The Unusual Asset that Could Pay 20%+ Cash Yields This Year

  in Royalty Investing

Apr 12, 2016

Imagine getting paid every single year for something you did in 45 minutes when you were 19 years old?

In July 1945, Melvin Howard Torme, a composer, walked into the house of his writing partner Bob Wells.

Torme called out for his collaborator but received no answer.

He wandered over to the piano where the pair composed most of their music and saw an open notebook with a few scribbled lines of verse:

Chestnuts roasting on an open fire Jack Frost nipping at your nose Yuletide carols being sung by a choir

A few minutes later, Wells walked back into the room, and Torme asked him what those strange lyrics were all about.

Apparently, Wells was trying to cool off by thinking about Christmas and cold weather. With those simple lyrics as a starting point, the two composed one of the most popular Christmas songs ever in 45 minutes.

When they were done, they thought they had something great so they played it for Nate King Cole and his manager. Cole loved it and recorded it in the studio about a year later.

The song went on to be a massive, long-lasting hit€¦ and Torme collected paychecks from that single song for the rest of his life.

Torme made more than $19 million dollars from this single composition, which took him less than an hour to complete.

And this idea: create something once, get paid on it for life, is the key to what I believe is the greatest business model ever invented. What am I talking about?

The royalty business.

In case you're not familiar with the term, a royalty is a cash payment that you receive over and over from an asset that you created, developed, or own. When somebody uses it, you receive a piece of the income it generates.

For example, songwriters collect a royalty every time a song they write is played, purchased, downloaded or streamed. That's how Torme made $19 million from a single song so far. The royalty checks are still coming in although not to Torme who passed away in 1999.

Royalties are also common in natural resources. Royalty companies often provide financing to resource companies, and those companies pay a royalty on every ounce of gold or gallon of oil that the land produces.

Authors earn a royalty every time somebody buys their book.

You see, most people (and most businesses) have to work every day to get paid. Not so with royalties. Even if Torme never wrote another song, he still got paid every time you heard:

Chestnuts roasting on an open flame Jack Frost nipping at your nose

That's why royalties are some of the best investments in the world. You create the asset once, or buy the asset, and then you get paid every time somebody uses it.

You don't have to do anything else to make money, except cash your checks.

It sounds appealing, doesn't it?

That's why publicly traded royalty companies have become so popular over the last decade. You've probably heard all about some of the publicly traded Royalty Companies. Companies like Franco Nevada, Royal Gold, and Mills Music Trust. These companies were an indirect way to collect royalties. And they've treated their shareholders well. But today these stocks simply aren't providing great yield to their investors. Franco Nevada yields just 1.37%. Royal Gold yields just 1.78%. Mills Music Trust still has an impressive yield of 10%... but good luck buying shares; the stock has a market cap of just $5 million and the last shares traded more than 3 weeks ago. (on March 11th).

So what do you do if you haven't written a novel or a pop sensation? How do you collect royalties if you don't own any land in oil-producing regions? And is it possible to collect royalties if you don't have the latest miracle drug patent rattling around in the back of your mind?

Until recently, not really.

For years, privately owned royalty assets have been trading hands among industry insiders. Doctors and scientists bought patent rights from the inventor. Agents, managers and record labels bought royalty rights from singers and songwriters. And landmen in natural resources bought royalty producing assets from property owners.

You can cut out the middleman and collect these rich cash royalties yourself.

On the Royalty Exchange marketplace, creators put their royalty assets up for sale, and regular investors can buy them. There was a catalog of music used in commercials and TV shows that recently sold for just two times last year's earnings. That's a 50% cash yield!

There was another music royalty that's been paying since the 90's that sold for just 7 times last year's earnings. Assuming the royalty income stays static, the winner of that auction will earn a 14% annual yield for the next 35 years!

That's the other exciting about royalties based on copyright. Unlike patents, which usually last for 10-20 years, copyright royalties last for much longer; up to 70 years after the death of the creator. 

So if you're at all interested in owning royalty income streams, you should create a free account on Royalty Exchange here. Then take a look at their current royalties up for sale.