By Dr. Don Rose, Writer, Life Alert
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Introduction

Planning a budget involves two main activities. The first is tracking how much money is coming in, or inflow (wages, proceeds from sales, interest, loans, gifts and other sources). The second is tracking how much money is being spent, or outflow (monthly bills, any emergency costs, taxes, payments to outstanding loans and more). In tough economic times, making sure the IN is greater than the OUT becomes more challenging.

Below I present the second article in a three part article series that addresses the inflow part of the budget equation – that is, sources of money. These three parts cover three of the most popular ways of raising cash: Selling, Renting and Borrowing. I now present Part Two, which deals with Renting.

Renting vs. Selling

If you own something of value, and you do not want to sell it outright, it still may be able to generate cash for you. With certain assets, you can “sell” their use for a limited period of time. Welcome to the wonderful world of renting.

Perhaps you own something that you can’t bear to part with (e.g., for sentimental reasons). Perhaps you are not using a certain asset now but plan to in the future. Or perhaps you feel you can get more for this asset in the future than the market will allow now. In such scenarios, one can often keep the item in question while renting it to others to use for a period of time.

Note that in this article I use a very general definition for the word “renting” – as in, giving someone control over something you own in return for a regular periodic payment (usually every month). Below I explore how to raise money by renting various assets. This includes homes (the most common asset used to generate rent), investments (yes, stocks can actually generate a monthly “rent” payment for you), and even items inside your house (e.g., a bicycle, car or printer) that someone may only want to use for a limited time and hence is more attractive for that person to rent than to buy.

Renting Property

Nearly everyone knows about this strategy. Not everyone has the temperament to be a landlord, but renting a home or condo to someone can have many advantages for the owner of that property. The most obvious is the income generated every month from such rent payments. For those who are renting a room in their primary residence, especially if the homeowner is older and lives alone, the new tenant can not only provide extra income but companionship and even help around the home as well.

Of course, a house is only one form of property. For example, if you own a bike and live by the beach, you can always rent out that bike to grateful tourists and other beachcombers looking for some exercise. Once the cost of insuring the bike and maintenance is factored in, a steady flow of bike-rental income can add up fast. You might even meet some cool new people. Another example: rent out your printer (print documents that people send you, charging by the page). Third example: buy space from an online host and rent it to people wanting to set up a new website. The point is that anything you own has the potential for being rented out; usually, the more expensive the item is, the more it makes sense for someone to rent it for a limited time.

Another option for homeowners is limited-time rentals. For example, some vacationers would love to rent a nice home for only a week or two, and the rents in these cases will often be more for the homeowner than the comparable rent would be during a longer-term agreement. Then there are times when someone wants to arrange a very limited-time rental. For instance, if a house is vacant or very sparsely decorated, it can be rented out for parties, which often last only one day or night; in some cases, the rent made during a party for a corporate client can pay the house’s mortgage for an entire month or more.

Renting Stocks

Many people don’t realize that you can own stocks and essentially “rent” them out to other people. The method is called Covered Calls, and is one type of Options strategy. With this technique, you sell the right to buy your stock (called a Call) at a certain price (called the Strike Price (SP)), in return for some cash (the cost of the option, referred to as the call’s Premium). There is a certain day each month (let’s call it Expiry) when options expire (that is, the option is either exercised or expires worthless). If the stock’s price never goes above SP by Expiry, you keep the stock, since the call is now worthless (since you can buy the stock on the open market for less than SP). However, if the stock’s price has risen above SP, the call has value, and most likely you will have to sell your stock at the SP price. No matter which scenario unfolds, you get to keep the premium.

Hence, some savvy investors buy stocks and then sell calls each month to get a monthly premium payment. For example, if the stock price never goes higher over a year, and you keep selling calls with SP at the current price or slightly higher each month, then you get a premium to pocket each month, and you still own the stock! In other words, you are in a sense “renting” the stock to the people who buy calls on your stock.

This strategy, if done with proper attention, can net a nice reward each month. Just be careful that the underlying stock is one you really like, and not one you bought just because the call premium is high. You might take in a great premium payment, but then suffer if the stock price dives and fails to recover. In general, the more risky, volatile stocks have the highest premiums, while more “boring” stocks with stable prices may net you less premium. But if you were going to buy and hold a stock anyway, covered calls can be a great way to raise some monthly cash without an undue amount of risk.

Coming in Part 3: Borrowing

For many people, the combination of a job plus occasional selling and/or renting can generate enough cash to make ends meet, or even thrive. For others, it is still not enough. Welcome to the wonderful world of borrowing.

In part 3 of this three-part article series, I will explore how to raise money that you have to one day pay back. This can be via a personal loan from a bank, a peer-to-peer loan from friends or family, a loan from your own retirement funds, or use of those fantastic plastic creations called credit cards.

 

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The information provided above is, to the best of our knowledge, reliable and accurate. However, while Life Alert always strives to provide true, precise and consistent information, we cannot guarantee 100 percent accuracy. Readers are encouraged to research any statements made and use any resource links provided to gather more information before drawing conclusions and making decisions.

Dr. Don Rose writes books, papers and articles on computers, the Internet, AI, science and technology, and issues related to seniors.
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