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Written by Rene April 2019
Are you willing to take the path less traveled?

Don't save, invest! It's called passive income. It's not taught in schools. It's cash flow received on a regular basis, requiring minimal to no effort to maintain.

Think about this. If right now, you had adequate passive income to replace your job, would you pursue something meaningful? There must be causes that are important to you, hobbies or interests that you can become more skilled in, places and cultures to explore. Imagine what kind of impact you could have in your neighborhood, or in the world at large? What would a life of freedom look like for you? Passive income offers more than retirement. It doesn't have to start at 65, and it doesn't have to end for lack of savings. If real estate can provide you with that freedom, would you want to know how?

It’s time to change your mindset and the way you view retirement. Be an outlier. Let go of popular belief and quit "saving for retirement."

Here we go!

Let’s break down different assets and see how real estate investing could grant you financial freedom. In general, there are two kinds of assets that people invest in; paper assets and hard assets. Let’s quickly review them both.

What are paper assets? 

Here are some examples of paper assets: stocks, mutual funds, bonds, 401k and IRA retirement accounts. These investments require less time and funds to start, which can help make it easier for people to understand and do, however, there’s a long-term drawback... It’s too simple for people to get in and out of these types of investments, which require great discipline to let them grow over the very long term. For example, if someone runs into hard times and needs cash fast, it’s just a matter of using an app to sell off stocks or calling their bank to close retirement accounts.

What are hard assets?

Common hard assets are precious metals, commodities, land, and real estate, or even purchasing a small business. Hard assets offer security with less volatility as opposed to paper assets. Hard assets will require more effort to sell though, which could be a good thing by preventing an easy out. In almost every case, hard assets will need direct investor involvement, and this is an advantage in the form of investor control.

With so much control, an investor has the ability to use creativity to add value, such as improving the physical asset, developing ways to increase cash flow, or repurposing an asset into something completely different. At the same time, control is a big discourager for potential investors. Depending on the exact assets, it usually requires more time and effort from an investor. However, the learning curve can be shortened and systems can be used to accommodate less involvement. The larger issue at hand, is people giving up on hard assets before even trying to invest in them. Don’t let speculation or fear of the unknown discourage you.

This is a simplified explanation between the difference of paper assets and hard assets. The two can sometimes be blended together, but as a general rule, paper assets are non-tangible to an individual investor, while hard assets are more tangible to an individual investor. The higher the degree an investment is tangible, the more control an investor has. As a result, an investor can use financial leverage to scale faster and create more value. Let’s look into how paper assets and hard assets pay you and how that relates to living free.

There are two easy ways to separate investments into categories. They can either incur in value over time or produce income now, e.g. investors either invest for growth or income. Let’s quickly review them both.

What are non-income producing investments? 

Take, for example, the paper asset category of retirement savings accounts. You can put money into a 401k or IRA, but these investments don’t pay you. Of course, each year there might be tax advantages for investing in these retirement accounts if you qualify. However, there are no gains realized until you reach retirement age. Similarly, the same thing can happen in the hard assets category. For example, you can buy precious metals like gold coins or bars, but they won’t pay until you sell.

Basically, non-income producing investments primarily store value and become more valuable over time. Only after selling can you put that money in your wallet for use. Another thing to consider: the more an asset is tangible (something you can physically touch or hold), the more you as an investor can directly add to its value. For the paper asset, an individual investor can’t directly influence their 401k or IRA. However, with the hard asset of something like precious metals, you could. If you bought discounted or used jewelry and repurposed it, an investor can directly influence the value, e.g. melting gold down and repurposing it into coins, bars, or new jewelry. Still, there are no gains realized until selling.

The main point here is that you can’t quit your day job with non-income producing investments. Even though an investor has greater control with a hard asset, it’s not income producing. So it’s not getting us closer to financial freedom soon enough.

What are income-producing investments? 

Take, for example, the paper assets category of stocks. If you buy 1,000 shares of a stock that pays a 20 cent dividend, it could produce income on a quarterly basis. However, 1,000 shares with a 20 cent dividend isn't sufficient enough to make you financially free. Additionally, as a minority shareholder, you won’t have voting control, and thus, can’t directly affect the value of the company. So unless you’re able to purchase a significant amount of shares, you’re not going to be financially liberated with dividend stocks any time soon. Though dividend stocks produce income, they’re less tangible to an individual investor and left with little to no control, an investor can't add value.

This is not the case when it comes to real estate investing. Real estate investing is within the hard asset category, and it’s income-producing, which an individual investor can fully control and influence. It’s highly tangible, ranging from small single-story houses to 100-story skyscrapers. As a result, it’s very leverageable and rental tenants are willing to pay your debt service. Of course, this requires greater knowledge, time, and effort. But it puts you directly responsible for success and maintaining it. It challenges you to provide value to others, and it’s rewarding. If done right, real estate investing can be easy and even fun!

In this article, three advantages highlight the power of real estate investing: 
  • Income
  • ​Leverage
  • ​Control
As a result, REI is a financial feedback loop: 
  • It’s an investment that keeps paying for itself via rent-roll.
  • ​It's a hard asset that can be borrowed against and used to scale-up multiple times.
  • ​It's maintainable and renewed with forced appreciation, i.e. increasing value by rehabbing, remodeling, or repurposing.
What would you prefer to do?

It’s time to design your plan of attack. Do you want to retire at 65 or later, or do you want to become financially free sooner with a steady cashflow that has no expiration date? Invest accordingly.

By adopting a buy-and-hold strategy in real estate, you can provide your tenants with a valuable place to rent while they pay your debt service. You’ll receive 100 percent cashflow when the property is fully paid. And regardless of property value, real estate investing is a hedge against inflation, e.g. you can always raise or lower your rents. Like a fish in an aquarium, you can live within your rental income container. People will always need a place to live, and the beauty is that you’d be able to live off a replenishing income stream (opposed to depleting a retirement savings fund).

Real estate is the best time-tested and proven form of investing. If you’re interested in freedom, financially and otherwise, for yourself, your family and your family’s family, real estate needs to be a significant part of your legacy.

Filing homestead is a great first step. Have you filed yet? If not, click the link below...

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