In this step I dive into Rich Dad, Poor Dad by Robert Kiyosaki and his concept of financial freedom. So, how do you acquire assets that provide enough cash to cover your expenses?
About Indestructible Wealth: I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep and grow wealth to enjoy now, and for years to come.
Episode #7 – Why You Want Multiple Streams of Cash Flow
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Welcome to the Indestructible Wealth Podcast. This is the place where we help young entrepreneurs to make keep and grow wealth that you can enjoy now and for years to come. I’m your host Jack Gibson, a senior or serial entrepreneur, founder of multiple seven and eight figure of businesses, and wealth building strategies. Each week I’m going to share you my tips, resources and secrets, to help you create a plan and build the life you’ve dreamed of.
Back in the year 2000, I read one of the all time classics in personal finance, Rich Dad, Poor Dad. The concepts in that book completely changed my beliefs about investing. One particular concept that has stuck with me was his definition of Financial Freedom. The true definition of Financial freedom is when the income from your assets is enough to cover your monthly expenses. From that point on, you are truly free because you no longer have to work for money. You can do what you want, when you want to do it, with who you want. You are no longer tied to a paycheck.
In today’s episode, we will dive into step #5 of the 7 step strategy, which will help you focus on developing multiple streams of passive income to create Financial Freedom. With the amount of technological disruption that will take place over the next decade, you will not only want, but need to have income coming in from different sources to protect yourself. Remember Blockbuster was a multi-billion dollar company, and within a few short years, Netflix completely wiped them from existence.
I’m going to give you some very specific examples of different assets you can invest into, and provide you access to them through my platform and strategic partners. So let’s dive in.
So a lot of people think okay when I hit when I’m a millionaire I’m going to be financially free which is not actually the case you can be a millionaire in portfolio where your portfolio is worth the money but if it is not kicking off the amount of money and cash flow per month that you need to pay all your expenses then you’re going to have to continue working or your going to have to start drawing down on the principle. If let’s say you stop working you have to slowly start drawing down on the principle of your total portfolio and at some point you run out of money right. So we want to avoid that situation where we ever run out of money so multiple streams of passive cash flow is what’s going to get us there. And what’s critical to the successful implementation of this strategy, is the asset allocation model that I adamantly teach. See you got your safe, steady predictable returns from your boring whole life cash value insurance policy, from your mortgage bank notes, from your cash flow real estate rentals, from your blue chip dividends stocks, from your private money loans, maybe even some tech royalties from crypto currency and even some out of the box type income strategies that maybe I not even thinking up right there’s plenty out of the box ways to generate income.
So with those solid income producing assets in play then you can comfortably and aggressively takes some swings for the fences with asymmetric bets that we justed talk about on the previous podcast. You know with those risky higher reward plays don’t work out you are not out of the game. Your income producing assets simply replenish those funds in short order and then you reload and you figure out the next play. You see without getting some investments that grow quickly and significantly in our portfolio it’s going to take a very long time to reach your financial goals and truly live the kind of life you want. So this is not a get rich quick strategy however we can get there quicker and without having such huge swings that most people go through when they invest all their money in the risky type big swings for the fences. So were just going to take some well calculated plays that have much more upside than downside.
When I was in college I talked about that I saved up $50,000 after hustling and saving and building a private business and then I put all of that into risky tech stocks and I bought a home instead of renting. The tech stock crash, the 2000 Dot-Com bubble burst, and the money in my home was locked up in the mortgage which I couldn’t touch so that’s what we call lazy asset equity that doesn’t produce any cash flow so I was knocked out of the investment game. So I want to make sure you build your wealth in a way that doesn’t get you knocked out of the game like I did. It took a few years rebuilding before I was able to jump back in losing valuable years. Very valuable years of compounding and those early years that you lose when you do too risky of investments that compounding is so critical and that foundation is so critical to your long term strategic plan. So let’s dive in let’s talk about some of these conservative assets just to start getting your minds thinking about what are you going to invest, how are you going to get it, where are you going to get it and what it’s going to look like right. So let’s talk about high cash value whole life. To me this is the foundation of everything that you’re going to build with your plan. The reason why it’s not because it’s not like a great investment I mean it only goes up like 3 to 5%. The way my policies structured right now with the interest rate being so low that does affect or drag on high cash value whole life policies. So mine probably 5.5% I think was what we figured out is the after tax return. So guys that’s not like I’ll never going to get financially free on that, that’s going to take a long time but what that does is that creates dividends that keep coming in year after year. And with those dividends coming in I can take those dividends as cash flow if I ever needed it or better yet I can borrow against that policy if ever need cash and if the market suddenly just drops in value and there’s assets that are incredible that are on sale. I can go in and within a week or less I can have a chunk of the cash value out of my whole life policy and utilize that to invest to create more income. So this is more about it’s a foundational play, it’s a stabilization play, it’s more of a savings play and it’s to protect my estate. If anybody ever sues me and wins a lawsuit they can’t ever touch my whole life policy it’s off the chart, it’s off the table.
Alright let’s talk about cash flowing real estate rentals and I have about 20 total real estate properties maybe more right now that are producing cash flow. You know what’s great about real estate rentals is that you can leverage it. So let’s say you got $100,000 in cash that you have to invest right so you buy a property with cash for a $100,000 and it’s a nice quality B type property maybe a B+ it’s kicking off a $1,000 of rent per month. After all expenses and everything let’s say you cash flow $500 a month right, so that about $6,000 per year maybe you get $800 in cash flow on the higher end. Let’s just say after all expenses paid $8,000 net comes in. So that’s on a $100,000 investments that’s an 8% return right. But what’s great about real estate is that you can leverage it this is one of the few asset classes where the bank will loan you money to buy it. So now you can take a $100,000 in cash and you can buy 5 properties for a $100,000 each cause you’re going to put 20% or $20,000 down and you’re going to finance the rest. So now your $100,000 acquired you half a million worth of cash flow producing assets.
Now you’ve got debt to service okay so that’s going to take additional money out of your monthly cash flow. However a portion of that is going to go towards the principle and as you hold on to the properties every year more and more is going to be paying down the principle or what’s called the debt amortization schedule. So the way I think about it is that every time my tenant makes the payment and I use that money then I take that rent money that’s coming in some of it I get to keep for myself because it’s excess cash flow over and above my expenses and then some of it is being used to pay down the debt. The portion that’s paying down the principle is increasing my wealth. Because now that’s increasing the equity that I have in that property and so now with leverage you guys I can take that same $100,000 and I can turn it into instead of $8,000 net income, I can turn that into $16,000 – $25,000 and that income for year because now I have 5 properties that are producing rent instead of 1.
So real estate is so important to leverage on my opinion because you can create and you can multiply by usually a 2 maybe 2 and a half times factor the net income or net cash flow that comes out of a property when you use a leverage. And on top of that what’s great is that say that $500,000 in market value goes up to $600,000 on those properties. So you just increased the value of your assets by $100,000 but you only have a $100,000 in cash invested right. So now that you create cash flow from the monthly rents but your properties went up a hundred grand so your actual cash just doubled from a 100 to $200,000. That’s the beauty of leveraging cash flow real estate that Robert Kiyosaki talked about on this plan.
Now where did you get cash flow real estate rentals and where do you buy them. Chances are pretty good that it’s going to be tough for you to find good cash flow properties that are quality management in your own backyard. So lucky for you that over the last 5 years I been building out a company called High Return Real Estate and we have also partnered with the company called Boardwalk that allows you to able to purchase properties in multiple markets throughout the Midwest. So our traditionally our company was only able to acquire and renovate properties in the Indianapolis market and now due to this partnership with this incredible company called Boardwalk which I’m in an interview the owner of that company Tyler Banta on one of my episodes coming up here, you’re going to be able to have access to great properties and good cash flow potential in the Midwest.
Now let’s talk about mortgage backed notes so the way you think about mortgage bank notes is essentially you’re becoming the bank and your holding the mortgage note then another person is paying interest to you on it. Now the ones that we’re talking about here are not done like a traditional bank. These are private type of deals like off market type of deals. So you are going to be able to purchase mortgage bank notes that have a higher interest rate and you are going to be able to get 7 8 9 even 10% interest rate on these notes that you hold which is going to create some additional streams of solid cash flow. Now what happens is there’s risk to every asset right, the risk of having a mortgage backed note is that the person on the other side stops paying you right that’s always the risk to a bank. However in these type of situations if it ever happens you probably pretty excited because there’s equity that’s in the property that you are going to be able to foreclose, take over that property and you are going to be able to capture all of that equity that’s in the property. It’s very rare for that to happen like less than a 1% chance of it ever happening but that’s the risk that you have with mortgage backed notes. Now this is an opportunity that were able to present to our listeners through the program called Cash Flow Plus that’s with the partnership with Boardwalk.
Alright so let’s talk about blue chip dividend stocks okay this is where you are buying large established companies that just continue to kick off cash flow. Their proven and their stable, their solid you’re not going to get big swings in prices on these companies they’re very safe stable solid conservative type of companies that have been around for multiple decades and they proving themselves out with their products, their services, their management teams, their leadership, and all of their structures. So there’s companies say like Ford motor company, company been around for a 100 years plus they have stability even throughout the worst of times in 2008 they made it through without any problems this company pays out the dividend on their stock. So that dividend is issued to you in a form of cash okay. So you get quarterly typically type of payment that’s comes into your account and that’s creating income for you, safe conservative passive income that you’re going to be able to utilize to fund your whole wealth building strategic process.
Now there’s also thing called private money loans. Now I don’t recommend for new investors to do this because you definitely have to know what you’re doing and who it is that you’re loaning money to. A private money loan is just a simple arrangement where you loan money to an individual, you draw up a contract and then you’re loaning money to go out and start a business is how it usually happens. Now I’ve done a few of these and they have all worked out so far everybody has made their promise,s they kept their promises that they made and they paid on their notes. However again it’s just a word of caution, unless you’re very confident in the individual cause that’s ultimately who you’re investing into is the person, if you are confident in that person and their ability to repay and keep their word and you also if you can somehow collateralize the loan against an asset that they own then this going to be really great strategic ways to increase your wealth.
Now why would this person want to do a private money loan and pay you in all reality a higher interest rate then they would if they went to the bank? Typically it’s usually because they just don’t have enough credit or maybe it’s a business that isn’t proven so the bank is not willing to take the risk. Banks by nature are very conservative they are only going to loan money to absolute sure bets. If they have any doubt that they’re going to lose their capital they’re not touching it. So for you taking on a higher risk you’re going to be able to also get a higher interest rate as well. A lot of private money loans for me I get paid 10, 12 even 15% on my private money loans and that’s pretty standard that’s pretty par for the course. There’s also called hard money loans because the terms and conditions of interest rates are a bit harsh. But it is what it is it’s both people coming together in the market creating a contract that they’re both willing to take on and they’re both agreeing to nobody’s forcing anybody to pay the higher interest rate. They need capital, they need liquidity to get their business going so in all reality they pay a higher interest rate to make that happen.
When we started our company High Return Real Estate we needed an influx of cash to be able to take on more properties because we had lot of demand for properties so we didn’t have enough supply. So we needed to bring in some capital, my very first private money loan was for $500,000 and I paid them 15% interest for that money. Now looking back I’m like man why did you do that was a serious amount of interest that you’re paying them pre month right. Well we were able to outpace that interest with our sales and creating additional revenue so we made money off of that money out that private money loan.
So it’s a win-win situation an then we found a another investor who is willing to come in a lower interest rate so he loaned us money at 10 % interest then we took that money and we paid off the prior the first lenders got them all paid off cleared off and then we start to making payments at 10%. So I’ve been on both the giving and the receiving of the hard money private loans right. And I so I understand how they work why they work and how they structure. So that’s just a kind of giving you guys ideas on how are you going to create additional stream of passive income.
Now there’s another one that I love that’s relatively new and it’s called Tech Royalties and this is where you’re buying crypto currency assets and then your able to stake those currencies okay and it’s not something I’m going to give in to and dive into on detailed on this particular show I will create another podcast that I will explain how tech royalties work but you’re going to able to stake those currencies in other words it’s a way of a you’re going to loan them back out to somebody else who wants to borrow against your crypto currency and then you’re going to get paid interest rate for doing that there’s big one called BlackFi where you can buy any of your Bitcoin or Ethereum that you owned you can stake in on that platform and in exchange you’re going to get at 6 7 8% interest rate on your crypto currency as you hold it. Which is an incredible way to create an extra stream of income of an asset that you really normally probably what you’ve been thinking about doing anything other than buying holding and speculating and hoping that it goes up.
So that inch that income that kicking off those tech royalties is creating an additional form of income off of your assets as you wait for them to go up and price. It’s just like cash flowing rentals real estate if it never win up and value but it’s kicking off that cash flow from the rents you’re winning. If it goes up and value then you’re even you’re making even more money you’re increasing your overall that well so you can win a no’s types of games both ways. And then there’s out of the box income opportunities I saw one of my partners and friends at me posted that he was mining crypto currency and so I hit him up I’m like dude is there a way that I can get a piece of that. I was like I saw an opportunity to I don’t know anything about how to do it I don’t know how to set it up I don’t know I don’t really kind understand of it totally get it. But I do know that Adam is super intelligent super smart his attack wizard because we’ve done technology projects and build platforms for other businesses together in the past. So look I want to give you some cup of confusion can you buy more mining equipment and then we’ll split up some of the income that’s come off of it and we’ll both win he said yeah that’s a great deal.
So we started about 4 months ago we started buying the components that you need to mine crypto currency. So it’s created a situation where we’re taking money that you don’t would have traditionally bend like conservative right. And putting into this crypto mining project and man the returns are incredible as of right now we’re on track I’m on track to get my money back all of the equipment paid off in roughly about 8 months and then from there it’s just free flowing cash flow that’s going to be coming in as this system continues to crank and create more of the mining income. So what did it get you guys just thinking about different ways and different means that your going to be able to tap look on my platform every single thing that we just discuss we’re going to go into detail on I’m going to give you resources of where to go to buy things I going to show you guys exactly what to consider you’re going to get the whole deal. So this is going to be a platform where I don’t want to just give you like the concepts and give you the reason why you want to do something cause like that’s was the problem that I had with Robert Kiyosaki pretty much all of the things that he put out you know up until maybe a couple of years ago. Most of his books are on talking about like the why and that’s, that’s awesome like top explain why you want to do something explaining in an conceptual overview but there was never any how to’s or where to’s. I want to give you the why but else I want to give you how to and the where to buy right the where to where to get it. So keep plug in to platform and you guys we’re definitely going to create some indestructible wealth together. Alright so on the next podcast we’re going to close out the 7 steps series I want to talk about step 6 and step 7 so make sure that you tune in and you’re going to have the whole overview and the crystal clear on the whole 7 step strategic plan and then from there that’s were going to start diving in with specific guest coming on the show and I am going to be talking about specific investments that you guys consider adding to your portfolio to start building your indestructible wealth.
That’s a wrap for this episode on the Indestructible wealth podcast. Before we part ways, I want to help you to take advantage of two incredible tax saving strategies that could help you save a lot of money all you have to do is leave me a five star review if I’ve earned it and comment in iTunes, Stitcher, Or wherever you tune in. After you done that simple steps just email a screenshot of [email protected] and I’ll send you everything you need to save money on your taxes for years to come. If you like to dive deeper into your own wealth building strategy, check us out at myindestructiblewealth.com and follow along on my social media. Also, please share this podcast with anyone who’s looking for guidance on their own wealth building journey. Until next time, remember our mission here is to help you make, keep, and grow wealth you can enjoy now and for years to come.