Stock Market Vs. Real Estate: The Right Approach For Passive Income Investors

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For new and hopeful passive investors, most of the accessible information on the topic of the stock market versus real estate presents widely varying opinions and tends to over complicate things by assuming you have a solid education in both fields. Rather than feeling informed, this type of guidance tends to leave you in a state of confusion.

For newcomers to the debate of real estate or the stock market, I prefer to share an oversimplification of the subject to ensure you can capture the basics, providing enough information so you can start asking better questions as you embark on an investing path.

First, I am assuming that you want to grow your retirement funds in a safe investment that will produce decent returns. Second, I am assuming you are busy and don’t have the time to gain the in-depth knowledge and experience needed to actively trade or invest in the stock market or real estate and are rather looking for simple solutions.

When it comes to your retirement and the stock market, the most common passive investments are mutual funds. If you’re fortunate enough to average a 10% return on your investments and then you factor in inflation and fees, your eventual return may be lower than anticipated.

In real estate, your passive opportunities are in private lending and rental properties. Private lending commonly involves lending funds to a real estate investor or business in exchange for a set return and length of time. (Full disclosure: I am co-partner of a turnkey investment company.) Turnkey rental properties allow the investor to be as hands-off as they like. This means a turnkey company purchases, rehabs, tenants and manages the property. To truly make this a passive investment, turnkey companies do all the work for you.

Here’s what several key factors of a passive investment looks like in real estate and the stock market:

Control: With the stock market, you are at the mercy of the fund and management. With private lending, you control who you invest with, the rate of return, the length of time you want to invest and approval of the asset your money is secured by. With rental properties, you are in control of what you buy, the improvements that will increase rents and what costs are passed onto the tenants, such as landscaping and shared utility expenses.

Tangible asset: With the stock market, you lack anything tangible. With private lending and rental real estate, your funds are secured by a physical asset.

Cash flow: With the stock market, if we hit a down cycle, your profits are instantly lost. In real estate, in any economic downturn, private lenders have up to 50% equity already built in, and investors with rental properties keep netting their monthly cash flow from their tenants despite the dip.

Leverage: With the stock market, you invest your retirement savings or cash on hand. The same is true for private lending. You can leverage rental properties four-to-one, sometimes five-to-one, meaning your $50,000 investment can buy you $200,000-250,000 in real estate. In a rising market, this is a good thing and will maximize your cash on cash return.

Tax advantages: If you purchased $50,000 in stock that is now worth $200,000, you will pay taxes on that amount when you sell it. Rental properties provide opportunities for multiple tax advantages such as depreciation, deductions and a 1031 Exchange.

Appreciation: You don’t get to factor in added appreciation when investing in the stock market or private lending, but you do with a tangible asset like rental real estate. When you bring together the advantage of real estate being tangible, there’s really no comparison for the passive investor.

The math: Assuming a $50,000, 15-year investment in the passive opportunities we’ve discussed in this article:

• A mutual fund investment averaging 10% returns after fees ends up at a 7% net annualized return = Almost $138,000 after 15 years.

• Private lending investment with no fees averaging 12% net annualized return = Over $273,000 after 15 years.

• A turnkey rental property investment leveraging your $50,000 to buy $200,000 in real estate, averaging 6% in net annualized return after expenses and 3% annual appreciation of the asset = Over $431,000 after 15 years.

Whether you’re investing for your approaching retirement or beginning your passive income approach well ahead of time, passive investing is for anyone who seeks true financial peace of mind and passive income. If you had $10,000 month coming in passively, what would you be doing today? You don’t have to be an active real estate investor to achieve your goals — but you do need to find passive ways to direct some of your money into real estate.

By: Dani Lynn Robison

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5 Wise Cash Windfall Hacks for Small Business Owners

Cash Windfall Tips: Saving Money When the Ship Comes In

Ah, there’s nothing quite like receiving a windfall of money. It may come by way of an unexpected inheritance, a work bonus or a job promotion. And depending on how you spend it, that sweet bit of extra cash may leave you feeling either relaxed or stressed out.

While it’s tempting to spend it immediately, you know it’s in your best interest to sock most of it away for the future.

Cash Windfall Tips

Here are a handful of tips on how to save when you get a windfall of cash:

Hold Off on Lifestyle Upgrades

As tempted as you may be, don’t fall prey to lifestyle inflation. While you may want to move into larger digs or buy that sleek new ride you’ve had your eye on, hold off for now. This doesn’t mean that you won’t ever upgrade your lifestyle. It’s just a better idea to make sure you have  your financial bases covered before you begin to indulge.

Instead, pay yourself first and this way you’ll be putting your money toward what’s most important to you. From here, divvy up your extra cash into specific accounts, or transfer it into a single money goal for an impactful punch.

Stick with your Saving Habits

If you’re committed to saving a certain amount each month for your money goals, don’t let this fall by the wayside. While it’s easy to be lured into splurging on non-essentials, such as a new wardrobe or shiny Airstream trailer, use your windfall of cash to propel your existing goals.If you really want a new toy, set up a specific savings account and commit to putting money into this bucket each month.

Splurge Wisely

Now that you’ve got some extra cash in the bank, it’s time to do a happy dance. Why not enjoy some of this newfound money?

But here’s the thing: if you’re going to indulge, do it within reason. Save a specific amount for fun or spend whatever is leftover after you save for your goals. Rent that sports car for a day, go on a safari wine cruise, or dine at the restaurant featured on Chef’s Table. Just don’t spend it all.

When I have a great month as a freelancer, I allocate anywhere from five to 10 percent of “extra money” toward a spending account for pure indulgences. I save the rest in my emergency fund, as well as my savings accounts for a new car, investing, gifts, and retirement. What’s great about planning out your splurges is that can still save prudently. Plus, you’ll have a better idea of how much you can afford to spend. This will go much further than blowing your entire windfall of cash all at once.

Pretend you Never Got It

While you may be tempted to spend that extra cash on something frivolous, it’s a much better idea to pretend it doesn’t exist and keep saving for your goals.When I was fresh out of college, I received a small windfall of cash from my mom. She had just bought my brother a new car, and be fair to me, she cut me a check for a sizable down payment on new wheels.

I was living in a squat apartment at the time, and barely bought anything beyond the bare essentials. In fact, I only afforded myself one long weekend trip a year. Trust me, I was tempted to burn through that money. Instead, I squirreled it away, put myself through an amnesia machine, and tried to forget I ever received it. Even when I landed a job promotion and made more headway on my savings, that money never left my account.

Grow your Money Beyond your Windfall

By practicing delayed gratification and employing the other tried-and-true tricks listed here, you’ll stay motivated to save long after you receive that windfall of cash. And, by developing healthy money habits, you will hopefully see your overall financial sitch improve.

By: 

Cash Flow Power Investing & Business Strategies

Need extra cash in your budget? Worried about money coming in from a job, pension or other source of revenue? Worried about “making ends meet”? Would you like extra income…now or in the future…even if you are not working?

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  • How simple information products can bring you money months later
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