07 Aug Stop Trading Time For Money With Real Estate
Stop Trading Your Precious Time and Learn How to Build Passive Income
Imagine this, say you walk into work one day and your boss calls you into their office to tell you that you have been laid off. Yikes!
Many Americans have so little savings and reserves that this kind of news could devastate them emotionally and financially. That means that no income for who knows how long, right? Now, let’s say that you have been savvy and started to invest your money into passive investments to get your money working for you instead of you working for your money.
If you have leveraged your capital wisely, then you’re going to be just fine.
“The rich don’t work for money. They make their money work for them.” – Robert Kiyosaki
There Are Three Types of Income
Most people earn what we call active income, while the wealthy earn passive or residual income or even better yet, a combination of both.
What Is Active Income?
Active income is earned income that requires you to exchange time and energy in exchange for a salary or income. When you stop putting the time or energy into the endeavor, then your income ceases. This is how most individuals make their income.
What Is Residual Income?
Residual income is income that you receive after you have performed work, and after the work is completed you receive residual income. For example, if you were a book author, then you would put in the work upfront and then receive residual income from the book sales afterward.
What Is Passive Income?
Passive income is a way to earn income that allows you to put your capital to work for you so that you have a steady stream of income while doing little to no work. This type of income is our favorite, and it is why we love real estate investments such as real estate syndications because they can provide you with passive income, equity splits from the profits, AND excellent tax benefits unlike other forms of income.
So, in the event of you ever losing your job, you would have passive income regardless of whether or not you were working.
This is the definition of financial freedom that Robert Kyosaki talks about in Rich Dad, Poor Dad. It’s the ability to have enough income flowing in from investments to cover all or more of your monthly expenses.
Investing in Stocks vs. Real Estate
Have you ever thought about which was the best investment stocks or real estate? So, let’s take a look at both investment vehicles historically. Generally, investing in the stock market has been shown to produce about an 8% annual return on your investment on average. This means that if you were to have invested $100,000 in the stock market, you would have received about $8,000 per year or $667 a month in passive income.
So if you wanted to replace say a $48,000/year income or $4,000/month, then you would need to have roughly $600,000 investing in the stock market at an 8% return to achieve that goal.
Real Estate Scenario
So, let’s take a look at how that would convert into real estate. Let’s take the same $100,000 and buy a $400,000 rental home. We put 25% down or our $100,000, we leverage the other 75% with a bank and get a mortgage for roughly $1500/month, and we are able to rent the home for $3500/month. This allows roughly $2000/mo net income.
Remember our goal is to replace a $4,000/month income, so we are halfway there. We would only need to buy one more rental home, and invest another $100,000 to achieve what the stocks are achieving with a $600,000 investment.
And there’s more: with this $400,000 rental home investment, you have appreciation at roughly 3% a year, very conservatively. So you technically make an additional $12,000 a year in anticipated appreciation or an additional $1000/month in average annual income.
Summary: The total rental income of $24,000 per year plus the 3% appreciation of $12,000 per year is a total of $36,000 return on your $100,000 investment or a 36% return in just one year.
Oh, and there can be extensive tax benefits with real estate investing that stock investing does not offer. But that’s for another time.
What if you don’t want to be a landlord?
Say, the returns in real estate look awesome, which they do, but you don’t want to be a landlord. Understood. Then what?
This is when you can start exploring the opportunities in real estate syndications where a team handles all of the work for you, and you just invest your capital into the deal. That’s it…no work on your part beyond that.
And your money works for you instead of you having to work for your money – passive income.
So, the similarities of investing in a syndication vs. investing in the stock market can have somewhat of the same returns. When you invest in a real estate syndication you may be able to get an 8% return on your $100,000 investment like you would if you invested that same $100,000 into the stock market at an annualized 8% return. This is where the similarities between real estate investing and stock market investing end.
With a real estate syndication, there is an enormous upside when the asset sells (usually between 5 – 7 years). During that time, there have been a number of factors that would likely have caused the valuation of the asset to increase such as the implementation of energy efficiencies and management improvements, construction upgrades, general market appreciation as well as a number of other factors.
Let’s say after 5 years, the asset is sold and you receive $160,000 upon the sale of the property from the syndication you invested. in. You receive your initial investment of $100,000 plus the profit of $60,000 PLUS the 8% a year or $8,000/year ($40,000).
So, you have received $60,000 plus the $40,000 over 5 years, plus your $100,000 capital returned, which is a total of $200,000 over 5 years. You would have doubled your investment and received an average annual return of 20%.
That’s where the difference lies between stock investing and real estate syndication investing. While they are both passive investment vehicles and have a place in virtually every portfolio for diversification, the benefits and returns, and tax advantages usually outweigh the benefits and returns of stock investing.
If, while employed, you’re able to create passive income, you’ll be less stressed when facing a layoff. You may even find yourself celebrating unemployment. Or if you’re preparing for retirement, imagine having a nice steady flow of passive income.
We hope this has helped you learn more about how you can Earn Passively & Live Abundantly! Until next time…
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!