When we buy Australian shares, we have many options other than just holding on them and waiting for the price of the share to rise (the majority of people think that is all there is to stock market investing).

What we can do is start renting our shares out. Think of it like this – if you own a house, you are the landlord and you can rent your property out at a price that is determined by you. With shares, you can basically do the same thing. As share owners, we determine the price we want to rent our shares out for, and we also choose rental period.

Renting Shares – How It Works

The first thing we need to do if we want to make money Renting Shares, is to actually buy some Australian shares. So let’s say we buy 1000 shares with a company we will call “ABC” and these shares cost us $20 each, making the total cost of our share purchase $20,000. Once we have purchased our shares, we can then think about renting them out to make an income.

With Planet Wealth you have the luxury of being able to buy the exact shares that we buy ourselves (at the same time we buy them!) this takes the guess work out of it for you, and places you on par with some of the top investors in the country.

Choose Our Share Rental Price

We now need to choose a rental price to rent our shares out for. We generally choose a price that is higher than the price we paid for the shares. For this exercise let’s say that we choose to rent our shares out for $21.50 each.

Choose A Rental Term For Our Shares

When we decide to start Renting Shares, we get to choose the rental price and the amount of time we want to rent our shares out for. With our renting shares strategy, we generally try to rent out our shares on a monthly basis. In this example we will use a 4 week rental term.

In this example, we have purchased our shares for $20 and rented them out for $21.50 for a 4 week period and have received $1500 in share rental premiums. This income will be deposited into our trading account the day after we have instructed our broker to rent out our shares.

This $1500 of income is ours to keep, regardless of what happens to the share price over the 4 week period. Our share price can go up, down or sideways, and we still get to keep the income of our initial rental premium.

To join or find out more about our Renting Shares service…

The Four Steps Of Renting Shares

• Select and purchase our shares.

• Set our share rental price.

• Choose the share renting period.

• Get your rental premium deposited into your trading account within 24 hours.

What Can Happen During The Rental Period

• The price of our shares can increase.

• The price of our shares can stay the same (or move minimally).

• Our Share price can decrease (a little, or a lot).

How can share movements affect us, when renting shares…

The Share Price Increases

We have purchased our shares, rented them out and received our share rental premium. At the end of our share rental period, let’s assume that the price of our shares has gone up to $21.75 (25c more than what we rented the shares for).

When the price of the shares is higher at the end of the share rental period ($21.50 in this example), our shares will automatically be sold at our initial rental price of $21.50. We are more than happy when this happens, as it means we make even more money from our trade.

Share Renting Summary – If Share Price Increased

• Purchased 1000 shares @ $20 each (cost $20,000).

• Rented out 1000 shares @ $21.50 each (received $1,500 in rental premiums).

• Sold 1000 shares @ $21.50 each (received $21,500 for the sale).

• Gross Profit for this share renting trade – $3,000 (15% return on our $20,000 investment).

Share Price Has Stayed The Same

We have purchased our shares and received the rental income for our shares. At the end of the share rental period, we assume that our share price has stayed virtually the same as our share purchase price. For this example, let’s say our shares are now priced at $19.90 (10c below our share purchase price)

We still own our shares, and we still have our $1500 rental income in our trading account, but the current price of our shares is virtually the same as our share purchase price. What happens now?

We start Renting Shares again! And we will continue to rent out these shares month after month while the stock market is staying relatively flat. It is normally very hard to make money from share investing when the stock market is not moving, however the renting stocks strategy is an awesome investment vehicle to make continuous income while the stock market is flat.

Share Renting Summary – If Share Price Stayed The Same

• Purchased 1000 shares @ $20 each (cost $20,000).

• Month 1 – Rented out 1000 shares @ $21.50 each (received $1,500 in rental income).

*Share price stayed at a similar price…

• Month 2 – Rented 1000 shares again @ $21.50 each (received $1,500 in rental income).

• We can keep doing this every month while the stock market stays flat and our share price is virtually continuous.

Share Price Goes Down (A Little Or A Lot)

It is a fact that the worst thing that can happen when you invest in shares, is that the share price can go down. We are going talk about 2 things here:

• The price of our share goes down a little.

• The price of our shares goes down a lot.

When Our Share Price Drops A Little:

Let’s say “ABC” is valued at $19.00 at the end of our share rental term. If you hold on to these shares, you have not actually lost any money, at this point it is only loss on paper.

So in theory, if the share price has dropped from $20.00 down to $19.00, we have a paper loss of $1 per share. Don’t forget, we have already rented our shares out at $21.50, therefore we have made 50c per share in profit…so we haven’t actually lost any money at this point. (bought for $20, rented for $21.50, share value is now $19.00).

Our next step is to simply start renting our shares again for the coming month. If the share price is $19.00, we may rent them out at say $20.20 this time, and receive another $1.20 in rental income per share.

At that point, we have received $1.50 per share ($1500) rental from the first month, and $1.20 per share ($1200) in rental premiums for the second month, making a total of $2.70 per share in rental premiums. That’s $2700 in share rental premiums for the 2 month period.

If the share price did rebound and go above $20.20 by the end of the next rental period, we would be forced to sell our shares at $20.20, which makes us an extra 20c per share ($20.20 less the $20.00 we bought the shares for = $200).

In summing up, we would have a total gross profit of $2900 for the trade. That’s a still return of 17% gross profit for 2 months of share renting.

If the share price did not happen to rebound, we would keep renting our shares over and over, receiving monthly rental premium over and over again.

When Our Share Price Drops A Lot

Sometimes, things like this just happen and there is not a great deal we can do about it (if you don’t know what you are doing). When our share price goes down by a lot, it is about the only time that we can lose money from renting shares. Thankfully, Planet Wealth have a strategy to greatly limit any loss of our initial capital outlay, what we do is…

We Protect Our Capital…

If we’ve spent $20,000 on buying “ABC” shares, and the share price drops a lot (70-100%) then we have lost a lot, or all of our initial capital investment.

There is always a risk when investing in shares, but imagine if we could remove that risk! Well, we can, see below…

By Insuring Our Shares

When we buy shares for our renting shares strategy, the first thing we do is buy insurance to minimalise any losses if the share price happens to fall.

If you own a house and rent it out, the first thing you do is insure your house right?. You want to make sure that if your tenants don’t pay rent, or if they damage the property, or even if they burn it to the ground, you have insurance to cover any losses.

No one buys a property without insuring it, so we apply the same principle to our shares when we rent them out. Whenever we buy shares, we outlay a little of our rental premium to buy insurance to cover against loss.

However, we don’t insure 100% of our share price. If the share price only drops a little we can easily make this up from our share rental premium, as in our previous example. It is only necessary to insure against a large drop in share price, therefore we only buy insurance a couple of dollars below the current share price (which protects the majority of our capital, but not all of it).

The reason for this is that the cost of insurance is quite high. If we insured 100%, it would eat up all our profit from our initial rental premium.

As a general rule, we aim to outlay between 20-40% of our share rental premium on insuring our shares.

For our example on ABC shares, we purchase insurance at $15, which costs us 30% of our share rental premium. Our rental premium was $1500 for our 1000 shares, so that means we spend $450 to insure our shares at $15.

In summary, after we receive our rental ($1500) and purchase our insurance ($450) we end up with $1050 of rental income.

Now that our shares are insured, we are guaranteed to sell our shares at $15 – regardless of the current share price, at any time before the share rental period expires.

Renting Shares – Worst Case Scenario

Let’s say something happened to our fictitious ABC company, and the share price dropped right down, let’s say right down to $5.

If our shares were not insured, we would be looking at a loss of $15.00 per share, or $15,000 for the full share trade. That’s a big chunk of our initial capital investment, which was $20,000. While we could probably live with that, it would take a huge amount of time renting shares out again and again before we could make up for that loss of capital.

What if the absolute worst case scenario happened – the company went insolvent – making the share price zero. That would mean that we lose ALL of our initial investment. That’s nothing short of a tragedy. But here’s some good news…

Because our shares are insured, we are guaranteed to be able to sell our shares at our insured share price of $15 (even if the company goes broke).

That means we have only lost $5.00 per share, or $5000, which is quite good considering other investors that did not insure their shares would have lost $20,000!

That’s the most we can ever lose with the renting shares strategy, even if the share price goes to nil.

Again, when we insure our shares, we are guaranteed that we can always sell our shares at the insured price, no matter what happens. The shares could drop 50%, they could drop 90%, the company could go completely broke and no longer exist.

Regardless of what happens, we will always receive the price we insured our shares for (in this example $15).

In Summary

In a balanced investment portfolio, we manage our risk so the most we can lose is only ever a small part of our total capital outlay. Even if we are unlucky enough to be on some huge losers, our loss is still only minimal and our ongoing income from renting shares keeps us well in front over a period of time.

Buying insurance for our shares is one of the key components of our successful renting shares strategy. Our strategy enables us to remove our risk from disastrous one-off stock market events (eg. September 11) or company crashes.

Every step of the way, we are always protecting our initial capital investment. That means we can sleep at night without worrying about losing large amounts of money, even if we are in the middle of the worst financial turmoil, bear markets or stock market crashes.

Make Money Renting Shares Now

We believe our renting shares investment strategy has something for everyone – it’s low risk, produces a healthy income and can all be done at the push of a button once you join our renting shares trading diary.

To find out how you can get into the Renting Shares winners action and receive the exact same trades from some of Australia’s most successful share traders (and get your trading set up on auto-pilot) – simply click the button below.