Episode #7 – Why You Want Multiple Streams Of Cash Flow

 

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?

Kiyosaki’s book gave us the why. I’m here to show you how.

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Listen to the podcast here

 

Why You Want Multiple Streams Of Cash Flow

Back in the year 2000, I read one of the all-time classics and personal finance, Rich Dad Poor Dad by Robert Kiyosaki. The concepts in that book completely changed my beliefs about investing. One particular concept that has stuck with me is his definition of financial freedom. The true definition of financial freedom, according to Kiyosaki, 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 this episode, we will dive into step number 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 multibillion-dollar company, and within a few short years, Netflix completely wiped them from existence. I’m going to give you some specific examples of different assets you can invest in and provide you access to them through my platform and strategic partners. Let’s dive in.

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Let’s talk about creating financial freedom. This is the step where we get to dive into going back to what Robert Kiyosaki talked about in Rich Dad Poor Dad, the book I read back in 2000. It opened up my mind to investing and how the money game works. This is where we talk about financial freedom, and this step is important. This would be step 5 in the 7-step strategic process, which is you are going to put the majority of your income into safe, conservative income-producing assets.

How To Be Financially Free

Our goal is to become financially free. How do you become financially free? As Robert Kiyosaki described in his book, the true definition of financial freedom is when the income from your assets pays for all of your monthly expenses. In that scenario, you are now free to never have to work again. Your assets are creating passive income flowing in to cover and more than offset your outgoing expenses. That is true financial freedom.

A lot of people think, “When I’m a millionaire, I’m going to be financially free,” which is not the case. You can be a millionaire in the portfolio, where your portfolio is worth $1 million. If it is not kicking off the amount of money and cashflow per month that you need to pay all your expenses, you are going to have to continue working. If you stop working, you would have to slowly start drawing down on the principle of your total portfolio. At some point, you would run out of money. We want to avoid that situation where we ever run out of money. These multiple streams of safe cashflow are what is going to get us there.

What is critical to the successful implementation of this strategy is the asset allocation model that I adamantly teach. You’ve got your safe, steady, predictable returns from your boring whole-life cash value insurance policy, mortgage-backed notes, cashflow real estate rentals, blue chip dividends stocks, private money loans, maybe even some tech royalties from cryptocurrency, and even some out-of-the-box type income strategies that you think of. Maybe I’m not even thinking enough. There are plenty of out-of-the-box ways to generate income.

With those solid income-producing assets in play, you can comfortably and aggressively take some swings for the fences with the asymmetric bets that we talked about in the previous episode. With those riskier high-reward plays don’t work out, you are not out of the game. Your income-producing assets simply replenish those funds in short order, then you reload, and you figure out the next play.

Without getting some investments that grow quickly and significantly in our portfolio, it is going to take a long time to reach your financial goals and truly live the life you want. This is not a get-rich-quick strategy. However, we can get there quicker and more balanced, and without having such huge swings that most people go through when they invest all their money into the risky type of big swings for the fences. We are going to take some well-calculated place that has much greater upside than they do downside.

When I was in college, I talked about that I saved up $50,000 after hustling, saving, and building a private business. I put all of that into risky tech stocks, and I bought a home instead of renting. The tech stocks crashed in the 2000 dot-com bubble burst. The money in my home was locked up in the mortgage, which I couldn’t touch. That is what’s what we call the lazy asset. It is equity that doesn’t produce any cashflow.

I was knocked out of the investment game. 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 of rebuilding before I was able to jump back in, losing valuable years of compounding. Those early years that you lose when you do two risky investments. That compounding and foundation are critical to your long-term strategic plan.

Conservative Assets

Let’s talk about some of these conservative assets to start getting your minds thinking, what are you going to invest into, how are you going to get it, where are you going to get it, and what is it going to look like? Let’s talk about high cash value whole life. This is the foundation of everything that you are going to build with your plan.

The reason why is not because it is not a great investment. It only goes up from 3% to 5%. The way my policy is structured right now, with the interest rates being low, does affect or drag on high cash value whole life policies. Mine is probably 5.5% is what we figured out after-tax return. I’m never going to get financially free on that. That is going to take a long time.

What that does is that it creates dividends that keep coming in year after year. When those dividends come in, I can take those dividends as cashflow if I ever need it, or better yet, I can borrow against that policy if I ever need cash and get into a jam. If the market suddenly drops in value and there are 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 and to create more income. It is a foundational play and a stabilization play. It is more of a savings play, and it is to protect my estate. If anybody ever sues me and wins a lawsuit, they can’t ever touch my whole life policy. It is off the table.

 

Let’s talk about cashflowing real estate rentals. I have about twenty total real estate properties, maybe more. I will sell some if I figure out that they are a little bit disrupted. If maybe the neighborhood turns or I’m having too many tenants or maintenance issues on a property, I’m probably going to sell it. It is a moving target. I have over twenty right now that are producing cashflow. What is great about real estate rentals is that you can leverage it.

Let me give you an idea. Let’s say you got $100,000 in cash that you have to invest. You buy a property with cash for $100,000. It is a nice quality B-type property, maybe a b-plus. It is kicking off $1,000 in rent per month after. All expenses and everything, you cashflow $500 a month. That is about $6,000 per year. Maybe you will get $800 in cashflow. That is probably on the higher end. After off all expenses are paid, $8,000 net comes in. On a $100,000 investment, that is an 8% return. What is 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. You could take $100,000 in cash, and you can buy five properties for $100,000 because you are going to put 20% or $20,000 down, and you are going to finance the rest. Your $100,000 acquired you $500,000 worth of cashflow-producing assets.

You got a debt to service. That is going to take additional money out of your monthly cashflow. However, a portion of that is going to go towards the principle. As you hold onto the properties every year, more are going to be paying down the principal or the debt amortization schedule. The way I think about it is that every time my tenant makes the payment, and I take that rent money that is coming in, some of it I get to keep for myself because it is excess cashflow over and above my expenses and some of it is being used to pay down the debt.

The portion that is paying down the principle is increasing my wealth because now that’s increasing the equity that I have in that property. With leverage, I can take that same $100,000, and instead of $8,000 in net income, I can turn that into $16,000, $20,000, to $25,000 in net income for the year because now I have five properties that are producing rent instead of one.

Real estate is important to leverage, in my opinion. You can multiply by two, maybe two and a half times factor, the net income or net cashflow that comes out of a property when you use leverage. On top of that, what is great is that the $500,000. The market value goes up to $600,000 of those properties. You increase the value of your assets. It went up $100,000, but you only have $100,000 in cash invested. Not only did you create cashflow from the monthly rents, but your properties went up $100,000, and your actual cash doubled from $100,000 to $200,000. That is the beauty of leveraging cashflow real estate that Robert Kiyosaki talked about in his plan.

Real estate is so important to leverage. You can multiply by 2X or 2.5X factor the net income or cash flow that comes from a property when you use leverage. Click To Tweet

Where do you get cashflow real estate rentals, and where do you buy them? Chances are pretty good that it is going to be tough for you to find good cashflowing properties that are quality management in your own backyard. Lucky for you that over the last several years, I have been building out a company called High Return Real Estate, and we have also partnered with a company called Boardwalk that allows you to be able to purchase properties in multiple markets throughout the Midwest.

We were only able to acquire and renovate properties in the Indianapolis market. Now due to this partnership with this incredible company called Boardwalk, which I’m going to interview the owner of that company, Tyler Banta. He will be on one of my episodes coming up here. You are going to be able to have access to great quality properties that have good cashflow potential in the Midwest.

Let’s talk about mortgage-backed notes. The way you think about mortgage-backed notes is you are becoming the bank, and you are holding the mortgage note that another person is paying interest to you on. The ones that we are talking about here are not done through a traditional bank. These are private-type of deals like the off-market type of deals. You are going to be able to purchase mortgage-backed notes that have a higher interest rate, and you are going to be able to get 7%, 8%, 9%, or even 10% interest rate on these notes that you hold, which is going to create some additional streams of solid cashflow.

 

There are risks to every asset. The risk of having a mortgage back note is that the person on the other side stops paying you. That is always the risk to a bank. However, in these types of situations, if that were ever to happen, you are probably pretty excited because there is equity that is in the property that you are going to foreclose, take over that property and be able to capture all of that equity that is in that property. It is rare for that to happen. It has less than a 1% chance of that ever happening, but that is the risk that you have with mortgage-backed notes. This is an opportunity that we are able to present to our reader base through the program called Cash Flow Plus. That is through our partnership with Boardwalk.

Let’s talk about blue-chip dividend stocks. This is where you are buying large established companies that continually kick off cashflow. They are proven, stable, and solid. You are not going to get big swings and prices up these companies. They are safe, stable, solid, and conservative type companies that often have been around for multi decades, and they have proven themselves out with their product, services, management team, leadership, and all of their structures.

There are companies like Ford Motor Company, a company that has been around for 100-plus years. They have stability. Even through the worst of times in 2008, they made it through without any problems. This company pays out a dividend on their stock. That dividend is issued to you in the form of cash. You get a quarterly, typical type of payment that comes into your account, and that is creating income for you, safe, conservative income, and passive income that you are going to be able to utilize to fund your whole wealth-building strategic process.

There is also a thing called private money loans. I don’t recommend for new investors do these because you have to know what you are doing and who it is that you are loaning money to. A private money loan is a simple arrangement where you loan money to an individual. You draw up a contract. You are loaning them money to go out and start a business. It is how it usually happens. I have done a few of these, and they have all worked out so far. Everybody has kept the promises that they made, and they have paid on their notes or paid me back at the times that they were supposed to pay me.

However, a slight caution unless you are very confident in the individual because, ultimately, who you are investing in as the person. If you are confident in that person and their ability to repay and keep their word and if you can somehow collateralize the loan against an asset that they own, these can be great strategic ways to increase your wealth.

Why would this person want to do a private money loan and pay you, in all reality, a higher interest rate than they would if they went to the bank? Typically, it is because they don’t have enough credit, or maybe it is a business that is unproven. The bank isn’t willing to take the risk. Banks, in nature, are very conservative. They are only going to loan money to sure bets. If they have any doubt that they are going to lose their capital, they are not touching it.

For you, taking on a higher risk, I will be able to also get a higher interest rate. I get paid 10%, 12%, to even 15% on my private money loans. That is standard and par for the course. They are also called hard money loans because the terms and conditions of the interest rate are a bit harsh. It is what it is. It is both people coming together in the market, creating a contract that they are both willing to take on and they are both agreeing to. Nobody is forcing anybody to pay the higher interest rate. They need capital and liquidity to get their business going. They are going to have to pay a higher interest rate to make that happen.

Private money loans are also called hard money loans because the terms and conditions of the interest rate are a bit harsh. Click To Tweet

When we were starting our company, High Return Real Estate, we needed an influx of cash to be able to take on more and rehab more properties because we had a lot of demand for properties, and we didn’t have enough supply. We needed to bring in some capital. My first private money loan was for $500,000, and I paid them 15% interest for that money. Looking back on it, I’m like, “Why did you do that? That was a serious amount of interest that you are paying them per month.” We were able to outpace that interest with our sales and create additional revenue. We made money off of that private money loan. It was a win-win situation.

We found another investor who was willing to come in at a lower interest rate. He loaned us money at 10% interest. We took that money and the first lenders. We got them all paid off, cleared off, and started making payments at 10%. I have been on both the giving and the receiving end of the hard money private loans. I understand how to structure them. That is giving you guys ideas of how you are going to create additional streams of passive income.

Tech Royalties

There is another one that I love that is relatively new, and it is called tech royalties. This is where you are buying cryptocurrency assets, and you are able to stake those currencies. This is not something I’m going to get into and dive into in detail on this particular show. I will create another episode that will explain how tech royalties work. You are going to be able to stake those currencies. In other words, you are you can either loan them back out to somebody else who wants to borrow against your cryptocurrency, and you are going to get paid at an interest rate for doing that.

The big one is called BlockFi, where you can buy any of your Bitcoin or Ethereum that you own. You can stake it on that platform, and in exchange, you are going to get a 6%, 7%, or 8% interest rate on your cryptocurrency as you hold it, which is an incredible way to create an extra stream of income. Often, it is an asset that you normally probably weren’t even thinking about doing anything other than buying, holding, speculating, and hoping that it goes up.

Cryptocurrency is an incredible way to create an extra stream of income. Click To Tweet

That income that is kicking off, those tech royalties, is creating an additional form of income off of your assets as you wait for them to go up in price. It is like cashflowing rental real estate. If it never went up in value, but it is kicking off that net cashflow from the rents, you are winning. If it goes up in value, you are making even more money or increasing your overall net wealth. You can win those types of games both ways.

There is out of the box income opportunities. I saw one of my partners and friends, Adam. He posted that he was mining cryptocurrency. I hit him up. I’m like, “Is there a way that I can get a piece of that?” I saw an opportunity, and I don’t know anything about how to do it. I don’t know how to set it up. I understand it, but I don’t get it.

I do know that Adam is super intelligent and smart. He is a tech wizard because we have done technology projects and built platforms for other businesses together in the past. I said, “If I give you some capital infusion, can you buy more mining equipment? We will split up some of the income that comes off of it, and we will both win.” He was like, “That is a great deal.” We started several ago. We started buying up the components that we needed to mine cryptocurrency.

It created a situation where the money would have traditionally been conservative. I’m putting it into this crypto-mining project. The returns are incredible. I’m on track to get all my money back. All the equipment paid off in roughly about eight months. From there, it is free flowing cashflow that is going to be coming in as this system continues to crank and create more of the mining income.

What I wanted to get you guys thinking is about different ways and means that you are going to be able to tap on my platform. Every single thing that we discussed, we are going to go into detail. I’m going to give you resources on where to go buy things. I’m going to show you guys exactly what to consider. You are going to get the whole deal. This is going to be a platform where I don’t want to give you the concepts and give you the reasons why you want to do something.

That was the problem that I had with Robert Kiyosaki. All of the things that he puts out, up until maybe even a couple of years ago, most of his books are talking about the why, and that is awesome to explain why you want to do something and explain the conceptual overview, but there were never any how-tos or where-tos. I want to give you the why, but I also want to give you the how-to and the where to buy, the where to get it. Keep plugged in to the platform, and we are going to create some indestructible wealth together.

In the next episode, we are going to close out the 7-step series, and we are going to talk about steps 6 and 7. Make sure that you tune in, and you are going to have the whole overview and be crystal clear on the whole 7-step plan. From there, that is when we are going to start diving in with specific guests coming on the show. I’m going to be talking about specific investments that you guys can consider adding to your portfolio to start building your indestructible wealth.

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That is a wrap for this episode. Before we part ways, I want to help you take advantage of two incredible tax savings strategies that could help you save a lot of money. All you have to do is leave me a five-star review if I have earned it, and comment on iTunes, Stitcher, or wherever you tune in. After you have done that simple step, please email me a screenshot at [email protected]. I will 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 social media. Please share this show with anyone who is looking for guidance on their own wealth-building journey. Until next time, remember, our mission here is to help you make, keep, and grow the wealth you can enjoy now and for years to come.

 

Important Links

• Rich Dad Poor Dad
• Previous Episode – Indestructible Wealth with Jack Gibson Episode
• High Return Real Estate
• Boardwalk
• Tyler Banta – Indestructible Wealth with Jack Gibson Episode
• BlockFi
• iTunes– Indestructible Wealth with Jack Gibson
• [email protected]