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Understanding all of the six passive income options and what each one can do for you is one of the most valuable lessons you can learn. Today’s focus is on option #1 – Real Estate.
Quit Your Job Early is committed to elevating the quality of life of everyone we help along the way. The principles that we teach in order to achieve this perfect lifestyle are all based off of substantial passive income. Passive income is not a common concept in everyday life, however most people don’t realize that they are surrounded by it almost every day. I guarantee that everyone who reads this article passes by a piece of real estate that is generating passive income for someone, every day.
Real estate is a large category. Any building or form of property is considered real estate. So how can real estate generate passive income? Well the answer is extremely simple; in fact it’s one word. Leverage! I know there is an abundance of people out there who are so called “experts” on leverage, and don’t worry; none of us here are proclaiming anything. But it’s true; real estate can be a great provider of passive income through leverage.
If the real estate is personal, and you live in it, it is not an asset. One of our mentors, Robert Kiyosaki explains this in most of his books. If you own your own home, and live in it, it is a liability. However, if you own a home, and it brings in more revenue than its expenses, it’s an asset. This may be common knowledge, but it’s also a common mistake. Before I get into how someone can make real estate work for them, it’s time to look at one more major mistake.
Capital gains are essential to understanding real estate as an investment. If you own real estate and sell it, you are seeking a one-time pay-out, capital gains. There is a major tax associated with capital gains. The ever so popular trend of “Flipping” properties is a good method of making money, if you are seeking capital gains. Again, this is a mistake that Robert Kiyosaki tends to talk about in his teachings. The point here is that chasing capital gains is not passive; the investment is not bringing you consistent returns.
Effectively using real estate as an investment which creates passive income is called investing for cash flow. Cash flow is extremely important, because it is the whole basis behind passive income. Yes the big payout of selling a property for profit can earn you some big returns, but you have to keep selling and earning profit to make a lucrative income. However, if you keep that property as a cash producing vehicle, your investment becomes passive. So how can the average Joe build wealth through real estate?
There are many options when it comes to using real estate to generate cash flow. Three of them are explained below:
- Rental Properties – If you can muster up the cash for a down payment, and manage to keep tenants in the property, you should show a monthly profit. This option is great, however it requires lots of leverage, good credit, and the work of managing the property
- Investment Properties – there are various real estate holding companies out there which buy and sell real estate to investors. Most of the time, these companies manage the property as well so you can be the deed holder and worry about nothing else. This option still requires the investment and the credit, but eliminates the responsibility.
- Multi-Owner Properties – These properties are managed by companies that raise capital to purchase real estate. They cover all the legal work of creating shares, and breaking down the ownership. This option lets you invest whatever you want, with no responsibility either. The best part is that they often perform all market research functions as well.
All of these options prove how investing for cash flow can be made simple, and require almost no work. Real estate investing does offer options for everyone. The key to successful real estate investing is partner with a good company, and search for good properties.
The Quit Your Job Early plan does not involve real estate in any steps of our plan, due to the fact that it does not fit with our core four values. This is because the laws are very different in various locations and it isn’t as easy to be mobile. That being said, we do consider it a valuable wealth building asset, once cash flow has been established. We have a list of partners who are available to suit your real estate needs. Please don’t hesitate to ask for more information!
Cheers to building your asset column,
Mike Perrin
