How to Evaluate Income Investments
You can earn passive income from a variety of sources, including dividend stocks, bonds, and private real estate. Here’s how to put them to the test.
How to Evaluate Income Investments
You can earn passive income from a variety of sources, including dividend stocks, bonds, and private real estate. Here’s how to put them to the test.
Passive income, defined as unearned income generated without active involvement, is the key to financial independence. Whether you want to retire early, scale back your workload, pursue hobbies or volunteer work full-time, supplement your active income, or enhance your financial security, you’ll need passive income to make it happen.
But there are a seemingly endless number of ways to generate unearned income. From dividend stocks and publicly-traded bonds to private real estate and credit funds, the spectrum of passive income opportunities is vast and ever-expanding.
Complicating this further is the fact that some passive income investments—like private real estate equity and credit funds—are available exclusively to accredited investors. This is a formal designation defined by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D. To qualify, you must have a net worth exceeding $1 million (either individually or with a spouse) or income exceeding $200,000 (or $300,000 when combined with a spouse) over the past two consecutive years.1,2
Given all these moving parts, how can you discern which investments truly align with your financial goals, time horizon, and tolerance for risk?
Choosing the right passive income investment
There’s no one-sized-fits all passive income investment. How much you have to invest, how much income you want to earn, and how much you’re willing to risk can each significantly impact whether a passive investment is “right” for you.
Still, there are some common criteria, applicable both broadly and within the context of private real estate in particular, that you can use to assess the strength of potential passive income opportunities. Here are four to consider:
1. Track record and performance history
A fund manager's history is a critical indicator of their potential to deliver consistent returns. Look beyond a single year—a manager should ideally have a 3 to 5-year track record that’s been audited by a reputable public accounting firm.
In any case—whether you’re evaluating a private real estate fund, a publicly-traded REIT, or a mutual fund—look for consistent performance over time. This can signal that the fund manager is skilled at selecting deals, managing assets effectively, navigating fluctuating market regimes, and partnering with high-quality, mission-aligned project sponsors.
Of course, the fund manager’s history of generating income is especially important in the context of passive income. Have they ever missed a dividend or distribution? If the investment targets payment priority in the form of preferred returns, have those targets been met? What do the cash flows look like—do they tend to increase or decrease over time?
The DLP Lending Fund has a decade-long track record of generating monthly passive income for accredited investors.*
2. Fund manager and leadership team
Exceptional people drive exceptional performance, so carefully examine your fund managers for verifiable evidence of expertise in their current asset class. For example, if you’re evaluating a passive real estate investment opportunity that provides you with exposure to attainable workforce housing in the Sunbelt, check to see that your fund managers have proven experience in the relevant geographies, asset subtypes, and deal sizes.
Also, consider whether the investment firm is vertically integrated. In private real estate, a vertically integrated firm should have in-house capabilities across construction, operations, acquisitions, property management, and sales. This can indicate greater control over projects and the ability to create value at various stages.
A vertically integrated private real estate investment firm, DLP Capital has deep expertise in developing, constructing, and operating multifamily communities
3. Transparency and frequency of reporting
As a limited partner of a private real estate fund or a shareholder of a REIT or dividend-paying company, you have the right to examine the books and records of the entity you are investing in.3 A reputable company or investment firm will proactively volunteer this information by issuing regular updates on fund performance and detailed financial reports, ideally on a monthly or quarterly basis.
In addition, a transparent fund manager should be willing to engage with investors often. You should feel comfortable asking questions and should receive candid and straightforward answers.
In addition to monthly or quarterly reports for investors, DLP Capital regularly hosts educational webinars and live events, always making time for live questions.
4. Investment strategy and market focus
All passive investments have a strategy and focus, whether it’s closely tracking the performance of an index or delivering exposure to a niche asset class. A private real estate investment fund, for example, should adhere closely to its stated objectives and consistently target a certain position within the capital stack.
On the other hand, if you’re interested in impact investing, you should look for funds that intentionally seek to generate both a financial return and a measurable social or environmental impact—the keyword here is “measurable.”
Want to finance solutions to America’s affordable housing crisis while potentially earning returns of up to 13%?
Learn more about DLP Capital's impact-focused sponsored funds today.
FAQs
How can I make $1,000 a month in passive income?
You’ll need investable assets if you want to make $1,000 a month in passive income. For example, if you invest in a private real estate fund that targets a 6% annual preferred return, you’ll need to invest $200,000 to earn $12,000 a year or $1,000 a month in passive income.
What is the best investment for passive income?
No single investment is universally the “best” for passive income. All investments come with different risk and reward profiles, and a suitable investment will align with your risk tolerance, time horizon, and financial goals. For example, private real estate funds could be a good fit for you if you have a long time horizon and seek steady, consistent income and returns over time.
What is a good passive income percentage?
In general, the more, the better. Ideally, 100% of your income would be passive; this means you could sustain your lifestyle without working. More realistically, if you want to achieve financial independence, diversify your income, supplement your active income, or retire earlier, you should aim to have passive income make up between 15% and 20% of your total income.
What is the highest paying passive income?
Private real estate funds that allocate to income-producing multifamily assets in high-demand, high-growth markets have the potential to produce significant passive income for investors. Exactly how much passive income you can earn, however, will depend on the amount you invest, the fund you invest in, and the skill of your fund manager, among other factors.
1Accredited Investors. U.S. Securities and Exchange Commission (SEC). January 2025.
2Regulation D—Code of Federal Regulations. National Archives. May 2025.
310 Shareholder Rights You May Not Know You Have. Morningstar. March 2024.
*AS OF MAY 31, 2025. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. INCEPTION DATE FOR DLP LENDING FUND: OCTOBER 2014.
STATEMENTS ARE THOSE OF DLP CAPITAL ONLY AND ARE NOT GUARANTEED, NOR SHOULD SUCH STATEMENTS BE RELIED UPON. FORWARD-LOOKING STATEMENTS ARE EXPRESSIONS AND BELIEFS OF DLP CAPITAL AND SHOULD NOT BE RELIED UPON. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. NOTHING IN THIS IS A SOLICITATION OR OFFER OF SOLICITATION. ALL INVESTMENTS IN ANY DLP CAPITAL SPONSORED FUND ARE TO BE MADE AFTER A REVIEW OF THE PPM, OA, AND SUBSCRIPTION AGREEMENT. DLP CAPITAL IS NOT PROVIDING TAX ADVICE. CONSULT YOUR TAX AND LEGAL PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISIONS.
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