Don't you just love that feeling when you're sitting in traffic on the way to work - a place maybe you don't want to be - and some jerk cuts you off, forcing you to hit your brakes? Nothing better epitomizes The Rate Race than the morning commute. 40% of those people are probably running late for their job, and that stress is motivating them to ride your bumper, honk their horns, make lewd gestures, and, well, cut you off. It is a vicious cycle. We are ordered to be at our desk by a specific time and then given permission as to when we can leave. Does that sound like freedom?
We have to be honest with ourselves. Are we getting the most out of our lives? Are we here to enjoy our existence, or are we here just to get through it, as if it is some sort of task on a daily to-do list that we need to check off. Some are lucky enough to feel gratified in their day job, and they refer to it as their career. Then there are those of us who just look at it as, well, a day job.
What I have just described does sound ominous, but I have good news. There is a sound plan and strategy to get you out of this situation, and that is what we will cover in this article.
Whether you enjoy your job or not, I think everyone should have a goal of financial independence. Putting yourself in a place where you do not depend upon your job as your one source of income.
Don't Trap Yourself with Liabilities
We blame our job for feeling trapped, but Robert Kiyosaki breaks it down into investing in assets and not liabilities in the book Rich Dad Poor Dad. It is those liabilities that trap people. Think of the credit card debt spent on things we can't afford, car payments we really don't need. You even put the mortgage on your home as a liability, as you are taking on a considerable amount of debt to get into that home. The average person doesn't stop to analyze how their lives could be better - they should be better. For them, keeping their eye on the prize means monitoring that savings account and not realizing how little time they have for the more important things in life.
Have you heard the question, "what is your why?" Why am I here? Why am I doing this? It is what motivates you to reach your goals, and it needs to go well beyond, "I want to have a lot of money." You need to get much more profound. It has to come down to things like love, freedom and making the world a better place.
Now you can ask yourself, "what?" What makes you happy, going to help you meet your goal, going to help you satisfy your why?
As an example, I can tell you my why is the desire to be my own boss and control my own schedule so that I can have the time freedom to spend time with my family, especially as my kids grow up. My old life consisted of rushing around the house to get out the door for work while my kids ate their breakfast. I'd give them a kiss on the cheek and then not see them for the next 10 hours. By the time I did see them, I would be exhausted and maybe get the chance to tuck them in. I was the quintessential absent dad. I was there to make sure that they had food on the table, but I just wasn't there to enjoy it with them.
That story is what the rat race means to me and is one of the primary reasons I decided to not waste years of this short journey we call life.
Too often, people think the first step to financial freedom is hard work. Getting an extra side hustle isn't going to make your life any more manageable, and it certainly isn't going to free you from the rat race. There is nothing wrong with hard work, but instead of working harder, we have to train ourselves to work smarter. I am here to tell you that you can increase your net worth substantially while working fewer hours during the week.
America Needs Better Financial Education
America has been short-changed on its financial education. We are only taught and guided toward getting a good job, saving with an I.R.A. or 401k, and investing in traditional investments like the stock market. I suppose my first attempt at passive income was mutual funds. I was taught about dollar-cost averaging and paying yourself first, which are sound concepts, but they would never get me to the promised land. Real estate equated to buying a single-family residence at that time, and I had never heard of real estate investments or real estate investors.
I accidentally backed into rental properties when I did buy my first house but had to put it up for rent only a year later. I wasn't working more hours, but suddenly I was earning more income on the side, without having a side hustle. The lightbulb went off as I started to receive mailbox money.
That first rental income was my first passive income stream. At the end of the year, I handed over my total rents and expenses to my accountant. I discovered that it also significantly reduced my tax liability. My wealth building was taking shape, and I knew that this would be a significant part of my plan for the long run.
Knowing that one rental does not make a person rich, I invested in other real estate as I could afford it. I started out purchasing other single-family homes because that was all I knew. Then the idea of having two units under one roof made exponential sense to me and having four was even better, so I transitioned into small multifamily. I quickly realized that it would take a lot of work, tax bills, loans, and roofs to reach my financial goals. It was also going to take a lot of time and effort.
Scaling Your Real Estate Portfolio with Real Estate Syndication
I started researching larger multifamily, and it took me to real estate syndication. What is real estate syndication? In a nutshell, it is bringing a group of investors together to invest in a much larger asset. On one side, you have the limited partners who invest money into the deal at fixed increments - $50k, $100k – sometimes more. On the other side, you have the general partners (the managers). They have the network and experience to run the asset, increase its value through improvements, and eventually sell it for profit.
The economies of scale of such an asset make it possible to hire professional third-party property managers to not only run the deal like a well-oiled machine but take all the headaches of land-lording out of the investor's hands. This makes the deal a truly passive investment. Investors enjoy cash flow and tax benefits during the life of the hold (anywhere from 3 to 10 years) and then split the profits with the general partners once the value has been increased.
Often times the general partners will seek a refinance of the asset once the value has been increased. They then pull investor capital out and return it to them. The investor not only stays in the deal collecting cash flow but now has their money back, so they can redeploy into another syndication. This is how the investor's real estate portfolio grows and how real wealth begins.
I have just shared my path to financial freedom, and it can quite easily be anyone. If land-lording isn't your thing, then you could just skip the personally held real estate and go right to syndication. Just keep in mind, syndication does require capital to invest.
Finding Your Financial Freedom Number.
So how does one begin this journey, this real estate strategy?
An excellent place to start is to list your monthly expenses on the left side of a spreadsheet and your income streams on the right side. This gives you a clear picture of what amount of money it will require to cover those expenses on the left. Essentially you are diagramming the best way to have enough money to cover living expenses and having an emergency fund. It will spit out the numbers required to have enough average monthly cash flow to cover your basic needs.
As a rough example, it could look like the example below:
Once you have reached this stage, congratulations, you are well on your way to escaping the rat race. While practicing frugality is one of the critical foundations of the F.I.R.E. (financial independence through real estate) movement, let's face it; it's boring. You may be free of your job, but you've become financially conscious if you are constantly counting your pennies and watching your budget. This is not our end goal. Heck, you could say a homeless person is financially independent - they don't have to work and have a lot of free time on their hands. But I digress.
Now That We Are Financially Independent, Let's Aim to be Financially Free
Now that we have covered our bills, we can focus on how much income it will require to go from the free but simple life to your dream life. Dream-life means different things for different people, and ultimately, it means feeling unlimited. Being with the people you want to be with, living exactly where you want to live, traveling to places you've always dreamed of being. Having all the time in the world and living a life of abundance rather than scarcity.
A funny thing happened to me when I realized I didn't need to work anymore. I suddenly had more time on my hands, which enabled me to sharpen my focus, improve on my investments, and grow sustainable income streams. What do I mean by sustainable income streams? Think back to the apartment syndication scenario I laid out previously. As your capital is getting returned to you, you are still collecting cash flow on those deals and receiving lump sums of profit. Ideally, you can reinvest your earnings and returned capital while living off of the cash flow. It is a sound strategy. Multifamily real estate isn't going anywhere. There is a housing supply shortage, and people will always need a roof over their heads.
If you are saving up for that new car, consider instead focusing on creating that new income stream. It will change your life, and it will, at the very least, get you out of traffic and away from that jerk who cut you off.
If you ever want to chat with me personally, I always enjoy speaking with investors, so please reach out.
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