Larson John - The Passive Income Guide: What is your return on life?

John Larson 2018

Table of Contents

Foreword

Get real with me. How much does your employer pay you to quit your dream? Do you even remember what your dream was?

Most people get used to settling in life. When you were a teenager and thought about what your adult life would be like, Ill tell you one thing that you never thought: Im going to live a small life.

But now thats precisely what youve done.

So there you are, making between $70K and $150K, living life. Youve got a good home and drive a decent car. Sometimes you feel comfortable.

You dont vacation very often. Youre sure to be in your cushioned swivel seat at your workstation at the appointed time each morning.

You sell your soul there at work. You tote company lines and occasionally play ridiculous charades to make it look like youre working, all just so that you can trade your time for dollars over-and-over again.

Youve settled. Youve even been programmed. You arent even being yourself because you wouldnt naturally act that way.

In this one precious life that youve been given, you cant even be yourself!

Even if your job isnt so bad, is this really how you would choose to spend your time - if you could do anything in the world with your time?

Perhaps some of your dollars that you exchanged for your time are allocated into your 401(k) Retirement Savings Plan, or an IRA. Theyre often invested in mutual funds.

Thats an awful thing to do with your money.

First of all, these vehicles are typically invested in stock and bond-based investments. Even if you feel like thats going well, do you think that a 10% paper annual return is good?

Well, your plan administrator or financial advisor is not incentivized to tell you the whole truth.

From 10%, subtract out inflation, emotion, taxes, fees, and volatility, and youll be lucky if your real return is as high as zero.

Did you know that 401(k)s were initially called Salary Reduction Plans? They had to scrap that name to foster employee participation. But reducing your salary today is principally what they still do to you.

Do you favor 401(k)s because you think that your money compounds on a tax-deferred basis, plus in retirement, you can pay a lower tax rate?

Well, thats the wrong strategy. In fact, youve just admitted failure.

Why?

Because youve just admitted that in retirement, youll have a lower income, hence a lower tax rate.

Penalty-free withdrawals only begin between age 59.5 and 70.5. You must also start paying tax on them at that time. So youre certainly going to trade away pieces of your youth for a faint hope of having more in old age?

See, retirement plans are Life-Deferral Plans more so than Tax-Deferral Plans.

Retirement age is when youll finally have time to float the canals of Venice with your spouse, take the grandchildren to Disneyland, or buy and drive your Maserati. With more time to spend money, youll want more income then, not less.

Plan for prosperity instead. Produce, dont reduce. Starting with a change in mindset, you can set up your lifes finances so that your income increases both now and in perpetuity into the future.

Real estate has made more ordinary people wealthy than anything else. But few understand how.

Youll see that stocks usually only provide you with one way to profit. Its a capital gain if you buy and sell at the right time. Maybe youll buy stock that pays a modest dividend too.

Real estate provides you with so many simultaneous profit centers: leveraged appreciation, cash flow, tenant-made principal paydown, greater tax advantages than stocks, and a way in which you actually profit from inflation.

When you understand this, youll learn that total rates of return of under 2025% are actually disappointing, and without taking inordinate risks.

In the stock world, that would be a blasphemous statement to make!

This is nothing new. This is just strategic buy-and-hold real estate investing.

Keep buying properties until you have enough cash flow (rent income minus property expenses) to replace your day job, and you can quit your job and declare financial freedom.

Remember 401(k)s...the Salary Reduction Plan? Now youve opted-in to a Salary Increase Plan.

Now youve replaced your active income with passive income.

I have achieved this myself, so you can surely do it.

There are real estate pitfalls to avoid. Thats why youre reading this book. Even when you buy right, some months, real estate investing can also leave you disappointed.

You need to begin with a sound strategy. You might be surprised to learn that in real estate investing, the property is only the fourth most important thing!

Instead, most people are misdirected and start their investment search with the property. They become emotional about landscaping, pretty window shutters, a bright red door, and quartz countertops. Thats why they fail.

Soft emotions have a place in choosing your primary residence, but income property is about cold, hard facts.

First, the most important thing in investment real estate is YOU. Do you want real estate to provide you with appreciation, tax benefits, cash flow, or vacation use?

Secondly, once youre clear on you, find the real estate market that will deliver what you want. Market could mean geography, neighborhood, or use type, for example, metro Kansas City, Philadelphia west of 49th Street, coastal Panama, single-family rentals, self-storage units, or four-plexes.

Thirdly, you must find a team that will deliver. Your most critical team member is a skilled, communicative property manager. You dont want to be the one collecting rents or taking tenant phone calls. You invest to enhance your quality of life, not degrade it.

Finally, only look at property fourthly. Because if those first three criteria dont work: you, market, and team - then your property criterion wont work either.

Dont get that part backward as most people do. Now youre being strategic.

Ive come to know John Larson as the rare person that can deliver what you want. He understands markets, submarkets, teams, and properties. He knows that the property manager is the glue that holds your investment together over the long-term.

Shortly after I first met John in-person a few years ago, I was with him, and we were settled into his central office at American Real Estate Investments in Dallas, Texas.

Dallas-Fort Worth was - and still is - a thriving market. In fact, I think its the most recession-resilient major metropolitan area in the United States.

But real estate prices had run up proportionally faster than monthly rent amounts, denting investor cash flow.

John and I were chatting alone together, and I asked him: What will you do if the price disparity becomes so great that new investors could no longer produce monthly income?

John replied: Id move into a new market.

That meant the world to me. Since then, John has shown me time and time again that he puts your investment interests ahead of the market.

Ethical operators like John can actually be disloyal to markets. Theyre loyal to people.

Real estate is the most historically proven investment class for wealth-building. Investors talk about ROI - Return on Investment.

With turnkey (done-for-you) real estate investing where youre in a vibrant market with sound management, you can also think of ROI as Return on Involvement.

Thats why you dont manage the property yourself. You dont want to track every little receipt yourself, lose weekends at Home Depot, or take tenant calls about replacing cove base or repairing a leaky faucet.