{"id":383,"date":"2012-06-29T23:19:45","date_gmt":"2012-06-30T03:19:45","guid":{"rendered":"https:\/\/www.cashflownavigator.com\/blog\/?p=383"},"modified":"2013-07-02T20:41:07","modified_gmt":"2013-07-03T00:41:07","slug":"ideas-to-help-our-youth-get-a-strong-financial-head-start-part-3-moving-ahead-in-the-financial-life-cycle-with-the-help-of-rental-income","status":"publish","type":"post","link":"https:\/\/www.cashflownavigator.com\/blog\/2012\/06\/ideas-to-help-our-youth-get-a-strong-financial-head-start-part-3-moving-ahead-in-the-financial-life-cycle-with-the-help-of-rental-income\/","title":{"rendered":"Getting Ahead Early, Part 3: Moving Forward in the Financial Life Cycle with the Help of Rental Income"},"content":{"rendered":"

\"\"<\/a>Creating a Cash Flow Source in Your 20s or 30s<\/h3>\n

OK, so let\u2019s say you\u2019re in your 20s and with the help of a family savings and investment account (see Part 2 of this series) you have little or no debt and $20-25,000 in liquid accounts (savings, stock).\u00a0 What can you do to build on your momentum and start generating monthly cash flow from a source other than your salary?\u00a0 One option to consider is a rental property.<\/p>\n

As explained in our e-booklet Wealth is Good, Cash Flow is Better<\/strong>\u00a9, a rental property is an example of a \u201cBest\u201d asset type because it can appreciate in value AND generate positive monthly cash flow (from the rental income).\u00a0 A single family primary residence on the other hand is a \u201c2nd<\/sup> Best\u201d asset; \u00a0for while it also appreciates over the long term it always creates a negative cash flow. (Even if the mortgage is paid off, property taxes and homeowner\u2019s insurance keep you in negative territory.)<\/p>\n

What are the advantages of rental real estate?\u00a0 To explain, let\u2019s use hypothetical 1-family and 2-family properties as examples.<\/p>\n

Assume you qualify for, say, a $150,000 1-family house.\u00a0 If you make a $22,500 down payment then your mortgage will be $127,500.\u00a0 At 4.0%, a 30-year mortgage payment will be $848 per month.<\/p>\n

Now let\u2019s look at a $225,000 2-family property.\u00a0 If you put the same $22,500 down, it leaves you with a mortgage of $202,500 and a monthly payment of $1,348, or $500 more than the 1-family.\u00a0 But if you rent one unit at $1,000 per month, even assuming you keep it rented 80% of the time it will generate average monthly income of $800.\u00a0 So all other things equal, your net monthly cost for the 2-family will be $300 lower than the 1-family.<\/p>\n

That\u2019s the income side.\u00a0 Now look at the appreciation side. Assume a long term average appreciation rate of 4% in home prices.\u00a0 Over 10 years, the $150,000 single family appreciates to $222,000.\u00a0 But over the same period the $225,000 two-family grows to $333,000.<\/p>\n

One significant advantage of a rental property <\/strong><\/p>\n

is that it offers an opportunity to generate<\/strong><\/p>\n

cash flow with no age restrictions<\/em>. <\/strong><\/p>\n

So the same $22,500 down payment can yield very different outcomes depending on your property choice. \u00a0In this hypothetical example the multifamily choice results in both a better (less negative) cash flow and a higher long term appreciation value.<\/p>\n

But the multifamily cash flow is still negative.\u00a0 So your challenge is to turn it positive.\u00a0 In some rare cases an investment property can break even or generate positive cash flow immediately upon purchase.\u00a0 Otherwise, it\u2019s a matter of paying down and ultimately paying off the mortgage.\u00a0 But even then, if you don\u2019t do your due diligence up front, an investment property with no mortgage can still be a cash flow loser.\u00a0 We\u2019ll discuss some of the considerations and evaluation techniques when shopping for a rental property in an upcoming article.<\/p>\n

While we\u2019re on the subject of potential pitfalls, it\u2019s important to also point out that rental properties are NOT for everyone.\u00a0 If you don\u2019t think you could effectively choose and deal with tenants, then becoming a landlord might not work for you.\u00a0 Being handy with repairs isn\u2019t a requirement but making sure they are done in a timely manner is important, and if you pay someone else to do them it cuts into your bottom line.\u00a0\u00a0 There are a host of other considerations, and many other sources of information on this topic that can give you more detailed guidance.<\/p>\n

So, as with any investment option there are pros and cons.\u00a0 But one significant advantage of a rental property is that it offers an opportunity to generate cash flow with no age restrictions.<\/em>\u00a0 Retirement account distributions are not accessible until at least age 59 \u00bd, and you have to wait until your 60s before receiving monthly Social Security pension payments.\u00a0 But it\u2019s possible to acquire an investment property and turn it into an income producer even in your 20s or 30s. \u00a0That extra cash flow can go a long way in helping to clear a path through the early stages of the financial life cycle.<\/p>\n","protected":false},"excerpt":{"rendered":"

Creating a Cash Flow Source in Your 20s or 30s OK, so let\u2019s say you\u2019re in your 20s and with the help of a family savings and investment account (see Part 2 of this series) you have little or no debt and $20-25,000 in liquid accounts (savings, stock).\u00a0 What can you do to build on […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,10,9,17,16,8],"tags":[107,104,24,92,53,25,23,91,106,105,48],"class_list":["post-383","post","type-post","status-publish","format-standard","hentry","category-asset-accumulation","category-assets","category-cash-flow","category-financial-independence","category-financial-life-cycle","category-net-worth","tag-appreciation","tag-asset","tag-cash-flow-2","tag-cash-flow-navigator","tag-cashflownavigator","tag-financial-independence-2","tag-financial-life-cycle-2","tag-keith-whelan","tag-rental-income","tag-rental-property","tag-wealth-2"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/comments?post=383"}],"version-history":[{"count":13,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/383\/revisions"}],"predecessor-version":[{"id":389,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/383\/revisions\/389"}],"wp:attachment":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/media?parent=383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/categories?post=383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/tags?post=383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}