Residual Income aka the only way you’re going to retire. Most people take the “linear” approach, save up a bunch of money, it makes simple interest(for the most part), then they live off of that sum until they die, leaving nothing of true value for their kids.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
― Albert Einstein
What I’m considering residual income is an investment that keeps giving, repeating and producing without effort on your part. You want to pay to play. In other words, your work is at the beginning. You must use your brain to set it up. Establish whatever it is, a business, real estate, investment portfolio and have it continue both managing itself and paying you dividends.
I have a blue-collar ranch style house that I purchased, lived in, renovated and now rent out; however, I have a property management company manage it for me. I make approximately 250 dollars per month and pay the mortgage.
- The Brain work: find a neighborhood where rent ratios are high, meaning most people rent and only a few people own. Research which homes are for sale, what their worth, then attack with offers. I used a realtor to assist me with this process. Before I bought, I researched and met with several property management companies to ensure I had the right company to manage it. (Start with the end in mind!) Develop a formula that will fit into your scheme, bid on homes that fit the formula, don’t get emotionally attached! Remember, you’re goal is to rent it so who cares where the neighborhood is as long as it will rent for long-term.
- The Foot work: I put in several offers before one bit. I purchased the home and guess what, it was trashed inside. It had decor from the 1980s and needed some major love; however, at a purchase price of 81K in a 100-115K neighborhood, I could live with that. I lived in the home(while attending school) for six months and refinished kitchen cabinets, installed all new appliances(Sears Scratch n Dent), new tub and vanity, new light fixtures and switches, paint all around and new carpet. Pressure washed the exterior and cut down the ugly shrubs.
- The Payoff: My principle and interest payment is around 650. It’s listed for rent immediately at 995 and has since increased to around 1050. I pay 10%, so about 100 bucks and you can see I net around 250 per month(save 50 for maintenance). I set up the payments at Wells Fargo for auto draft and set up the deposits to that bank account. Maintenance is handled by the property management company. They only call if something’s wrong. I’ve been called about once a year and I’ve had the house for 4 years now. Did I mention it’s valued at 125K?
Set it and Forget it!