Build a pandemic proof real estate portfolio
Why is it that in today’s modern educated world that so many people are financially vulnerable? Very few families have any sort of financial security. We live in a culture where trading time for money is considered the norm and trying to get ahead requires more time for more money and very quickly your income ceiling has been maximized.
Then life happens such as the recent pandemic. Your main income streams have been jeopardized. Your income is on hiatus or perhaps stalled out altogether. multiple streams of income went from a luxury to a necessity. Working hard is no longer sufficient today it is imperative to work smart.
The problem with the old school way of making a living is that trading time for money eventually dries up as your desire to work runs out. You reach your golden years. A time that life is supposed to be grand and you can finally enjoy life without the day-to-day grind of going to work to trade your precious time for money.
Job Loss:
I was remember a conversation with a gentlemen where he has shelled out over $42,000 of his retirement funds to pay for radiation treatment for his colon cancer. His wife does landscaping and as they live in the frozen north her work is seasonal so currently they have very limited income. Retirement money is now going to health care and no supplemental income is in place.
The recent Pandemic has generated countless stories of sudden job loss like this couple. The one thing all these people have in common is they all wish they had additional income streams.
Fortunately there are better ways, ways that they simply do not teach us in school.
Multiple streams of income
For those of you who may have read the Rich Dad Poor Dad series (if not I highly recommend them). In this book they talk about having multiple streams of income. The wealthy all have multiple streams of income. They do not have to worry if one stream of income is soft this month or perhaps disappears due to economic changes. They rely on the other streams of income to carry them through. This sounds pretty inviting about now doesn’t it?
This post is not about sharing all the different ways you can make money there are indeed many avenues to explore (just check Google University). I did however want to share the most resilient, perhaps the single most sustainable investment which will produce multiple streams of income. Real Estate (Why), simple. the population keeps growing and everyone continues to need housing. Find a need, fulfill the need and profit.
The passive income stream that made 90% of millionaires today
What I will share is a few thoughts on the income stream that has created more millionaires than any other income stream available.
Equity from real estate has created more millionaires than any other income stream.
While you are doing your daily task of earning income silently in the background wouldn’t it be comforting to know that cash flow and equity is being generated even while you sleep. As you trade time for money equity may actually be making as much or more for you than your job is generating. It is able to do this because equity build up works 24/7. When you invest wisely equity build up is a 24/7 income generator. The best part is there are many ways to create equity.
Multiple ways to build equity:
Sweat equity: buying property putting your own sweat (hard work) into improving the property for an increased value. My favorite as a child, I actually learned to enjoy sweating.
Values play equity: basically the same as sweat equity without the sweat. You can buy a property and hire the rehab work done. This value play will increase your equity position without the sweat. This is my new favorite as I grow older and believe in working smarter instead of working harder..
Acquisition equity: Experience tells you that when you buy the property correctly 9undervalue) you will have equity day one. Essentially paying less for the property than it is currently worth.
Make your money going in equity: Some refer to this as path of progress equity. As an example, you buy a property in the path of progress, with property values increasing as the demand for properties in the area rise, your equity also rises.
Equity buildup by way of debt reduction
The typical investor will buy an investment property with a mortgage. Each month the tenant makes a mortgage payment to you the landlord, you in turn use part of the rent payment to pay the mortgage.
Let’s assume for this conversation that $300 of that mortgage went to pay down the principle of the loan. This $300 dollars each month that pays down the loan goes into building up the equity you now have in the property. Let’s say the original loan was for $100K and now has a balance of $99,700. At the end of a full calendar year that is (12) $300 debt reductions payments totaling $3,600 per year in equity buildup.
This is money that is silently being added to your net worth.
Appreciation as a property appreciates in value. The national average for the past 50 years has been a 6% annualized appreciation. On this same $100k example, the appreciation would generate you $6,000 ($100K x 6% = $6,000). This is also money that is silently adding to your net worth.
Combining these two benefits together you realize a total of ($3,600 + $6,000-$8,600) in (silent) wealth building.
Building equity I believe is the easiest and most lucrative way to build wealth and it is the principle used by over 90 percent of the wealthy people today to build their lifestyle portfolios.
Now if these extra income streams would serve you well you just want to ask yourself. How many of these little income streams do you want to have.
Happy Investing.
The author’s opinion cannot be construed as tax or legal advice, and may not represent the views of HTBUSA or its stakeholders. HTBUSA is not a legal service or professional tax service. As with any investment, there is an inherent risk in investing in real estate.