The following is a guest post from Kenji Asakura at Semi-Retired MD. Have you ever thought about getting into Real-Estate investing but feel you just don’t know enough? Find out how to do this through cash flowing rentals. Also, they offer an amazing course that will take you from Zero to Freedom. I am an affiliate for this course. This course is only offered every so often. It is about to be offered again shortly. Join the waitlist now and get $300 off the course when you sign up May 30th or 31st. Regular price sign up will be from June 1st-June14th and then sign ups close. Sign up now.
Don’t Rely on Your Job as Your Only Income Source
I get it. We’ve all been working so hard, jumping through hoop after hoop, to get to where we are right now in our jobs. We thought our jobs were secure, that it was always going to provide a steady and reliable stream of income. We felt confident and safe.
COVID-19 changed all of that for many of us. We realized that our jobs aren’t enough. We now see how governments can shut our businesses down at a snap of a finger. And there doesn’t seem to be any end in sight. We are all left wondering, “when will things go back to normal?”
This article isn’t about wallowing in the reality of the current situation. It’s about accepting the new reality and coming up with a plan for moving forward. The goal is to make sure that this never happens to you again. To never again be in the position that someone can cut off your only income stream and put your livelihood at risk.
So what can be done? Answer: Don’t rely on your job as your only income source! I know what you’re thinking: that’s easier said than done. Most of us don’t have the education, training or time to pursue another source of income. What can somebody who has a full-time professional job do? Also, the income source has to be substantial enough to replace the income from your job if you were to ever lose it. What’s out there that will not only replace a professional income but can also be done on the side?
Not only that, many of us are living in a state of fear. It’s only normal. The reality is scary. Uncertainty about the future is scary. Not knowing what to do next is scary. So before I dive into what to do, let’s first talk about fear. If you’re experiencing fear, it’s completely normal. We all experience fear in the face of uncertainty. The key is to not be paralyzed by it. You acknowledge it and maybe even use the energy that comes from fear in a positive direction that pushes you forward. This means taking action and taking that first step, then another and another. The first step is the hardest but if you can get through that first step, the ones following it are easier.
So now let’s talk about what you can do to replace your income. While there are probably several options, I’m going to share one with you that we’ve personally implemented and is now COVID-19 battle tested: investing in cash flowing rentals.
What Are Cash Flowing Rentals?
Cash flowing rentals is when you buy a property that you are going to rent out and more importantly, you buy it in such a way that it will generate income every month. These properties are typically in working class neighborhoods and in cities with cheaper cost of living. Think the Midwest or the Southern part of the country. The key is to learn how to buy these properties the right way and then maximize the income that these properties generate.
Now, unlike the name suggests, cash flow isn’t even the main source of income. There are many other sources of income including debt pay down (the amount your mortgage gets paid down by your renters each month), forced appreciation (the increase in market value that you are able to achieve by increasing the income from the property) and tax savings. When you combine all of these together, you can grow your wealth very quickly and create a substantial income stream outside of your job. To give you a sense of the magnitude, let’s focus on just the tax savings.
First, the cash flow from the property is oftentimes tax free. The reason is that you can create paper losses with real estate that creates a loss on your tax forms, even though it’s generating cash that you put in your pocket each month. So if you make $100,000 in cashflow, that’s equivalent to making $150,000 from your W2 job (assuming your effective tax rate is 30%).
Second, if you (or your spouse if you are married) qualify for a tax status called real estate professional, you can create a massive tax shelter that is big enough to shelter all of the income from your job. (If you want to learn more about real estate professional status, click here). Imagine making tax-free cashflow and on top of that paying zero income taxes each year. How quickly could you grow your wealth?
Why cash flowing rentals over other sources of income?
While there are a number of options for alternative sources of income, very few can be done on the side or are substantial enough to replace your income. I’ve had a number of different careers (physician, management consultant, entrepreneur) and all of them are time sucks. Not only that, with any job, you are trading time for money. The key is to decouple time and money and set up a situation where you can make a lot more money than the time you put into it.
Investing in cash flowing rentals does just that. You can set it up so you have property managers and make it almost entirely passive or if you want to take advantage of the tax shelter for your income. You (or your spouse if you have one) could choose to be more hands on and qualify for real estate professional status (even with real estate professional status, the time/money can be decoupled).
The other major benefit of cash flowing rentals is that it’s easier to implement than other businesses. First, the product (a place to rent) is already in high demand – you don’t have to educate the consumer about the product. Second, the business systems are in place. There are so many resources for analyzing and managing properties out there so you don’t have to develop them from scratch. Third, the people you need to hire to help you with your real estate business don’t have to be trained like in other businesses. Contractors, property managers, lenders, insurance agents, all know their respective roles and know what to do.
One last benefit is that the government has special tax incentives in place for real estate investors. Write-offs like depreciation are extremely beneficial and exclusive to real estate. Real estate professional status is another tax incentive that the government put in place to encourage people to invest in real estate.
What steps can I take to learn how to invest in cash flowing rentals
The immediate steps are to learn what you need to know. Now I didn’t say learn everything there is to know about rentals because that’s both impractical and unnecessary. If you are focused in your learning, you can pick up real estate investing fairly quickly without reading every book or listening to every podcast episode out there. In fact, I’m of the opinion that consuming too much information leads to analysis paralysis and gets in the way of progress. I would suggest picking one or two sources of information that covers the topics you need to know and consume the knowledge like you’re studying for a board exam.
The second thing to do is to find a mentor. A mentor is someone who is doing exactly what you want to do or achieve exactly what you want to achieve. A mentor is so critically important for avoiding mistakes. I can’t tell you how many people rush ahead without learning what they need to know or taking the time to find a mentor to guide them and we see them making a big and expensive mistakes with their first investment.
The next step is to go out and take action. Don’t get stuck in analysis paralysis. Ignore the doubters. This is where it’s important to surround yourself with the right people. Find like-minded people who are doing what you want to do so you can encourage each other and grow together. Find peers who are looking to secure their future with a solid source of alternative income. Nobody ever taught us to pursue income streams outside of our jobs so it’s up to us and the community we form around us to help us secure our financial futures!
About Semi-Retired MD: Semi-Retired MD was started by Kenji and Letizia, a two physician couple who achieved semi-retirement in less than five years through cash flowing rentals. Their mission is to help doctors and other high income professionals secure their futures and achieve semi-retirement as quickly as possible. As part of their mission, they have created a course called Zero to Freedom Through Cash flowing Rentals, through which they have helped hundreds of doctors and other high income professionals get started in real estate investing. Their course will be going on sale June 1st through 14th. After the sales period, the course won’t be available again until December so be sure to sign up now! Click here to sign up.
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*Nothing on my website is professional or legal advice. I am only sharing information that I have learned and it may or may not be accurate. I am not liable for any problems you may have by following this advice. Please do further research and get professional and/or legal advice about any of these topics. This post contains affiliate links. This site could be paid for clicks or purchases made through these links.