My whole life I have been interested in the concept of earning passive income. To accomplish this I invested years researching all types of investments with the goals to (1) secure my future earnings and not lose it, and (2) get that money to pay me monthly thus providing me with passive income, and lastly (3) increase in value.
Dividend stocks, bonds, bank CDs, real estate, and other alternative investments can provide dividend like distributions, hopes of future appreciation but most don’t protect me from the potential of loss of capital & only one provides monthly distributions.
This is what got me so interested in real estate and why so many wealthy estates ultimately end up with some portion of their earned wealth in real estate. When you invest in real estate that produces positive cash flow it is very difficult to actually lose your initial capital because someone will always want to purchase its cash flow. The future value of a stock is dependent upon many more conditions like; politics, technology disruptions, economic and market conditions, and more.
As long as you pick real estate in markets where rents continue to rise the value the property should do the same. Also, unlike stocks, real estate can provide monthly distributions to its investors. At JP Capital Solutions
I insist we the investors are paid monthly out of cash flow provided by the tenants. The best-known dividend stocks in the world; Coca-Cola, Walmart, & AT&T, only pay quarterly.
So now let’s do some real practical math to compare the two investments. Let’s say you want to earn $50,000 a year in passive income and want to know how much you would need to invest to do so. Here is the math to determine how much you would need to invest to earn $50,000 a year; take your desired annual dividend income amount and divide by the dividend percentage. Desired Income / Dividend Yield = Amount of Investment
Lets say you want to know how much Apple stock you would need to invest in to earn $50,000 in dividends. Take the $50,000 and divided by the .0171 dividend yield offered by Apple stock and you need to purchase $2,900,000 of Apple stock.
Now how much would you need to invest in real estate to earn the same $50,000? The real estate we buy at JP Capital Solutions provides accredited investors with a preferred return of 8%. To determine how much money you would need to invest simply divide the $50,000 by 8%. $50,000 / 8% = $625,000.
To earn the same passive income of $50,000 you would need to invest $625k in real estate compared to $2,900,000 of Apple stock. But it gets better than that! And even bigger benefit is that your $625k investment bought three times the real estate or $1.875M because of leverage.
Because real estate is a preferred vehicle of lenders the real estate investor is able to leverage his investment buying three times what he paid. The bank knows the debt (leverage) will be paid off by the real estate (renters) rental income. You typically can’t borrow money from your bank to buy Apple stock. You can buy on margin, meaning you would have to liquidate your investment in case the market went down, and this is very risky.
When I realized all of this in my research to earn passive income without losing money I was hooked on real estate. I can buy three times the real estate through leverage, earn monthly returns, and my initial capital is protected as long as I am investing in good real estate with supporting rents.
Clearly real estate like stock can go down in value but if you don’t over leverage and the property provides long term cash flow at least the real estate will be still be there in the future. Stocks can go to zero and the business can go out of business. Think Circuit City, ToysRUs, Sears, Kmart, Lehman, Blockbuster, and on and on.
Lastly keep in mind the $625,000 investment that cash flows at just eight percent per year did would have paid you $500,000 in ten years and you still have your capital investment.
Ten years from now Apple might not be around and you might be getting text messages in the palm of your hand. Also consider in the year 2029 the rents might be more than they are today which by itself determines the future value of your $1.875M position. BTW - Rents have increased every year since 1945.
Are you keeping up with me here? Now what if we take the math out to the year 2049 and your portion of the property is now paid for, on the $1.875M share of your partnership and you would have earned $1.5M in dividends on your $625K investment and you still have your initial capital position in the property and your portion of the appreciation. Now assuming the property was able to raise rents even slightly over the last thirty years and is in a desirable location where people need a place to live, you should be able to recoup your $625K plus the appreciation. The question is how much more is the property worth in the year 2049? Is it worth 3 times, five times, ten times more?
When rents increase property values increase. Simple pick the right markets, buy good real estate, take care of the property and the tenants and wait for the value to go up.
I hope this analysis helps you in making your own decisions. Clearly I am partial to real estate because of the proven fact I know it can protect capital, while earning monthly passive income for my family in case I am not around and to one day in the future create long-term appreciation.
If you want to check out exactly what we are doing at JP Capital Solutions and learn how we accredited investors are earning passive monthly income with a long term horizon for capital protection and future appreciation.
Do your homework like I have and good luck investing. I look forward to your questions and comments.
