In this fast-paced world of new ideas and growing inflation, it gets hard to stand out in terms of a main income job role in the capitalist system, and a side hustle is a fair chance for any individual looking to earn some extra bucks. This is where leased assets opportunity comes in handy. In terms of the borrower, the act saves cost, and in terms of the lender, it is an opportunity to make money. The following article is a guide for individual investors looking for some insight on how to analyze a leasing opportunity that can be beneficial in terms of profit.
What is Asset Leasing?
For the young blood or new souls in the market who may not be familiar with the term, asset leasing is essentially a financial strategy used by a variety of businesses and investors. It is an agreement between two parties over the use of an asset. The two parties are the lessor and the lessee, wherein instead of buying an asset upfront, the two parties have an agreement over the use of the said asset over a time period wherein the lessee pays the lessor in instalments.
A question may arise in your minds by now, what qualifies to be an asset that can be leased? Well, almost anything can be qualified as an asset. It could range from furniture and electronics to vehicles and office spaces. There are two chief types of leasing:
This is where the rights of the asset are transferred to the borrower or lessee at the end of the contract.
In this type of lease, the lessor retains the entire ownership of the said asset before as well as after the end of the contract.
How are Leased Assets Important to Retail Investors?
An opportunity for leased assets is ideal for investors looking for a passive income. It not only broadens the portfolio of big-level investors but is also a trustable source of alternative investment for retail investors. Alternative investment options like asset leasing are, for the most part, low to medium risk. Moreover, leasing an asset also provides a variety of benefits. For instance, the cash income would be fixed, and the assets pay for themselves after a period of time. Other advantages are:
If we compare asset leasing to the stock market, there exists more stability in the former. The term of the lease is dependent solely on the agreement and not on the fluctuating market.
The rentals are deductibles in terms of taxes. Therefore, asset leasing is an option that offers returns without tax deductions.
Asset leasing can typically provide up to 20% or more IRR (Internal Rate of Return).
How to Analyze an Asset Leasing Opportunity?
Given below are some techniques via which investors can analyze a lease in order to come to a decision:
As we know, the market keeps fluctuating, and the value of the rupee now might not be the same in the future. Therefore, investors have to consider the inclusion of a discount in the future in order to make up for the time value of the rupee.
The calculations you, as an investor, would make by taking into account the time value of the rupee is the process that gives the investors better insight into what the particular lease is going to cost you in the present day and age.
By using the current value via the calculation, the investor decides the total rent of the asset.
Total Current Value
By taking into account the time period, the value of the asset and the total rent, investors determine the cash flow of the lease agreement.
By the process of converting the total current value into an equal annuity, the investors determine the final rent rate of the asset.
The aforementioned processes are Comparative Lease Analysis options for investors looking to learn how to invest in a lease that may be beneficial for them. These analysis techniques will help investors analyze a lease and furthermore list out the pros and cons of the lease.
Investment as a whole is a profession that comes with some, if not many, risk factors that may affect investments. One of the reasons new and retail investors go for asset leasing as an alternate form of investment is because of the comparatively stable environment, low liquidity and good returns. However, even in cases where one is playing safe, one needs to weigh out their options in order to make a high return on investment. Want to know more such tricks and tips on asset leasing and other forms of alternative investment options? Head on to the Bhive Alts website to learn more about investments and other necessary consultations.