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Beginner’s Guide to Passive Income (3): Legal Asset Class Cycles, Returns, and Entry Points
Continuing from the last post, this time we’ll dive into the terms, returns, and entry points of the Legal asset class within passive income. To provide a full picture, let’s first look at the standard practices in the market and then explore how my own approach differs through tailored product design.
Market Standards
Legal Lending
- Type: Part of the credit category, structured as debt instruments.
- Returns: Typically, 8–12% annually.
- Cycle: Usually 3–5 years.
- Entry Threshold: For top-tier names like Goldman Sachs or JPMorgan, entry starts at 7 figures, though $250,000 options are also available. (These are just illustrative examples—you’re welcome to fact-check on your own!)
- Access: One significant challenge with legal lending is the lack of accessible entry points for individuals. If you’ve read my series My Journey on Passive Income that 99% Population Don’t Hear About, you’ll know that law firms often fund this through institutional lines of credit, leaving little room for third-party participation.
Litigation Financing
- Type: Falls under equity investments. You’re essentially funding individual or bundled lawsuits, and returns are often contingent on litigation outcomes.
- Returns: Historical data is sparse since this is a relatively new field in North America (believe it or not, Australia is actually ahead in this asset class than us in North America). After filtering out cases with total losses, returns range from 18–25%. However, when you factor in failed cases, the average return becomes less predictable.
- Term: Very lengthy due to the litigation process. Most funds lock in capital for 5 years with an optional 2-year extension, making the typical cycle around 7 years.
- Entry Points: Commonly $250,000, though some options are available at $100,000.
Platforms Offering Legal Assets
Some alternative asset platforms also provide access to legal-related projects, with expected returns of 15–20%. Entry thresholds are lower—around $25,000—but cycles remain 3–7 years. If you’re open to exploring platforms, I’ve compiled a list in my book “Complete Guide to Start Your Passive Income Journey”. Interested readers can check it out for reference.
My Approach
When I started researching the legal asset class 8 years ago, it was out of personal necessity. I disliked the high barriers to entry, lack of liquidity, and uncertainties of traditional options. So, I began designing products that aligned with the principles I mentioned in the second article: blue ocean opportunities, minimal competition, highly liquid, low entry point, and broad diversification to reduce risk. Today, I’ve largely achieved that vision.
Legal Lending
- Entry Threshold: Reduced to $10,000.
- Cycle: Shortened to 6 months.
- Process: Completely hands-off after signing a contract with the lawyer.
- Returns: Annualized returns of 10–12% on the contract.
- Transparency: The legal teams are directly accessible for due diligence, allowing participants to interact with them personally. This has become our most popular strategy that most people test it out themselves. Detailed explanations are available in my series My Journey on Passive Income that 99% Population Don’t Hear About.
Litigation Financing
- Entry Threshold: Reduced to $25,000.
- Cycle: Shortened to 12 months.
- Process: Hands-off after signing a contract with the operations team.
- Returns: Annualized returns of 30% on the contract.
- Transparency: Like with legal lending, the operations team is directly accessible for due diligence. Full details are shared in my series Litigation Financing – 30% ROI Anyone?
With this, we’ve covered the basics of the Legal asset class. Even if you don’t take further action, you now have a clearer understanding of both standard market practices and my niche strategies. This knowledge could be a great starting point for your own research.
Next time, we’ll discuss Private Credit assets, including real estate lending, micro-lending, and business lending, covering both market norms and my unique approaches. Stay tuned!