HOW TO CREATE A $100K PASSIVE INCOME
Building a property portfolio can give you greater financial options in life. Let’s crunch some numbers to see how a foundation portfolio can help you secure financial independence and allow you to live life on your terms.
To make $100,000 passive income each year.
HOW TO DO IT:
Say you purchased 10 properties for around $200,000 each.
(Don’t scoff at the purchase price. Sure, the Sydney market is out of reach, but, there are metropolitan markets in Queensland where this is possible.)
Each of these 10 properties rents for about $300 each week. Cash flow is neutral – meaning the properties pay for themselves.
The properties are all located in good growth corridors, giving them potential to grow in value over time.
HOW MUCH IS THIS PORTFOLIO WORTH AT THE TIME OF PURCHASE?
10 properties at $200,000 each adds up to a $2 million property portfolio.
Altogether, these 10 properties make $3,000 in rent each week.
As time ticks on by, the market cycle goes up …
Now, these properties have gone from $200,000 to $400,000 each.
Your portfolio is now worth $4 million instead of $2 million, making $2 million in net worth.
Throughout the course of these five to ten years, rent has slowly risen to around $400 per week.
What started out neutral, has now become positive cash flow. You are making $100 a week in rent. Over the whole 10 properties, you are making $1,000 per week rent. That is $52,000 a year in passive income.
WHAT ARE YOUR OPTIONS?
Now that your portfolio has delivered in good growth and better cash flow, it is time to think of consolidating.
You will have more than one option here. Let’s look at some of the things you can do to take it to the next stage.
OPTION 1: COLLECT RENT
You could simply collect the rent each week and let the properties continue to pay themselves off.
OPTION 2: SELL HALF
You could sell 5 of these properties, pay off your $2 million in debt and have five remaining properties that are unencumbered. That is, they are debt free. They each bring in $400 a week rent, or, $2,000 per week in total.
There’s your $100,000 a year in passive income.
OPTION 3: USE EQUITY TO FLIP DEVELOPMENTS
Instead of selling some properties, you could pull out $1 million worth of equity and buy two blocks of land. On those blocks, you could build houses and sell them for around $2 million.
That would give you a $1 million profit.
Now, you have even more options to consider.
You could use that profit to pay down your mortgage, or go on holidays or follow your life’s calling – whatever you want!
Or, you could consider the next option…
OPTION 4: BUY CASH COWS
You could repeat the previous option and then buy a block of units. This would provide multiple income streams to increase your bottom line.
OPTION 5: DO NOTHING
This is option most people take in life. It is the safest option – but, it is also the least lucrative. You could spend your entire working life earning around $50,000 a year.
In 40 years’ time, you will have made $2 million.
Unfortunately, you would have also spent most of it too.
And what will you have left in your name to retire on?
SPEND TEN YEARS TO SET YOURSELF UP FOR LIFE
It may take around ten years for your properties to go up enough to consolidate your portfolio. If you do nothing, however, those ten years will still go past – and you’ll have nothing much to show for it.
It may be worth spending ten or 15 years of your working life building and maintaining a foundation portfolio if it means you can retire on a starting income of $100,000 a year.
That’s right – it’s only a starting income. Rents do tend to keep rising over time.
And, you may even get to retire 20 or 30 years earlier than the rest of your peers!
Do you want more out of life than what option 5 will give you? What option are you taking?