I was looking at a recent publishing by Warren Buffet of Berkshire Hathaway (who’s stock is $221,495 PER SHARE!) and I noticed something. We are all saving up for retirement. We all hope to have plenty of money to go around, be able to travel, live how we want to live because of all our hard work throughout the years. Well, let's assume you would need $6000 per month, which would be an annual amount of $72,000, to live a comfortable life. Here's the thing you want PASSIVE INCOME from your investments, meaning your money/ retirement assets throw off monthly cash flow, WITHOUT you having to sell or get rid of your assets. A traditional investment account invests in the stock market. Regardless of the type of stock asset, we are simply talking about the fact that most investment accounts invest your money into the stock market. How are you going to RECEIVE monthly cash flow from your 401K, 403B, your IRA, Mutual Fund, Money Market account ect.?? You have to sell your stock! So now you are having to get rid of the asset. Well, that's no bueno! But there is hope, you see as we begin to reach retirement age we can invest in dividend yielding stock. This means for every share of a certain companies stock that you own you actually get PAID! Wow, that's awesome right! SO here are a few stocks that Warren Buffet, from Berkshire Hathaway suggest for the “cash flow” savvy investor:
#10 Goldman Sachs (GS): For 1 share = $189.11. You will get paid $.60 cents every 3 months. Which means you will have to own 30,000 shares of this stock to receive $18,000 every 3 months, which would put your MINIMUM amount of portfolio value at $5,673,300!!
#1 Proctor and Gamble (PG): For 1 share = $85.21. You will get paid $.6425 cents every 3 months. Which means you will have to own 28,016 shares of this stock to receive $18,000 every 3 months, which would put your MINIMUM amount of portfolio value at $2,387,243!!
I am a huge fan of dividend stock… you don’t have to sell them to get money and you can live off of them. However, if this is the ONLY means of living off of cash flow, it is not truly being diversified.
Let's take a look at another method of investing for cash flow. Now let's assume you still are comfortable with living off of $72,000 per year ($18,000) a quarter. But you lent this money out in well vetted real estate deals that have as many security backstops as possible to watch over and offer as much protection and risk mitigation as possible. What type of interest rate would you need and how much capital? Well $72,000 divided by 8% = $900,000. ….. Wait ….. that's it? "So all I need is $900,000 and lend that out at 8% and I would have $72,000 in passive income?" Yes .... that's exactly what I am saying.
Let's look at another scenario. Let's say you were NOT happy with $72,000 a year and instead you wanted to earn $100,000 a year in PASSIVE INCOME, meaning you don’t break one bead of sweat, this is your money working for you, 24/7, 365 days a year. Well, to get $100,000 in annual passive income, we need $1,250,000 earning 8%, and that's it! This is assuming you ONLY received 8% per year… what if you received more than 8%… let's say 10%? Well if you stuck to your $900,000 that's $90,000 in PASSIVE INCOME (Remember your not working for this money, not one minute!) If you did save up $2.3 Million dollars; invested $1,250,000 at 10% in private mortgages? That's $125,000 annually and here is the real kicker! What if you took the other 1.13 Million dollars that is left over (2.38MM - 1.25MM = 1.13MM respectively) and invested that BACK into dividend paying stock! You can see why I am so passionate about Private Mortgage Investing!