Investing for Passive Income
Published on: Friday, December 18th, 2015
What is the number one reason our team invests in apartments? CASH FLOW! (Appreciation, Tax Benefits and Leverage aren’t bad either)
Apartments are income-producing assets. The rent collected from tenants in exchange for shelter is considered income. Cash flow is the income that remains after ALL expenses are paid. Just like a business, the leftover income, or passive income, is spendable income. Spendable income is what goes into the investor’s pocket!
The best thing about apartments is that the income comes in month after month. The investment continues to pay as long as the asset is owned and the units (individual apartments) are occupied. This type of investment income allows you to put your money to work for you, allowing you to reduce or totally eliminate the concept of trading your time for money as the passive income replaces your JOB or retirement income.
Here is a simple example to illustrate the power of passive income as a result of apartment ownership:
Let’s say that an individual needs $10,000 per month in order to quit his or her job and/or retire, and this same individual has 5 years to reach this goal. Let’s do the math!
First, divide $10,000 (the monthly income you wish to achieve) by 5 years (the timeframe in which you wish to achieve that monthly income). The result is $2,000 per month (the amount you need to add each year to reach your goal). Then divide $2000 by $100 per month per unit. The result is 20 units.
What does this mean? If the investor buys a total of 20 units each year for 5 years and each of those units, after all expenses are paid, is producing $100 in passive/ spendable income per month, the investor will be receiving a total of $10,000 a month before even adding in appreciation and the loan paydown that is occurring. Not bad for acquiring just 20 units a year over 5 years!
You can plug your own monthly needs and timeline into the example to come up with your magic number. Keep in mind, you don’t have to do it all by yourself, you can attain similar results by partnering with others who are purchasing multifamily properties. If you would like help in achieving these results, please contact our team and we’d be happy to help you get the ball rolling!