchise Royalties
Franchise royalty is bought to get the right to use someone’s brand name. These royalties are most commonly used in the food industry, such as KFC or McDonald’s, where brand names are used.
4. Patent Royalties
As the name suggests, patent royalties are used to get a license for the use of patents from the original producer. People make money by buying patents and selling the licenses to use the patent.
It is a great source of passive income.
5. Mineral Royalties
Mineral royalties include the license to use natural resources from one’s property.
For example, If someone owns land with oil and gas flowing through it, you can sell the royalty to buyers for a specific time. Thus, generating passive income.
6. Synch Royalties
Synch royalties are bought to use in your work related to audiovisual production, such as advertisements, tv shows, or movies.
7. Print Music Royalties
Print music royalties are sold when musicians want to publish their music.
To make money, musicians usually sell to music publishers that get the rights to sell their musical work in digital or physical form.
How To Buy Royalties
Here are the 5 steps to perfectly invest your hard-earned money into royalties to generate high passive income.
Step 1: Know What Royalties Are and How They Work
Knowing royalties is about understanding their risk and what is at stake when you invest in them. Every type of royalty comes with its risks. Royalties such as music and art carry valuation risks, as it is difficult to identify the right price for them.
On the other hand, some royalties depend upon the market. They are highly influenced by inflation and innovation.
As with stock market investments, you should buy something on a valuation instead of emotion.
Step 2: Pick the Type of Royalty You Want To Invest In
Once you know what royalties are and how they work, you can move to the next step. It is to choose the type of royalty you want to invest in. Just like any other investment, invest in royalties you understand well.
For example, investing in copyright or entertainment royalties is the best option if you are an art lover.
Step 3: Select the Place From Where You Want To Buy Royalties
Selecting a royalty exchange is relatively easy; however, it is important to understand how the market works by thoroughly researching and reading up on the platform’s working process to make better purchase decisions. In brief, these previously discussed royalties platforms.
These are how these platforms work in brief:
- SongVest collects various albums and puts them all in a single package called an IPO. Investors in the market can invest in IPOs and generate money as soon as an album or song is sold or streamed online.
- Royalty Exchange works quite similarly to the stock market: it starts with bidding for a seller’s full or partial work, and the investor with the highest bid ends up with the royalty and the right to claim royalty income.
- Royal provides its investors with a token that represents a percentage of the music’s streaming rights, which earns royalties alongside the artist. You can buy a token through Royal’s website using a credit card.
Step 4: Smartly Generate Profit From Your Royalty
Royalties generate high returns on investments at very low risk. To earn more from your royalties profit, use them to diversify your portfolio. Combining your royalties investment with high-risk investments or assets that are not closely related to it would balance your portfolio, and you won’t end up with all your eggs in one basket.
With a diversified portfolio, you can reduce risk by exploring other investment options. Invest in other sectors, industries, financial instruments, asset classes, countries, or term lengths. For instance, you can try cryptocurrency, index funds, savings bonds, or European real estate crowdfunding.
By blending diverse investments, you can even get your money back tenfold.
Step 5: Start Researching for Your Next Target
Once you have one royalty in your portfolio, it should not end your royalty investments. Always keep an eye on your next target by actively researching them.
For example, if you have bought a music royalty that is generating some good profit for you, it is better to keep an eye on the same artist to see if investing in more of their work could be beneficial.
What Are the Best Royalties To Invest In?
Oil/Natural Gas Royalties
Owning a natural gas or oil royalty allows you to own some of the resources. The amount you will make by investing in these royalties depends on the profits generated by trusts.
Oil reserves are highly valued, and generating profit from them is almost guaranteed.
Investing in Businesses
Investing in businesses or venture financing is like helping people grow their businesses and share the profits. As an investor, you invest in a venture to help it grow. The venture financers then share the profits according to the terms and conditions.
The best part about investing in such royalties is that they do not require you to be a joint company owner but only get the profits depending on the company’s overall monthly revenue.
If you are an experienced businessperson, it’s a great way to invest.
Entertainment royalties are a great source of passive income. As an investor, you can invest in books, music, and tv shows.
Owning a certain part of the asset can generate income without much effort.
Why Should I Invest in Royalties?
Investing in royalties can be much more profitable than stocks or bonds. One of the major reasons for investing in royalties is that some are independent of public markets. One of the best examples of such royalties is music royalties.
Another major advantage of investing in royalties is that they generate a much better income stream than dividend-paying stocks. All the payments are made much more consistently, and a dream comes true for an investor.
Remember that investing in royalties is an investment with higher risk than stocks or bonds. Royalties can be an amazing addition to your portfolio, but keep in mind to diversify your portfolio with stocks and bonds.
Conclusion – Where and How To Buy Royalties
Investing in royalties means diversifying your portfolio independently of the mainstream financial market, giving you the edge of not being subject to its ups and downs while boosting your income.
However, as with any other investment, research thoroughly, do your due diligence, and be aware of your royalty investment’s risks. You will also be well-served if you get a financial advisor to assist you in achieving your financial goals.
Here’s to making the best financial decision suitable for your circumstances and preferences!
Founder of Spark Nomad, Radical FIRE, Journalist
Expertise: Personal finance and travel content
Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Spark Nomad, a travel platform, and Radical FIRE, a personal finance platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.