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Do You Want To Achieve FIRE? (Financial Independance Retire Early)

 
 
 

Change your mindset. 

 

Instant vs Delayed Gratification

If you are going to become financially independent, you will need to change your mindset.  We all live in a society where we want everything, and we want it now.  Instant gratification. 

 

The problem with this is it costs us a lot of money and may even be costing us our future!  Spending all our money now instead of having our money work for us and creating a great future for ourselves.

 

We need to be ok with a little bit of delayed gratification.  Now 2 things on this:
                1. This doesn’t mean you have to live super frugally and save everything possible (although you can if you want)
                2. Delayed gratification doesn’t have to be delayed for that long.  Its possible to start creating a second stream of income very quickly.

 

Real Assets or Fake Assets

We are all led to believe that most things we buy are assets.  “They” tell us that cars, boats, TV’s etc. are all assets.

 

**Breaking**

 

The definition of an asset: Something that puts money into your pocket

The definition of a liability: Something that takes money out of your pocket

 

Do you see where I am going with this?  Cars, boats, TV’s and all the fun toys take money from our pockets every month! They also go down in value every month.  Therefore, these are not assets like we are led to believe!

 

Even our personal house actually takes money out of our pockets every month.  Utilities, taxes, mortgages all take money from our bank account.  This is a tough one for many to get over.  Your personal home is not a real asset!!

 

These are all fake assets and they take money from your pocket.

 

So, what are some examples of assets then?

If you use your car to make you money i.e. Renting it out, then it can become an asset for you.

 

If you own a house that you rent out and it puts some money into your pocket every month, then it is an asset.

 

Any other real estate that you can rent out is an asset.

 

A business that creates profit each month is considered an asset.

 

It’s important to shift your thinking about assets and make it your goal to accumulate real assets that can create income or profit for you.  Don’t accumulate fake assets and/or liabilities that cost you every month.

 

 

I want to tell you a story about the importance of accumulating real assets. Its about 3 friends that all make a lot of money, but they do different things with it.

The first man has a very good job that brings in about $400,000 per year.  But he spends his money on big houses, cars, beach houses and lavish vacations.  All his money is spent quickly with nothing left over.  He depends solely on the income from his day job. 

 

One day he goes to work and finds out that his job is no longer needed.  Now he has to scramble to try and find another high paying job to pay for his fake assets that are costing him money each month.  Without income from his day job, he will not last long.  He had not accumulated any real assets that bring in monthly income, no matter what external factors are there.

 

The second friend also has a very high paying job, making similar to friend number 1, but he has taken the earnings from his job and invested them in properties to “flip”.  This is the term for buying a run-down house, fixing it up and reselling it, hopefully for a profit.  He makes a lot of money flipping houses, but it was a constant job of trying to find more properties to buy, fix and sell.  This was more like an income than an asset that spins off money for you every month.  The minute he stops buying and fixing properties, the money stops also.

 

This man also lost his job and he has to scramble to find another job.  With out his income from his job, the banks wouldn’t lend him money to buy more fixer houses.  They required proof of income to lend to him, and without his day job, he didn’t have any!

 

The third friend is a lady that works in the same industry as the first two.  However, she invested in real estate and held it for the long term.  This is called Buying and Holding Real Estate.  She would buy a house, rent it out, and repeat.  She built up a sizeable real estate portfolio over the years. 

 

She also lost her job, but she did not have to scramble to find another job!  She had built up a nice portfolio of assets that spins out money for her every month.  Everything was being paid for from her rental properties alone!  She had the luxury of taking her time to find another job she loved, if she even wanted a job at all!

 

So, you can see how important it is to accumulate real assets that can create an income for you.

 

If you do decide that you need a fake asset, first buy a real asset that can create an income for you.  Then take the income from that asset to buy the thing that you want!  This way you are getting the fake asset paid for and after its paid for, you still have the income producing asset working for you!

 

So how much can you make buying and holding real estate?

Let’s go through an example together.  For this example, we will just use a single family home with a suite in the basement.  Purchase price of $310,000 which is a pretty average starter home price in most Canadian cities.

 

Purchase price

$310,000

 

Down payment

$62,000

20% down payment (may be as low as 5% for you)

Mortgage amount

$248,000

Amortized over 30 yrs. at 4% interest

Monthly Mortgage Payment

$1,179.29

 

Monthly Property Tax

$239.38

 

Monthly Insurance

$125.00

 

Monthly Utilities

$200.00

 

Monthly Rental Income

$2,400.00

From the 2 suites

 

 

 

Monthly Cashflow

$656.33

$7,876.00 per year!

 

That is a 12% return on your down-payment in the first year from cashflow alone!

 

And that doesn’t include all the streams of income that you receive from real estate

 

Mortgage paydown

Each month, your tenants are paying down your mortgage for you.  Some of that payment goes towards interest, but some of it goes towards reducing your principle!  In this example, this equates to an extra $192.00 per month

 

Appreciation

In general, real estate increases in value over time, and if we use the average inflation rate of 2%, this will give us a good idea of what our investment will do for us.  On $310,000 that is an increase of $6,200 in year one alone.  That’s and extra $517 per month for you.

 

Add all those income streams up and you are at $1365 per month of income for yourself!  And that’s just from one property!  One of the best things about this income is that it can’t all be spent.  It acts as kind of a forced savings plan.  You can’t access a lot of this income as you don’t realize the profit until later.  This increases your wealth very quickly!  You can’t become wealthy if you spend all your money!

 

What do I actually do to get started:

 

Start by getting your finances under control

 

Track your expenses.  You need to understand where all your money is going.  It is so easy to just buy the things we need and the things we THINK we need.  The end of the month rolls around and we have no money left! 

 

Its very important to start by tracking every single expense and learn where your money is going.

 

             Create a budget.  After you track and understand where your money is going, you will realize that there are areas that you could easily cut back in.  You will also find that you had no idea you were spending so much in certain areas!  Now you can create a budget that works for you, cutting back where you can, and you will have money left over to save!

 

Follow through.  Stick to your budget.  Follow it religiously.  If you must overspend a bit in one area, cut back in another area for that month to balance it out.  Your budget is only as powerful as the one putting it to use.

 

Save the rest for investment purposes

 

Create another bank account to start saving money to buy a property.  Keep it separate and make sure that you never draw from that account until it is time to buy a property.  This will begin to add up quickly!

 

Start purchasing real assets

 

Start researching properties in your area and purchase the ones that are a good deal.  Get them rented out and save the cashflow in your savings account.  Combine this cashflow with the money you are saving from your budget and your savings will increase significantly!

 

Fix them up, create/add value and keep them

 

If you want to kick your investing into high gear, purchase a property that needs work.  You will put some money into the property for repairs, but it will be worth much more than you purchased the house for.  If done correctly, you can refinance the property after repairs, and you can pull out your down-payment plus the money you put in for repairs and essentially own the house for free!  This frees up your savings to buy another property!  (There is more on this topic on our website)

 

Buy more assets

 

Keep buying more properties and increase cashflow as well as your “forced savings plan” from real estate.

 

Don’t have money?  Partner up

As a first-time home buyer, you may qualify for a lower down-payment.  Often first-time buyers can actually purchase a home with only a 5% down-payment.  In the example above, this would equate to $15,500 down payment to purchase the $310,000 home.

 

But if you don’t have the 5% down payment either, that is no problem!  Partner with someone that has the money to invest but not the time to do the work!  You can become the real estate professional and find deals to invest in.  Have your partner fund the down payment, and as your contribution to the deal you can do the hand on work.  You will look after the repairs, maintenance, tenants and anything else to do with the property. 

 

This is a great way to get into real estate with none of your own money, and still provide great returns for you and your partner!

 

Hold for a long time and repeat!

Keep your property for years and years as a real asset that spins out money for you each month.  Repeat the process as soon as you can and build a great real estate portfolio that will benefit you for life!

 
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