Why Online Businesses Make the Best Cash Flow Investments
Updated on June 17, 2021
Most investing mentalities revolve around rewarding those who wait; if you keep squirreling away cash, it will reap dividends… one day.
Investing for down-the-road cash is always a good idea, but it doesn’t do much to build your wealth now when you need it.
That’s why the alternative—cash flow investments—are so appealing. Positive cash flow is one of the main pillars of financial freedom. When your money is put into income-generating assets, the steady cash flow you receive helps you reach your financial goals and design your own lifestyle.
Plenty of advice exists around “traditional” cash flow investing, but we’re going to open up the door to online business as a superior cash flow vehicle. With little upfront investment needed, no caps on how much you can earn, and flexibility to build a powerful portfolio, online businesses are the income-generating assets you won’t want to miss out on.
Let’s dig into why this is.
What Is Cash Flow Investing?
The oldest mentality regarding investing is to save your money, put it away in some kind of interest-generating account, and hope it grows large enough to live off of later in life.
That old-school way of investing doesn’t make you any money right now. It’s not helping you pay the bills or live the life you want to live at this moment.
The way to make life-changing investments is to make cash flow your priority.
The Simple Dollar shares a clear definition of cash flow investing: “Simply put, cash flow investing is the art of purchasing an asset and holding onto it in expectation of getting a constant return on a monthly, quarterly, or even annual basis. Regardless of the interval, the keyword here is a ‘constant return on your investment’…The core idea of investing for cash flow is to build wealth steadily.”
Plenty of personal finance advice still revolves around the idea that cash flow is really all about trying to build wealth for retirement. That’s a great goal, but only when cash flow is looked at as a way of accessing cash for both now and later. When you start to look at cash flow assets as a way to build the kind of lifestyle you’d like outside of the traditional 40-hour work week, that’s when incredible opportunities open up.
Traditional Cash Flow Investments
If you search for the best cash flow investments around the web, you’ll get a lot of the same suggestions. Let’s start with the traditional cash flow investments you’re used to hearing about before exploring lesser-known options.
Real Estate Investment Trusts (REITs)
REITs have been described as the mutual funds of real estate. REITs are companies that invest specifically in real estate properties, and they offer opportunities to make money in real estate without having to buy property yourself.
With a REIT, you partner with real estate investors and aim to earn dividends off the money you invest with them. Real estate investment platforms like Fundrise make investing in real estate more accessible by setting a minimum investment amount of $500.
REITs are considered a good source of passive investment, though they are affected by the health of the real estate market as a whole. If real estate value drops, so could your investment.
Rental Properties
Buying an investment property to rent it out is one of the most popular forms of real estate investing. The main goal here is to build monthly cash flow through rental income.
This could be through short-term lets, like putting a room up on Airbnb within your apartment or single-family home. Or it could be through a more sophisticated, commercial real estate approach by buying a multifamily building and renting out multiple units to increase your rental income.
Building cash flow and personal wealth through rental income is a well-established route, and there are plenty of resources available to get started. There are also ample loan options available and a trusted infrastructure to support the growth of this kind of cash flow.
The downsides of real estate investing and real estate in general is managing to have enough cash on hand for a down payment and forecasting depreciation on the property. You’re also at the mercy of the real estate market, and making a true return on your investment can be difficult in some high-value markets. Any veteran real estate investor will warn newcomers that it’s more difficult than expected to gain positive cash flow.
Dividend Stocks
The stock market is the most widely used and trusted method of wealth generation.
There are “safe” investment options like dividend stocks, which are less volatile due to investments in mature, high-growth companies. The idea is to earn through dividend payouts for a number of years and to gain a higher annual return as payouts rise. Understanding which companies give you the best dividend yield leads to increased interest on the money invested in the chosen dividend stock.
Index funds and exchange-traded funds (ETFs) are other stock market options that allow for compound earnings over time. These investments can be easily managed alone or with robo-advisors to build wealth over time.
While many of these stock options do provide incremental wealth, time is key. In terms of cash flow, these investments aren’t always readily available in cases of emergency, and they depend on market performance to be lucrative. So, if cash in pocket is the cash flow you’re looking for, it’s best to look for other investment strategies.
Peer Lending
Peer-to-peer (p2p) lending gives those who would like to borrow outside of traditional financial institutions the ability to do so. Qualified applicants can use P2P platforms like Lending Club to connect with individuals or groups willing to earn the money. Lenders have the ability to choose who they’d like to loan money to and, in the process, generate cash flow from loan interest.
While you can make money via this route, the inherent risk is that borrowers can default on their loans. Generating cash flow via p2p lending requires due diligence on borrowers to ensure that you don’t lose out from a bad loan.
Savings Accounts
Establishing a high-yield savings account is one of the easiest ways to generate extra money off the existing cash you have.
While it might be the investment option with the least amount of work required, the main problem is finding a savings account that promises a high enough interest rate to make investing in it worthwhile. Some of the best high-yield savings accounts offer 1.5–2% interest.
Similar interest rates are offered in a money market fund, a traditionally stable and liquid form of investment that investors choose to use when they want to generate some interest on top of money they may need access to. Both a savings account and a money market fund give you the freedom to access your cash when you need it and earn a little more on top, but they represent the smallest cash flow return in the traditional investment list.
Why Online Businesses Are Some of the Best Cash Flow Investments
While traditional cash flow investments are great options, sticking to what the crowd says is a good investment closes you off to more lucrative, if off-beat, income-producing assets.
Online business in particular is one of the most overlooked investment opportunities. This can be due to a simple lack of knowledge on the subject or distrust for an investment that seems risky.
It’s true—online businesses are not risk-free. But the truth is, no investment is.
By stepping out and trying an online business responsibly—by not spending too much of your savings at once and by looking for the most stable and profitable business for your skillset (the same measures you’d take with any investment!)—you can realize a return on investment that outperforms traditional cash flow investments at a lightning pace.
Let’s break down some of the advantages to this underappreciated cash flow asset.
Start-Up Capital Is Not a Barrier to Entry
It’s up to you to decide how you want to get started with an online business. Unlike other investments, you can build on your investment from scratch. In this case, you don’t need a large amount of money to get started. An affiliate business, for example, could cost less than $200 for a year’s worth of hosting and registering the domain.
From there, the work you put into building the asset can lead to incremental cash flow. Your initial investment into the business can double, triple, or even quadruple itself; we’ve seen entrepreneurs build businesses that brought them six-figure or even seven-figure exits.
Free from Limited Interest Rates
For many traditional investments, their true value lies in interest rates. Understanding how much money you earn simply by keeping your money stored in one place—whether that be a savings account or the stock market—is a preferred earning method because it doesn’t involve any extra work. The problem with this approach is that it doesn’t leave you room to earn a lot more.
Interest rates can be a great thing for certain investments, but they are limited. Certain investments can suffer from low interest rates, leaving little room to make your money grow. Worse, in some cases, low interest rates can lead to losing money over time. And to really make compound interest work for you, you need decades and large amounts of money to see returns that make this investment strategy worth it.
Online businesses, as a full entrepreneurial venture, are unlimited in their earning potential. They are not capped at 7–12% returns, like the best interest rates promise. It sounds outlandish, but online assets can promise a full 100% ROI, whether that be through flipping the business or building a high-performing asset. Most importantly, that asset delivers cash flow each month, whereas investments locked into earning interest need more time to deliver the same results.
Positive Cash Flow
This benefit can’t be underemphasized. Due to the low overhead of online businesses— Amazon Associates or dropshipping businesses being great examples—it’s much easier to get started and gain a positive cash flow faster through them than other assets.
Immediate positive cash flow is attainable with online assets in the case of buying an established business. When you invest in an established business, cash flow is documented and proven. You pay for typically 2–4 years of the profit the business would generate up front, but from the movement it’s yours, cash is going into your account.
The choice is yours to either keep the business as is and let it run, or to tweak the business to scale it and reap your ROI faster. If scaling the business is successful, you can raise the positive cash flow the business already offered within months. Should you decide to exit the asset, selling the business could earn you an average of $424 per hour extra on the work you had put into maintaining the asset.
The speed and sheer return power of online assets give them an edge for positive cash flow that other assets struggle to compete with.
Ideal for Passive Income
Building wealth via cash flow is most ideal when it’s done without the hustle of a 40-hour workweek.
Making money with little effort—known as passive income—is what most cash flow investors strive for.
Passive income is why many people gravitate towards online businesses. Once set up, it’s easy to have them run on their own or with outsourced help. Since the business lives on the internet, which is 24/7, it can earn from anywhere in the world while you sleep. Some entrepreneurs can go months at a time without touching the business while it generates income.
Powerful Investment Portfolio
An online business alone is perfectly capable of generating cash flow to live off of.
But there’s no reason to stop at one when they run passively—and when little start-up capital is needed to launch.
In tandem, online businesses can build off of one another to form a powerful investment portfolio. You can easily combine businesses within the same niche—let’s say a beauty-focused content site that links to an Amazon FBA business you own—to double your earnings and strengthen your position within a niche. Or you could own several online businesses in the same monetization to support the portfolio as a whole. Multiple Amazon Associates businesses could be leveraged to ensure there is always a site hitting its peak sales for every season of the year.
Adding online businesses to your overall investment portfolio means you’ve achieved a unique form of diversification. They could perform well together as your entire portfolio, or they could be an addition of any real estate portfolio or stocks you may have. Considering the rapid growth of the internet over the past few decades, investing online should be an area more investors put their money.
Expand Your Cash Flow with Online Income-Producing Assets
Your net worth is only limited by the limits you put on it.
If you open up to the road less traveled investment-wise and work to create a strong cash flow from your assets, there’s no stopping you from living off the wealth they generate and allowing that money to give you the lifestyle you want.
If your interest is piqued and you want to explore online business options, check out our live listings for sale. If you already have an online business and would like to make a profitable exit, see how much your business is worth using our valuation tool.
