Investing in Robots: How Are They Financed and What Are the Returns?
Robotics in the workplace are gaining traction with every passing year. According to Allied Market Research, the global robotics market is projected to have a compound annual growth rate (CAGR) of 13.5% between the years 2020 and 2027.
For investors with a penchant for keeping up with the trends of the future — and generating consistent passive income for retirement — investing in robotics equipment leasing is an exciting opportunity.
Why Robotics Equipment Leasing Is Necessary for Businesses
Companies that need robot workers face the challenge of how to finance their equipment. While robot workers may save companies a ton of money in the long run, the upfront costs can be enormous.
Not to mention the need for ongoing maintenance, programming, and repairs — purchasing robotics equipment can be daunting even for established businesses. Even if a business can afford to purchase robotic equipment, most businesses are better off preserving their cash reserves to be used for other operational costs and needs.
This is where equipment leasing comes into play. Leasing robotic equipment provides businesses with a fixed monthly payment they can easily work into their budget. They’re not required to take out a new (often hefty) line of credit that may impact their borrowing ability for other operational or investing needs.
Additionally, leasing robotic equipment takes the onus of repair, maintenance, and even programming away from the companies themselves. Instead, the lessor takes responsibility for the maintenance and repair of their equipment. In some cases, robotics companies will also provide customizable programming that can be updated depending on a business’s changing needs.
All this to say — robotics equipment leasing isn’t going anywhere. Since GE Capital Leasing has exited the market, this once dominant player has opened the door for more companies to invest in automation. This is a huge opportunity for savvy investors to fill the market demand and generate consistent cash to fund their retirement.
Financing Robotics for Equipment Leasing
In 2015, 68% of investments in equipment and software were financed. This means that as an investor, you don’t have to have all the money upfront to purchase robotic equipment for leasing. You can finance your investment and use the positive cash flow to generate returns and meet your financing obligations. This is commonly referred to as “purchase-lease back” financing.
In general, there are four options for financing robotic equipment: capital lease structures, operating lease structures, secured loans, and lines of credit. The first three options are increasingly more popular than lines of credit.
Expected Returns from Robotics Investments
Growth in the robotics sector is promising. By 2023, global spending on robots is projected to reach $241.4 billion. This is more than double the worldwide robotics spending in 2020. While the growth is only expected to continue, estimating potential returns isn’t always so easy. However, one major benefit of investing in equipment leasing is that once a leasing structure is put into place, the returns on the investment are all but guaranteed.
Projecting returns from robotics equipment sales depends on a number of factors. One important factor is how exactly you invest in robotics (see a few options below). Basically, the closer you are to the equipment, the higher potential returns you may see. But of course, owning or financing your own equipment and leasing it to businesses yourself comes with other risks, such as vetting your lessees and ensuring that your equipment doesn’t sit idle.
On the other hand, you may see less risk from investing in robotics stocks and ETFs, but you likely won’t see the same level of returns. Furthermore, you should carefully research any robotics equipment companies you plan to invest in — public or private. Only companies making the best use of robotics technology will provide the highest returns.
Fortunately, there are many ways to invest in robotic equipment. See below for many ways to get started.
How to Start Investing in Robotic Equipment
Equipment leasing is a great option both for businesses and vendors who provide access to robotics equipment. Businesses can afford to lease the robots they need, while equipment leasing companies and investors benefit from an income-producing asset as part of a diversified portfolio. You can invest in worker robots in a number of ways, including:
Private direct investing
Private equity investing
Robotics stocks and ETFs
Private Direct Investors
First, worker robots can be financed by private investors who use their own funds to purchase the equipment. When private investors finance robotics equipment, they can expect returns on their investment from the payments they receive from the companies leasing the equipment.
While there are certainly costs associated with equipment leasing such as maintenance, upkeep, and programming, lease payments provide a good way to generate income on a regular basis. Additionally, private direct investors get to keep the entirety of the payments.
However, this option requires investors to vet potential lessees and essentially run their own leasing business, which can require marketing, recordkeeping, and other administrative tasks. For many investors who are looking to add equipment leasing investments to their retirement portfolios, this is simply too much work. Few of our clients finance equipment and lease it directly.
Private Equity Investing
However, there are still plenty of ways you can get in on the robotics equipment leasing action. If you’re an accredited investor, you can also invest in private companies who specialize in robotics development and leasing themselves. From automotive robotics to state-of-the-art surgical devices, the opportunities to investing in robotics equipment companies are limitless.
Rather than earning returns directly from lease payments, you’ll receive dividends or participate in share buybacks. Investing in private robotics companies removes the burden of running an equipment leasing business off of the investor. This is the option most of our clients choose.
Robotics Stocks and ETFs
Finally, if you’re just getting your feet wet with robotics investing, it may be simplest to start with robotics stocks or ETFs. Investing in robotics stocks can help you get ease into this industry, allowing you plenty of time to learn more about the ins and outs of robotics equipment leasing while benefiting from the high potential returns this industry can offer.
As with any kind of investment, robotics stocks and ETFs should be treated as long-term investments as part of a balanced, diversified portfolio.
How Chicago Trust Administration Services Can Help
At Chicago Trust Administration Services, we have many clients who are already benefiting from the opportunities available with robotics equipment leasing. We know this is an exciting time to reap the rewards of this growing industry and generate consistent income for your retirement from equipment leasing.
As self-directed IRA administrators, we can help you use your retirement savings to find robotics equipment leasing opportunities that fit into your overall investing strategy. To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.