The truth is, no one does anything for the money – NO ONE! When you’re done scratching your head, think about this: If you give someone $100,000 cash, would that person simply put the money on the table and stare at it for the next 30 years? Of course not. People don’t want money. They want the things money can buy.
Let’s say that today you’re given a big pot of money. What would you do with it? Too many folks (broke folks) would rush out and trade their pot of money for a shiny red thing that honks and drops like a rock in value. They mistakenly think that if they’re seen in a fancy red car, their “friends” will be impressed and think they’re rich.
Very few people have the discipline to invest their pot of money into a capital asset that goes up in value over time, has great tax benefits and sends you a monthly mailbox-money check. Of course, I’m talking about rental property.
If your goal is to get out of the rat race, then your primary focus must be to have your passive income be greater than your expenses – the greater the spread, the wealthier you are. To accomplish this, you must be mindful of your expenses (NOTE: Shiny red cars are expensive to operate, insure and maintain). At the same time, you must invest in capital assets that give you passive cash flow.
To better explain this, let’s look at a recent decision Kim and I had to make.
A few weeks back, we had a balloon mortgage come due on one of our investment properties. We owed the lender $93,000. Was paying off the property the best thing to do with our money? If we paid off the lender, it would cost us $93,000. In exchange, we’d get a free-and-clear property that produced $800 a month in passive income. Over thirty years (if rent remained the same) our $93,000 investment would pay us $288,000. This would give us an 11.18 percent yield on our money. Not a bad return.
But instead, what if we invested our $93,000 into something that paid 10 percent interest and we agreed to not touch this investment for 30 years. At the end of that time how much money do you think we’d have? Ready to have your mind blown? Would you believe $1,844,878? That’s almost 2 million dollars.
Now for the tough question: Which is the better investment? The answer is: It depends. Which do you need more - $800 a month in passive income for the next 30 years or $1.8 million in 30 years?
What did Kim and I do? We chose to pay off the property because the $800 a month helped us reach our immediate goal of having our passive income be greater than our expenses. Bill and Kim’s North Georgia Real Estate Investors Association meets on the second Thursday of each month, from 7 p.m. to 9 p.m., at the Hilton Garden Inn off Main Street in Cartersville, Ga.
For more info, go to REIoutpost.com.