While I am still in the process of writing my book, let me share some concepts from one of the chapters about 3 ways to make $96,000 a year of tax advantaged “passive” income (which would be the equivalent of making $192,000 at a W-2 job and giving 50% away to state, local and federal taxes).
The first option to make $96,000 a year in never ending, passive income is based on the vision that my father-in-law gave to me when I was in my 20’s (the 10 by 35 method or what began as a retirement plan) and what caused me to begin buying rental properties back in 1999. For option one, maybe you keep a W-2 job for a long period of time and simply buy 10 rental properties by age 35. The goal is to have them paid off by age 65 with a standard 30-year mortgage. Therefore, you would have 10 rental properties free and clear by age 65. Even with rents at a paltry $800 a month, ten properties yielding $800 a month is $8000 a month or $96,000 a year in tax advantaged passive income. That is a wonderful retirement or supplemental income for most people which will afford optionality in life that they would never have thought possible. The data confirms that those properties will go up over the long term, along with the rents, via inflation and will hedge you against rising prices by keeping your passive income moving upwards during retirement years and your lifestyle intact through increases in rent.
Option two to make $96,000 a year in tax advantaged “passive” income would be to get more aggressive, strategic, and systematic by acquiring 40 properties. The basic assumption here is that each property or door would have $200 a month in net positive cash flow. We’re assuming a $2000 a month rent, $1600 of principal, interest, taxes and insurance (PITI), about $200 a month put aside for vacancy, leasing, cleaning, showing, etc., with $200 net monthly profit. If you have 40 rental properties or doors that have a net cash flow of $200 a month, then that is $8,000 a month or $96,000 a year. You would need to get aggressive and possibly creative with some financing options, but very possible and doable. For example, you could buy five properties a year for eight years, or you could buy eight properties a year for 5 years. You could purchase ten fourplexes (assuming $200 net for each door), two twenty-unit complexes, one forty-unit complex or however you get to your 40 properties/doors with $200 net cash flow per door. If you prefer single-family homes for your chosen vehicle of passive income, then expand your knowledge in the area of financing and learn to ask for seller financing with terms, buying a property subject to an existing loan, consider splitting those 10 allowed per person great 30-year fixed debt Fannie and Freddie loans between spouses so you can have a total of 20 Fannie/Freddie 30-year loans, and so on. Get creative! Furthermore, it doesn’t have to be all of your own money, you could find a partner, create a joint venture with a partner or two, or even syndicate a large enough deal. There’s lots of creative ways to buy real estate.
A third option to create $96,000 a year in tax-advantaged income would be to simply invest $1.2 million into a syndicated deal or offering that is yielding an actual 8% cash-on-cash return. Becoming a limited partner and aligning with great real asset operators through a private placement allows an investor to participate in large real estate deals and truly get mailbox money. We also assume that you have done the due diligence (check out my syndicator red flags here) to properly vet an operator or sponsor of a deal or deals to make certain that they are sound in their background, knowledge, and operational expertise to manage the targeted investment. Making an investment into a syndicated offering via a private placement as explained in the example above would yield $8000 cash-on-cash every month or $96,000 a year.
Personally, we have experience with a little bit of each of the three methods. We began with the first method in mind, by default began moving towards the second method, and ultimately came to a position in life to apply method three with our own funds. Having been in the real estate business since 1999 as a Broker and investor, and a licensed general contractor allows us a certain level of insight, knowledge and skill when assessing markets, assets, and operators/syndicators. If you are an accredited investor and would like to join me in one our passive investment offerings secured by real assets, then head over to www.PassiveAssetInvestors.com and become a Passive Asset Investor with me.
If you do not like the financial path that you are currently on in life, then take an exit, change your course and get on a road that leads you to the financially free destination and lifestyle that you desire. If you have not begun your journey, then start! Reach out if you need help. The process for each path is virtually the same, figure out the median income of an area and divide by 3 to establish an affordable rent marker, look for job, wage and population growth in landlord friendly areas, discover the local rental rates, property values and solve for cash flow. All three roads that I have described will yield the same $96,000 a year. It is up to you to choose the road that’s suits you best. Maybe seeing these 3 paths opens your mind to possibilities that you never imagined, in much the same way my mind was opened to something I never dreamed possible by my father-in-law with his 10 by 35 example to me. Get on the road to financial security now! Buy your first property on your way to ten properties and keep your job for the long haul, get aggressive and systemize if you want to move the needle faster on your way to 40 doors, or partner with great operators via syndications if you are in a position to do so to avoid the operations and enjoy more of the mailbox mindset.
To summarize, I have given you 3 different frameworks that you can apply to your place and stage of life, so that you can achieve $96,000 a year in tax advantaged passive income for life (the same as making $192,000 a year from a W-2 job and giving 50% away to taxation). All three paths to $96,000 a year will give you the tax benefits of depreciation, asset appreciation, principal pay down where loans are utilized, and most importantly continued cash flow that should keep pace with inflation. None of these 3 roads are easy or truly passive, but they are all 100% achievable!