What would you do if you could wake up every morning and have enough money to do whatever you wanted to do that day? What if you didn’t have to punch the time clock, or head to the office for 9:00am? What if you didn’t have to let your boss determine your destiny?
In the last couple of weeks revenue properties have been the focus of this column. We have talked about how one client received 17% returns on her first rental property, as well as our three rules for buying rentals. This week our focus is why you should add revenue properties to your portfolio.
If 17% returns before appreciation are not enough to wet your revenue property appetite, consider the alternative investments for a moment.
The stock market, which is experiencing its fifth longest bull market in history, typically averages returns that hover around 10%. Do you know what happens at the end of a bull market? It ends with a bear.
With interest rates at an all time low, and it looking like they are going to stay that way for at least the near future, the bond market doesn’t seem like it will be returning the reliable income it was once known for any time soon.
Gold and precious metals have been declining for the last couple of months, and cash – which is a necessary part of any portfolio – doesn’t earn a return at all.
So with stocks soaring, bonds underperforming, and precious metals declining, adding revenue properties to your portfolio makes more and more sense – perhaps locking in some of those stock market gains.
Given that you can become a landlord with as little as $30,000 or $15,000 if you have a partner, the barrier to entry is low. With interest rates and vacancy rates at all time lows, most properties cash flow without much problem, creating a reliable flow of income – income that can lead to the freedom to do what you like.
Lets say, for example, a 30 year old purchased one property per year until he was 40. Assuming that he set the amortization at 25 years, the last property would be paid off when he turned 65, leaving him with 10 free and clear properties that would all generate a monthly income.
Lets also assume that the average rent on the properties was the equivalent of $1500 in today’s dollars. That would provide our hypothetical 30 year old with a $15,000 a month income, or $180,000 per year, and all he would have to do every morning to earn that money is get out of bed.
More than likely, as the properties generated more cash flow, he would likely end up paying the mortgages off even faster, giving him a retirement that could come 10-15 years sooner than 65.
Furthermore, if your stock portfolio took a beating, your rental portfolio would still thrive, as people need three things regardless of what is happening in the stock – food, water, and shelter. Shelter therefore, in our opinion, is one of the best investments money can buy. That doesn’t mean it should make up your entire portfolio, but it should definitely make up a portion of it.
If you would like to know more about investing in real estate consider joining our Cash Flow Club. Membership is free.
