Passive Income Strategies: Turning $10,000 Into $800 Monthly

Making an extra $800 a month is a great way to pay off old debts, cut back on working hours, or save and reinvest. While there are many ways to make an extra $800 a month, investing $10,000 is a great option. In this article, we will discuss how to make $800 a month with a $10,000 investment, including options such as dividend stocks, rental real estate, and private money lending.

Dividend stocks

Understanding Dividend Stocks:

Identifying Dividend-Paying Companies:

When looking for dividend-paying companies, it's essential to focus on those with a strong track record of paying dividends consistently. Look for companies that have a long history of increasing their dividend payments over time. Additionally, consider the company's financial health and its ability to continue making dividend payments in the future.

Analyzing Dividend Yield:

Dividend yield is a crucial factor to consider when evaluating dividend stocks. It is calculated by dividing the annual dividend per share by the current share price. While a higher dividend yield may seem attractive, it can sometimes indicate underlying problems with the company. Be cautious of stocks with extremely high dividend yields, as they may be risky.

Diversification and Risk Management:

To build a robust dividend stock portfolio, diversification is key. Invest in a variety of companies across different sectors to minimize risk. By spreading your investments, you reduce the impact of any single stock or industry on your portfolio. Remember that even well-established companies can cut or suspend dividend payments during challenging economic periods.

Reinvesting Dividends:

Consider reinvesting the dividends you receive back into the dividend-paying stocks or other investment opportunities. This strategy, known as "compounding," can help accelerate your wealth-building journey. Over time, reinvested dividends can generate even larger returns, increasing your monthly dividend income.

Example of Dividend Stocks:

• AGNC Investment Corp. (NASDAQ: AGNC): This company focuses on investing in US government-backed mortgage securities. With a $10,000 investment, you can expect a monthly dividend of $115.92, resulting in an annual dividend of $1,391.
• Armour Residential REIT (NYSE: ARR): Armour Residential REIT has a consistent track record of dividend payments. A $10,000 investment would yield a monthly dividend of $119.33, amounting to $1,432 annually.
• Stellus Capital Investment Corp. (NYSE: SCM): Stellus Capital provides private debt financing for companies with specific financial criteria. Investing $10,000 in this company would result in a monthly dividend of $97.50, or $1,170 annually.
• Prospect Capital Corporation (NASDAQ: PSEC): Prospect Capital is a business development company focused on private corporate credit. A $10,000 investment would generate a monthly dividend of $110.33, leading to an annual dividend of $1,324.
• Oxford Square Capital Corp. (NASDAQ: OXSQ): Oxford Square invests in equities and debt, particularly in the tech sector. With a $10,000 investment, you can expect a monthly dividend of $126.33, resulting in an annual dividend of $1,516.
• Orchid Island Capital (NYSE: ORC): Orchid Island Capital specializes in residential mortgage-backed securities and related investments. A $10,000 investment would yield a monthly dividend of $151.50, amounting to $1,818 annually.
• Horizon Technology Finance Corp. (NASDAQ: HRZN): This company provides financing for growth-stage companies in the technology, biotech, healthcare, cleantech, and sustainability sectors. A $10,000 investment would result in a monthly dividend of $104, totaling $1,248 annually.

Please note that the above examples are based on market prices at the time of writing and may not reflect the current market situation. It's essential to conduct your own research and consult with a financial advisor before making any investment decisions.

Rental real estate

Buying and Renting Out Properties

One strategy is to buy modestly priced single-family homes and rent them out. For example, you could purchase a $100,000 home with a 10% down payment of $10,000, a respectable 4% interest rate, and no private mortgage insurance (PMI). With taxes and insurance, your monthly payment might be around $541. By renting out the home for $1,100 per month, you could make a positive cash flow of $500 each month. After saving for an emergency fund, you could use the remaining cash flow to build up your down payment for the next home. With each additional property, you'll be able to save for your next down payment faster.

The BRRRR Method

The BRRRR method is a popular strategy that involves buying, remodelling, renting, refinancing, and repeating. You can use your $10,000 as a down payment to buy a distressed property that requires repairs. These properties are usually cheaper but more difficult to mortgage. You'll need to make adjustments to bring the home up to code and increase its value. Once it's rented out, you can refinance and convert your home equity to cash, which you can then use to buy another property and start the process again.

Remote Real Estate Investing

Remote real estate investing allows you to invest in areas where real estate prices are more affordable and potential returns can be larger. For example, you could look for cheaper multi-unit properties in the Midwest and fix them up with the help of local agents and property management professionals. This enables you to build a portfolio in other regions while living elsewhere.

Using Leverage

You can also consider leveraging your $10,000 investment by taking out a loan and using it as a down payment to buy multiple properties. This strategy can help you build a larger portfolio faster, but it also increases your risk and financial commitment.

Other Considerations

When investing in rental real estate, it's important to consider factors such as location, property type, initial cost, and whether you want to use leverage. Additionally, think about your long-term goals and desired monthly expenses during retirement. Building a team, including a property manager and a handyman or contractor, can also make managing multiple properties more feasible.

By carefully selecting properties, implementing the right strategies, and managing your finances effectively, you can work towards your goal of making $800 per month from rental real estate investments.

Private money lending

Private lenders are more willing to work with borrowers that traditional lenders would reject, such as those with bad credit. The two most common types of loans provided by private lenders are for real estate and personal use. Similar to a mortgage REIT, a private lender who makes a real estate loan receives regular principal and interest payments, as well as loan origination fees and points charged to the borrower.

The interest rate charged by a private lender may range between 6% and 15%, depending on factors such as the borrower's down payment, length of the loan, credit score, income, and other assets. To make $800 a month on a $10,000 investment, you would need to charge an interest rate of at least 9.6% (assuming a 12-month loan period).

• Initial investment: $10,000
• Interest rate: 9.6%
• Monthly interest income: $960 ($10,000 x 9.6% / 12 months)

It is important to thoroughly vet borrowers, understand how the funds will be used, and how and when the loan will be repaid. In the event of a borrower defaulting, the private lender will need to foreclose on the property and resell it to recoup the outstanding loan balance.

Robo-advisors

Wealthfront

Wealthfront is the highest-scoring robo-advisor in NerdWallet's review thanks to its blend of automated investment portfolios and DIY stock investing portfolios, its wide variety of account options, excellent tax strategy, and low management fee. However, Wealthfront has an account minimum of $500 and does not offer access to human advisors.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios is ideal for investors who want to keep costs as low as possible. The service charges no management fee.

Betterment

Betterment offers a powerful combination of goal-based tools, affordable management fees, and no account minimum. It provides robust cash management features, customizable asset allocation, and multiple portfolio options, including customization.

Fidelity Go

Fidelity Go is another excellent option for investors looking to minimize costs. It is free for balances below $25,000 and uses its own index funds that carry no fees for investors. However, Fidelity Go does not offer tax-loss harvesting.

In addition to the above, Vanguard Digital Advisor is also worth considering. It is an affordable robo-advisory service that uses Vanguard's key ETFs to create a personalized retirement plan and portfolio. However, Vanguard Digital Advisor doesn't offer much portfolio customization or access to a human advisor.

High-yield bonds

• Credit rating agencies such as Moody's, Standard & Poor's, and Fitch evaluate bond issuers and assign ratings based on their ability to make interest and principal payments on schedule. Issuers with a greater risk of defaulting are rated below investment grade and are considered high-yield.
• The high-yield sector includes both originally issued high-yield bonds and the outstanding bonds of "fallen angels", which are former investment-grade companies that have been downgraded.
• High-yield bonds are typically issued with terms of 10 years or less and are often callable after four or five years.
• High-yield bonds tend to have shorter maturities and lower durations, making them more sensitive to the economic outlook and corporate earnings than day-to-day interest rate fluctuations.
• In a rising rate environment, high-yield bonds are expected to outperform other fixed-income classes.
• High-yield bonds share attributes of both fixed income and equities and can be used as part of a diversified portfolio allocation.
• Mutual funds and ETFs are common ways to gain exposure to high-yield bonds.
• Vanguard High-Yield Corporate Fund (VWEHX)
• IShares iBoxx $ High Yield Corporate Bond ETF (HYG)
• JPMorgan BetaBuilders USD High Yield Corporate Bond ETF (BBHY)
• SPDR Portfolio High Yield Bond ETF (SPHY)
• VanEck High Yield Muni ETF (HYD)

It's important to note that high-yield bonds carry additional risks. Investors in these bonds may suffer during economic downturns or recessions as more issuers default on their interest payments. As a result, yields may widen, sending bond prices lower as investors seek higher returns to compensate for the increased risk.

Therefore, while high-yield bonds can boost portfolio returns, they should only be included in an already diversified portfolio. Investors should carefully consider whether the additional return adequately compensates for the higher risk compared to higher-rated bonds. Consulting a financial advisor can help assess if high-yield bond funds align with one's overall financial strategy.

Frequently asked questions