In this world, most of us have jobs. It is what we’re groomed to do our entire lives from the day we set foot in our first classroom. No one teaches you to be an entrepreneur. No one teaches you to invest. No one teaches you how to become financially free. In fact, a lot of schools punish those showing signs of entrepreneurship (i.e. the kid selling candy out of a duffle bag gets caught and his fortune confiscated, kids who outsource their homework get expelled, etc.) For this reason, most of us grow up to be pretty conservative, risk averse individuals who elect to work a 9 to 5 job the majority of our lives in order to “play it safe” and live a normal, relatively “stable” life.
This mindset is rooted in our way of thinking as Americans, which is why it is very common for people to question the validity of real estate investing as a means to earn a living. “Isn’t that really risky?” they ask. “What if your tenants don’t pay rent?” The hard honest truth is that real estate investing is actually less risky than having a job, and those of us who elect to only work and never invest run a greater risk of losing it all.
Multiple Income Streams
When you invest in real estate, the intention is usually to build up a portfolio of many properties that offer you a specific return. The more properties you acquire, the more income streams you have, and therefore the more stable your income becomes. For instance, let’s assume that you have built up a portfolio of 20 single family homes, all of which make you a profit of $300 per month after all expenses are paid. This is a net cash-flow of $6,000 per month or $72,000 per year. Now let’s assume in a different scenario that you only had 10 single family homes, which pay you $600 per month in cash flow, for the same amount of income, $6,000/mo or $72,000/yr. In both scenarios, a hurricane blows through the city and wipes out 5 of your properties. In the first scenario, the one where you own 20 houses, you have only lost $1,500 per month in income. In the second scenario you have lost $3,000 per month in income, making the latter scenario, the one where you owned less properties, more costly for you. In these examples, the more income streams you develop, the less likely you are to lose all your income to some sort of misfortune or disaster.
Now let’s assume that you didn’t own any properties and instead had a job as an engineer that pays you $72,000 per year. God forbid you become disabled and unable to work, or there is some sort of economic downturn that causes your company to lay you off. In this example, you have lost 100% of your income, 100% of your livelihood. If you’d had the courage to invest some of your paycheck throughout the years in some rental properties, you’d still have some income that could carry you until you found a new job. In the scenario where you become disabled, you may not be able to ever work again. Due to the passive nature of real estate income, if you owned rental properties, you’d still get paid regardless of your inability to work. Instead, you decided to “play it safe” and work a 9 to 5 job in order to avoid the “riskiness” that is real estate investing. You are now left with nothing.
So the question is: “Who is living a riskier life, the real estate investor with multiple income streams or the 9 to 5 employee with a single income?” We’ve been led to believe that working a “steady” job is the safest route to financial stability. In reality, employees have absolutely no control. As an employee, you are at the mercy of your Manager, a CEO, a Board of Directors. You are at the mercy of everyone but yourself. You are the least in control of your own life. As a real estate investor, you are in control of your income. You are in control of your assets. You set the standards. And if one thing is for sure, it’s that everyone everywhere will always need a place to live, making residential real estate the safest investment, regardless of how the world evolves. Technology can never make real estate obsolete. Real estate will stand the test of time and remain to be the single greatest wealth building tool in existence today. Don’t waste anymore time. Start investing immediately!