As a public school teacher in my early twenties I thought I was indispensable.
My rational went like this:
(1) Government job
(2) Teachers were in demand
(3) Families were flocking to where I lived....
The year I was up for tenure I barely missed a pink slip (potential layoff).
Yep. Missed being laid off by just a couple people.
Uncertain economies lead to uncertainty. Many understand they're expendable but realize they don't have the reserves to weather that personal financial storm.
The moment they're told to pack their box and leave, they're cut off from their income immediately.
How long could you stay solvent?
As a young teacher I didn't have much....but many professionals are in a different situation.
They're well compensated and have an incredible opportunity to leverage their money.
(Maybe this is you?)
The rich don’t work for money. They make their money work for them. – Robert Kiyosaki
Three Types of Income
Most people’s income is active, which means it’s from a consistent paycheck. But wealthy people typically earn Residual or Passive income (or both!).
Active Income
Active income is from your employer and requires activity in exchange for money. When you stop, the income stops.
Residual Income
Residual income means you receive money after the work is done. For example, every book an author sells provides residual income.
Passive Income
Passive income is earned with very little effort and continues flowing even when you aren’t working. Real estate investments are one of the most stable sources of passive income.
Remember the job loss scenario? Let’s pretend you’d built passive income, on the side, during employment.
Since being laid off, your earnings decreased by your monthly salary amount, but you still have income.
Financial freedom is achieved when your earned passive income supersedes your active income.
Investing in Stocks vs. Real Estate
Historically, the stock market returns about 8% annually, which means $100,000 would produce roughly $8,000 per year. That’s only $667 per month.
To replace an income of $3,000 per month, you’d need $36,000 per year, which would be 8% of $450,000.
However, with real estate, $100,000 could buy a $400,000 rental home. How?
The bank brings $300,000 to the table.
You put in 25%, the bank puts in 75%, and you earn 100% of the profits.
A $400,000 home renting for $3,600 with a mortgage of $2,100 would net you $1,500 per month. Theoretically, 2 investments of this size could replace a $3,000 monthly income.
The total rental income plus $25,000 in additional equity (based on 5% annual appreciation) equals $43,000, or 43% return in just one year.
"But I Don’t Want to Be a Landlord."
The numbers look enticing, but being a landlord does not.
This is where, instead, you join a small team to acquire real estate.
When investing $100,000 in real estate syndication, it’s feasible to earn $8,000 per year (8%), similar to the stock market.
However, the real opportunity lies in the sale of the asset. Syndications hold the property for about 5 years. During this time, building improvements are made and the land market value typically rises.
Upon the sale, you receive $160,000 ($60,000 in profit). This, plus the passive income of $8,000 per year (totaling $40,000), equals $200,000, which is a 20% average annual return.
Sure, there's uncertainty in the world, but you have a say in how, when and where you invest your money. Planning wisely today is the first step to keeping adventure on the trail and not in your investing!
Learn more about passive real estate investing and how to invest in upcoming real estate syndication deals join Three Keys Investments by applying to our Investor Club.
PS- The image I chose is a real cycle enthusiast who rode 680 miles hands-free for charity! Check out the full article HERE
This work by Annie Dickerson is licensed underCC BY-NC-SA 4.0