No, we are not talking about the effect of prune juice of the vital bits of our digestive system!
We are talking about beginning to wind up our Perpetual Money Machine (believe it or not, the above ‘prune bush-driven machine’ achieves both objectives!?) …
… the one that we are designing for Scott who is earning a great passive-seeming income (but, not really because it comes as royalties from various movies and inventions that Scott has created over time, not actually from cash in the bank or the equivalent).
Scott already understands this:
Have some in real estate, but not much. What is your take on the time it takes to start realizing a “substantial” income from real estate?
Longer than you think, Scott 🙂
The problem is that RE has a ‘lag’ time that is hard to estimate: you need to cover closing costs, rehab costs, tenancy costs just to ‘wind the property up’ … and, it’s possible (likely) that you will need to wait X years until inflationary forces push rents up higher than your (hopefully, fixed) mortgage costs (plus the costs of maintenance, vacancies, property taxes, etc.).
Of course, on the PLUS side you have depreciation allowances and tax benefits that can produce paper-profits, but these take very careful management to live off 😉
It’s why building a real-estate portfolio, while you can still seed it with income, is better than waiting until you can cash out (i.e. retire and cash out your 401k; sell your business; discount your annuity/royalty incomes by selling these) … you may find that you become ‘asset rich and cash poor’ for a while.
There has been many a successful business owner who has sold their business only to suddenly become ‘poor’ by putting all of their nest-egg into newly acquired RE …
… but, that won’t be you, Scott, because you are building your Perpetual Money Machine while you still have increasing incomes.
In fact, this is the key!
You still keep ‘seeding’ your RE portfolio with the same/growing 15%++ of your income until you no longer need to cover the negative cash flows from the current ‘income capacitor’ (i.e. property/s) and have saved enough as a deposit (plus buffer for contingencies) for your next one/s.
You repeat this process until you have too many capacitors/properties to manage, in which case you trade up through a series of 1031 Exchanges until you have a manageable portfolio, and …
Final installment of this series of posts on Friday …