I am a huge fan of Robert Kiyosaki’s cash flow board and online game. The cashflow game is a wonderful way to learn about investing and cash flow. Realestate investments adds to the income portion of your financial statement by increasing your cashflow. Stocks does not, unless you are receiving dividends, but the dividends from stocks is miniscule compared to passive income from real estate. Stocks are a good tool to leverage into realestate, especially while you are looking and waiting for good realestate deal. It makes it easier to build capital, though it takes time.
It also takes a far greater time to build wealth with stocks verses real estate. A one million dollar portfolio of stocks can take 20 years to obtain with compound interest and will last you 25 years and pay you 40K a year. You may need 10 to 20 doors to do that with Realestate and it may take 3 to 5 years to accomplish that feat. Of course the cash flow may only be 25K to 50K a year initially, but this can increase over time with appreciation and the loan pay down and can last forever and be passed on to the next generation .
The best strategy is to buy stocks and hold on to them for 15 to 20 years and dollar cost average with continual investing while focusing on building a real estate investment portfolio and then cashing out of stocks to pay off the remaining loans on the property after 15-20 years of holding and this will increase your cash flow further.
When it comes to realestate investing there are good deals and there are bad deals, but what matters most is the cash flow and the down payment. The down payment is the money that you have to come out of pocket in order to obtain the loan. Owning stocks is very useful to help and raise the capital needed for the down payment, especially in a bull market, which of course no one can predict. Once the tenant is paying for the mortgage and maintenance and there is a little bit of extra to live off of, then you’re golden. As long as the cash flow is positive and you can afford the down payment, nothing else matters.
A good realestae deal will cash flow you 10 percent of the downpayment. So for example, if you have to put 10% down, the cash flow should be 1% of the list price. Less can work, but as long as the property is truly cash flowing with property management included, then you’re good. This is called 10% cash on cash return.
Appreciation is a big part of the game. Both stocks and realestate appreciate, but with realeastate you get cash flow along the way that is greater than any dividend that a stock can pay and the cash flow from realestate is tax free. The best play is to continue to collect the cash flow and sell the property once it appreciates enough for you to pay off your loan on another property or the down payment for another house that will lead to an increase in cash flow. This can also help to deleverage your portfolio and decrease your risk. You can then choose to stop playing once you’ve won the game. You win the game when you have enough income to cover all of your expenses.
The name of the cash flow game is leverage. You use leverage from a loan or stocks to help and build wealth. Leverage in general can be used in so many ways. You can use a loan to buy an education and then use the money earned from a good high paying job to pay off the student loan or use it to buy assets. Hint: doing both would be best. When the assets appreciates you sell it and pay off the loan. It’s called leverage. But using leverage is risky. What if you don’t get a good return on your investment? What if the hosing market crashes? what if the stock market crashes? What if you don’t learn anything from that paid course? What if you can’t find a good paying job after you graduate from college?
Yes using leverage takes risks, but it’s the only way to grow and it’s the only way to scale up. You have to know when it’s time to ask for help and that’s exactly what leverage is. Leverage is a tool that is used to get you to where you want to be. This is what will help you to reach your goals.