Rich needs to be defined. My definition of rich is when my business supports my lifestyle without me having to work in that business. If I look at my monthly expenses say they are $3000/month everything from house payment to dry cleaning. I find that I can buy house that cash flow at $200/month pretty regularly. That means that if I have 15 houses I have a business that pays for my lifestyle. At that point I am rich. I got rich on cash flow not appreciation. I can’t buy a hamburger with appreaction, but I can pay a car note with cash flow.
Robert Kiyosaki would tell you that is called being WEALTHY not “rich”, but that is really semantics. :biggrin
Again, semantics. I understood wallace’s comment in the context of amassing wealth. Amass sufficient wealth and you are “rich”.
Bluemoon, if you want to define rich as having enough income to meet your lifestyle needs, then those high income professionals that spend all their income to support their lifestyle of conspicuous consumption are rich.
Those same high income professionals are not wealthy because they have nothing in savings, no investments, and very little in a retirement plan. They are mortgaged to the hilt and use credit cards to finance their lifestyle. They are not wealthy because they spend all their income to keep up the appearance of a “rich” lifestyle and have nothing left over to invest.
In my view, when my passive income supports my lifestyle, I am financially independent. Am I also rich, or even wealthy? Does not matter, I am content knowing that I never have to work for a living and I don’t have to chase another real estate deal to put food on the table. I am financially independent, and that is good enough for me.
Dave, I think the main phrase in BlueMoon’s point was “My definition of rich is when my business supports my lifestyle without me having to work in that business.”
And I would agree with this. Once you can live the life you want (not necessarily the life you live right now) without worrying about working for money, you are “rich”.
mishaniz,
I think you missed the operative word in my comment – passive. When you have passive income you are not working for your money, your money is working for you.
My point is that rich and wealthy are relative terms.
If you have food in the refrigerator, clothes on your back, a roof overhaed and a place to sleep, you are richer than 75% of this world.
If you have money in the bank, in your wallet, and spare change in a dish some place, you are among the top 8% of the world’s wealthy.
Rich and wealthy are all relative, depending upon your point of reference.
Regardless of how you measure being rich, or wealthy, I can confidently say that when your passive income completely supports your lifestyle you are financially independent.
I like the way Chris Rock explained Rich and Wealthy in a show he once did. It really made me think.
He said Shaquille Oneal is Rich but . . .
The guy who signs he paycheck is Wealthy. :biggrin
He further said:
If Bill Gates woke in the morning and all he had left was Oprah’s money, he was probally jump at a window.
I know he is a comedian, but it kind of puts it into perspective for me.
I would just like to chime in with my 2 cents (for what it’s worth). I think appreciation is the last reason to invest. When you buy a property, you make your money when you buy. If you run into a situation where you need to sell the property before appreciation sets in, you could end up losing money! Frankly, If I buy 10 properties and the rents pay your mortgage and expenses until they’re paid off, you not only have a good chunk of cashflow after taxes and maintenance, but you also have all that equity you can pull out and use for whatever you want. If those houses were worth $100,000 when you bought them, you now have $1M at your disposal tax free!. That’s assuming they didn’y appreciate at all during the last 15 yrs! If you happen to collect $500/mo. per property in positive cashflow, you have $5,000/mo.
income. If you decide to refi all your properties and take out a conservative 50% equity loan on each. You’ll have $500,000 at your disposal along with the additional cashflow. My example is very conservative to illustrate the point that if you take appreciation out the equation, you’re doin’ fine. Without positive cashflow, you can only do so many investments and run the risk of not being able to cover your debts. If you buy the property with enough equity to tap into in case of an emergency, you stand a better chance of surving the rough spots. OK I’m off my soapbox! :rolleyes :smile
phlemboy, (Someday you gotta tell us how you got that name?)
Thanks for your comments.
I do understand your point of view and it really depends on the individual investor.
Some people do not mind a small neg cash flow IF they have done a ton of research on a given area and have a sound basis of judgement on its “Futue” potential. For the True Buy and Hold I am more interested in the Area it is in, and what that area will be worth in 10, 20, 30 years from now.
My soap box is much smaller than yours :cool
I agree with Wallace.
Cashflow is King but appreciation is very important if you are trying to build your portfolio and wealth. You should target areas that are in the beginning or show signs of an upswing. It will make this game alot easier and personally more interesting to watch.
Cashflow and Appreciation should be the name of the game.
“Futue” potential
Please IM me the crystal ball…I like to make money from the use of my money…The future to me is the here and now…I have to be making up to %15-%17 annually on my all cash purchases…Appreciation at this point in the market cycle is a very dangerous bet imvho…
Here’s two cents. Lets say for example you have 10 properties worth $1M. Let’s also assume they’re all paid off and you have $10,000/mo. cashflow. Why not refi all your properties at 75 %LTV. That gives you $750,000 of tax free money (because it’s a loan, not income). You stuff it in the bank, reinvest,or whatever you want. Then you can pay the debt from your cashflow. You also get to deduct the interest on your refi. If you pay the refi off in 15 years you can do it all over again… :beer
At $10,000/mth, you’re making $120k/yr. Pretty good salary in many parts of the country. Unless you are going to reinvest the 750k or make a major purchase I don’t see why you would pull it out.
Cheers :beer
I agree at the point you have described in your above example, you have a 6 figure yearly “Mail Box Money” which is very nice.
I like the idea of pulling the money out to invest in more properties and to live on. The more I think about it, I’d rather have a 50% LTV. Then I can still have a decent cashflow and some money in the bank. The nice thing about it is you have so many optiions when you have a lot of equity in properties with enough cashflow to cover whatever you need.
PS. Wallacehobbs, I came up with the name “phlemboy” because I’m a Respiratory Therapist. I treat people with breathing problems and sometimes phlegm (sputum) is involved :shocked. I mispelled the name by mistake and I’m too lazy to change it… :biggrin.
That’s a heck of a point. Early on it seems that’s a common mistake! I can think of 8 or 10 other people off the top of my head who made that mistake. And it can be a costly one. The tough part about it is that to a newbie someone who “talks the talk” can be someone who walks away with your money.
Best to have the relationship first when you’re new, before you consider partnering with someone. That limits potential partners to people you know and have a solid relationship with…but it limits the getting scammed possibility too somewhat.
Later on we do get better at telling truth from untruth, but by no means is anyone above being “taken” I think…
I read here or somewhere.
“The definition of a partnership is when a person with experience and a person with money get together to do a business deal. At the end of the deal the person with the money has all the experience and the person with the experience has all the money.”
DB
I agree 100% with this article - the 1st house my brother and I flip was a nightmare. if you want to see the video of what we had to go thru you can check it out at our website houselistedfree.com
The highest federal tax bracket in the United States is 35%. If the “Bush Tax Cuts” expire, the top bracket will go back to 39.6% in 2011. Perhaps it is possible to pay 51% in NYC and parts of CA, but not is the vast majority of the country.
I am including all taxes.
State, Local, Property Tax, Sales Tax etc
I would love to know where to get 10, $100,000 properties that tenants would pay $1000/month to live in. In my neck of the woods, anything that I can pick up at $100,000 is trash and most likely being sold only for lot value because the house isn’t even salvagable. (Actually, a typical lot price in my area is $130,000+) At $500/month, that’s a different story, they will rent all day long without even trying hard. I know because I lived in one and had to break the lease so I had to get someone to take over. I couldn’t schedule the people fast enough there were so many that wanted to rent it. Problem is, everyone that owns something like that realizes the same thing and they ain’t gonna give those up.
This is a more feasible, but you have to keep in mind that this will be a loan on investment properties. Those typically run 9% - 12%. At 9% interest only, that is $5,625 monthly mortgage payments. $575/month rent will cover those, but doesn’t factor in any other costs and/or occurances. Anybody actively in the landlording business knows that unexpected costs/occurances are inevitable. I’m guessing that a $700+/month rent is what is needed. Again, that’s doable. Plus you have $750,000 of liquid cash. That’s good.
Now, the biggest key to all this is to get those 10, $100,000 and have them paid off free and clear, AND have it done while I can still enjoy the benefits of it in my energetic youth. I don’t see my 70+ years having much fun and excitement no matter how much money I have. Again, I would love to know where those 10, $100,000 properties are at and the phone numbers of the owners that are selling. :bobble
Dean