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Passive income is the engine of financial independence, whether you’re 30 or 65. With enough passive income from investments, working becomes optional.
But some investments outshine others in paying high yields. And the higher the yield, the less money you need to invest to generate the same income.
I’ve personally invested in every one of the investments outlined below, with small amounts through my co-investing club. The numbers aren’t hypothetical—I’m earning them right now as I write this.
1. Private Notes
A few years ago, I invested with a house flipper who does 60-90 flips a year. I signed a private note with him at 10% interest, and he’s paid me on time every month since.
Last year in my co-investing club, we lent money to a land flipper at 15% interest. If that sounds risky, consider that he put up his home as collateral—with a first-position lien at 65% LTV.
I’ve also lent at 16% to a rental investor who sells to his renters on installment contracts. All continue paying like clockwork.
2. Real Estate Funds
Another land flipping company that my co-investing club has invested with offers a fund that pays a 10% distribution each quarter, plus another 6% if they hit their profit target.
Since the fund launched five years ago or so, it’s hit its profit target every single quarter. So every quarter, a 16% annualized distribution gets deposited in my bank account.
3. Private Partnerships (JV)
The co-investing club I invest with also loves to negotiate custom partnerships with active investors. They do the work, we put up the bulk of the money, and we get our share of the profits.
Even an example that didn’t work out as planned still underscored how great the model is. We partnered with a house flipper and funded a series of flips and negotiated a minimal annualized return of 8%. One of the flips flopped, and it dragged down the average annualized return below 8%. But when the partnership closed out after the prescribed timeline, the operator made up the difference and paid our agreed-upon 8% floor return.
We actually just finished investing money with a builder who specializes in barndominium homes in Central Tennessee. We’re partnering on four builds, each of which will likely take around nine months from start to finish. Assuming these produce similar returns to the last dozen barndos he’s built, we should earn a 16%-20% return for each one.
4. Industrial Syndications
Last year, we invested in an industrial seller-leaseback deal with a single triple-net lease tenant. In the first few months, it paid a distribution yield of 7.5%, and a year later, it’s paying 9.5%.
In fact, the club just finished vetting and investing in a similar deal, projected to pay out virtually identical distributions.
It’s not the first time we’ve invested with that operator, either. This is the third deal we’ve invested in with them, and a previous industrial deal just closed out a few months ago after a two-and-a-half-year hold. It paid out annualized returns of 27.6%.
Some industrial syndications also make recession-resilient investments. That first one I mentioned had a backlog of orders over three years long when we invested, and their clients are largely name-brand companies and the U.S. Navy. They’re not going anywhere.
5. Multifamily Syndications
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Not every multifamily syndication pays distributions at all, and some pay low yields in the 2%-4% range. Others pay mid-range yields in the 4%-7% range, and still others pay high yields in the 7%-10%+ range.
We’ve invested three times now with an operator who specializes in workforce housing in Ohio. They’ve paid the projected 8% distribution on time every quarter for each one.
Another operator we invested with last year also specializes in Midwestern multifamily properties. They bought a huge portfolio of relatively small multifamily properties, scattered across several states, which has already yielded enormous cash flow. It currently pays over a 9% distribution yield.
6. Mobile Home Parks
You can also invest passively in other types of syndications, such as mobile home parks.
Our co-investing club invested in a Nebraska park a few years ago that pays a 10% distribution each quarter. Beyond being a cash cow, it’s also quite recession-resilient, as they’ve systematically unloaded the park-owned homes to tenants. Residents with tenant-owned homes almost never default on their lot rents, because it costs many thousands more to move a mobile home than to pay the few hundred dollars in lot rent.
If you don’t like the structure of a syndication, you could negotiate a joint venture partnership with a mobile home park investor and simply come in as a silent partner.
7. Hotel Syndications
We also invested in a boutique hotel operator with a small cabin resort in Southern California. They pay distributions currently at 11%, after starting distributions early and refinancing to return some of our capital earlier than expected.
How the Freedom Math Changes with 8%-16% Yields
If you follow the 4% Rule and want $40,000 in investment income, you need to invest $1 million. Even with an enormous savings rate as I had, it takes at least six to 10 years to become a millionaire if you earn a middle-class income.
With investments paying an 8% yield, it takes $500,000 to generate $40,000 in income. At 10%, it takes $400,000 invested. At 12%, it takes $333,333. And at 14%, it takes $285,714.
And at a 16% yield, it takes $250,000.
Yes, I get it: No one’s putting their entire portfolio in assets paying a 16% yield. These high-yield investments make up just one portion of your portfolio, alongside low-yield investments like index funds mirroring the S&P 500.
The point remains, however: Passive real estate investments paying 8%-16% yields can help you escape your day job sooner. They can prop up your income, letting you quit and pursue your ideal work instead of grinding away at a high-octane job.
Imagine putting even $100,000 in a passive real estate investment paying 16%. That’s an extra $16,000 a year in income.
I don’t know about you, but that’s no trivial raise. This is precisely why I keep investing month in and month out in new passive investments, many of which pay high yields like the examples above.
