Author Topic: Blog article on Passive Income  (Read 3168 times)

jeromedawg

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Blog article on Passive Income
« on: May 15, 2015, 02:02:50 PM »
Hey guys,

Just stumbled across this, in my ventures for researching "passive income" and wanted to get your feedback and thoughts:

http://affordanything.com/2015/05/11/what-is-passive-income/



She is admittedly real-estate centric but I was even wondering about *that* whole subject. Here it seems the underlying theme [roughly] is that you have to spend money to make money. What I don't really get too well is the real estate investor moguls who first start out. Do most of them nearly "go for broke" when starting out in this arena and just do straight up cash-buys, thinking or hoping that they'll make that money back in X years? Or do most people coming into the game already have a sizable savings and are OK to take a $200k hit on a property they intend to make a rental, knowing that in X years it'll become a profitable passive income? I'm sure there's all sorts of factors that come into play but it's all very foreign to me.

shotgunwilly

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Re: Blog article on Passive Income
« Reply #1 on: May 15, 2015, 02:19:14 PM »
They find good deals and leverage their money to have a positive cash flow from the get go. (From the 1st rent check).  Meaning their (rent) - (mortgage payment, insurance, taxes, repairs, vacancy estimate, etc) = Positive
« Last Edit: May 15, 2015, 02:20:51 PM by shotgunwilly »

arebelspy

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Re: Blog article on Passive Income
« Reply #2 on: May 15, 2015, 02:38:45 PM »
That was a decent article for someone brand new to the concept of passive income.

I agree with SGW.  Your real estate investment should make sense from day 1.  Not "oh I'll lose money for awhile but eventually rents will rise plus appreciation and I'll make money."  You make your money when you buy.

Using leverage or cash depends on your goals, risk tolerance, cash flows, reserves, etc. and completely depends on both the person and situation.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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arebelspy

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Re: Blog article on Passive Income
« Reply #3 on: May 15, 2015, 02:51:16 PM »
Read Rich Dad Poor Dad.  It helped me get off the sidelines and into the real estate investing game.  There are several other "Rich Dad" books that hammer away at the theme of passive income, but this one is a good place to start.

+1.  But then make sure you read some of the criticisms of RDPD as well.

It's worth reading, but it's also worth reading the anti-Rich Dad stuff as well, to get a balanced viewpoint.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

jeromedawg

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Re: Blog article on Passive Income
« Reply #4 on: May 15, 2015, 03:39:27 PM »
They find good deals and leverage their money to have a positive cash flow from the get go. (From the 1st rent check).  Meaning their (rent) - (mortgage payment, insurance, taxes, repairs, vacancy estimate, etc) = Positive

So essentially, the assumption is that you're taking out a mortgage on it and whatever you rent it out at covers the mortgage payment, insurance, taxes, repairs, etc *and* more?

I guess if you look at it that way it makes more sense. So then should anyone in their right mind *ever* pay for a property they intend to rent all in cash (even if it's a good deal)? This seems to make sense if you are a multi-millionaire and can afford it but otherwise, it sounds like people sort of 'use' a mortgage as an intermediary here to hold them over until the mortgage is paid off (by renters) and the passive income starts coming in. In this case though, do most people who intend to do this take out a 30yr mortgage?   

arebelspy

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Re: Blog article on Passive Income
« Reply #5 on: May 15, 2015, 03:42:48 PM »
They find good deals and leverage their money to have a positive cash flow from the get go. (From the 1st rent check).  Meaning their (rent) - (mortgage payment, insurance, taxes, repairs, vacancy estimate, etc) = Positive

So essentially, the assumption is that you're taking out a mortgage on it and whatever you rent it out at covers the mortgage payment, insurance, taxes, repairs, etc *and* more?

It had better, or why would you buy it?  (Answer: because you want to speculate.  Most of us don't though, so we wouldn't.)

I guess if you look at it that way it makes more sense. So then should anyone in their right mind *ever* pay for a property they intend to rent all in cash (even if it's a good deal)? This seems to make sense if you are a multi-millionaire and can afford it but otherwise, it sounds like people sort of 'use' a mortgage as an intermediary here to hold them over until the mortgage is paid off (by renters) and the passive income starts coming in. In this case though, do most people who intend to do this take out a 30yr mortgage?

Leverage comes with risk.  You'd pay in all cash to reduce that risk.  You could also pay in cash to reduce the work (less properties = less work--you can get the same cash flow with less properties by not having a mortgage).  You could also pay in cash because mortgages aren't available. There are lots of reasons to pay cash.

But buying a break-even property to maybe make money on it in 30 years sounds meh to me.

It should make sense if you get a mortgage or not, but whether or not you do is independent of that.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.