It was once believed that the only way one could earn royalties was by creating a popular piece of music, art, or literature that could easily be distributed to and purchased by the public.
However, there are more royalties than just artistic or musical. In fact, those who own intellectual property — such as a patent, copyright, or trademark — receive royalties. If the recipients of these royalties are struggling to produce capital on their creations, they will turn to an exchange platform in order to sell all or portions of their royalty stream to investors.
If one is looking for new and creative ways to expand your financial portfolio, investing in royalties may be a wise move to make. With that in mind, let us take the time to learn more about the process of buying and selling royalties.
How does one purchase royalties?
Purchasing royalties is simple once one has found the right exchange platform to utilize. The most popular are The Royalty Exchange and Lyric Financial. Although both websites offer the same services, Lyric Financial offers its users the ability to receive a short-term advance on their royalties for a small fee.
Once you have settled on a platform, all you must do is create an account to begin your search for royalty auctions. The terms and conditions, market value of the royalty stream, and even the amount of the last 12 months’ royalties are made available for prospective buyers. By listing this pertinent information, users can view each auction and easily determine whether or not they desire to place a bid on a royalty stream.
What are the stipulations?
Seeing as sellers have a great deal of control over the terms of their auctions, no two royalty agreements are the same.
As mentioned before, a seller could choose to sell their entire royalty stream or just a portion. A seller could also choose to sell their royalty stream but maintain ownership of the property, meaning the buyer would have to pay a portion of their newfound royalty stream back to the owner — however, this is both a complicated and rarely executed strategy.
Additionally, it is important to keep in mind that sellers set their starting price and minimum bid amounts, so be sure to thoroughly weigh your options to ensure you are not purchasing a royalty stream for more than it is worth.
Can one invest in royalties with their Individual Retirement Account (IRA)?
Yes, this is an entirely feasible option to fund your newest investment venture. However, it would greatly benefit you to discuss this option with your money manager before making a decision, especially if you will be transferring the IRA from a stock brokerage to an account managed by a self-directed IRA custodian.
Although buying and selling royalties is a creative and feasible method of diversifying a portfolio, it is imperative one consults with their trusted financial advisor before making any major decisions.