Creating a Passive Income Source

I haven’t posted in quite sometime. Fear not, I haven’t gone anywhere, I have just been quite busy!

I finished a book called Money: Master the Game by Tony Robbins. It explores the depths of the financial market in easy to understand rhetoric and answers many questions people don’t even know to ask about their personal finances. I highly recommend reading it, at least part of it (you can skip the ‘Tony Robbins fluff’). In terms of retirement, he made a very good point: it’s not about how much is in the bank when you retire, it’s about your flow of income. In other words, passive income. You don’t necessarily need to save up a million dollars (or whatever) to retire, you can save $500,000 if you can compensate with a steady and reliable stream of income.

This was a very interesting point I had never considered before and it makes total sense. If you think about it it’s one of the main points of starting a business – financial freedom. Making your money work for yourself without you having to lift a finger. Shy of actually starting your own business, what other vehicles exist to create a steady stream of income? There are several, but my answer at this stage of my life: rental income.

Introducing the beautifully remodeled, 6 bed 3 bath primary residence/rental income property I just purchased in Kansas City.

Passive Income Rental House

Why Kansas City? Because:

  1. I’m familiar with the area
  2. Kansas City real estate prices dropped significantly in 2008/2009 and housing prices are just now starting to bounce back
  3. I would have had to invest at least 50% in California for something immensely smaller

Now you can see why I’ve been so busy! I’ve been putting together the lease, property manager contract, Craigslist ads, filling out paperwork, providing financial documentation, etc., etc. This puppy set me back $200,000. However, after mortgage, utilities, PMI, insurance, manager expenses, and savings for future repairs I should (it’s a big should) be netting about $1,000 dollars a month. Plus, my tenants will be paying off my mortgage for me. Talk about a sweet deal.

A lot of people have asked me why I purchased a house when I plan on participating in Remote Year, living abroad for an entire year. I give them two very simple responses:

  1. I have a property manager I trust implicitly
  2. Equity and compounding

Consider this unrealistic compounding scenario:

If you take a checkerboard with 64 squares, place a penny on the first square, then double each subsequent square for the remaining 63 squares, how much money will you end up with? The answer is a number so large I don’t even know what it is, and I don’t feel like looking it up. It’s two commas after a trillion, though.

The point is, the sooner you start investing, the longer your money has to compound. I see my house as a stable investment with a good return. I am going to reinvest the return and make even more money. Chances are, I’ll save up the return and buy a second house in 2017.

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