The following article written by Linda Pliagas was published today in BiggerPockets.com and was specifically written for that website.
Cashflow from rentals is the best thing ever. I’ve been a landlord for 20 years now, and I am still in awe on how powerful a solid real estate portfolio can be. It’s wonderful how rental income can be used to help out during one of life’s many challenges.
Your passive income can be used in a variety of ways, and I’ve seen it used for many things: to chip away at existing debt, create a better lifestyle, or even put a kid or two through college.
I’ve personally known investors who have done all of the above, but perhaps the most interesting one for me has been when an investor uses his real estate to actually finance their career or business goals.
During my stint as a business and personal finance reporter for a variety of magazines, I interviewed a woman for Home Business Journal magazine who used her rental income to start up her public relations firm. She took out a loan on the property, which was owned free and clear and used the proceeds to start her business. The rental income more than paid for the loan and the property still cashflowed!
Her goal was to get her business going so she would not need all of nest egg and to eventually pay back the initial loan.
Recently, I implemented this strategy in my personal life and it’s a great example of how an investor’s rental cashflow can help fund a business endeavor.
From my recent transactions, which have numbered eight total in the past few years since my family and I left Los Angeles and moved to the Central Coast of California. Our Culver City home sold for $650,000 and we purchased a $300,000 home in Solvang, which expedited our ability to invest. Then the market shot up in appreciation in both Southern and Central California, where we were buying and selling properties, which also helped spur a growth in rental properties.
Last year my media business saw a strong spike in activity. (We publish real estate investment magazines, engage in social media marketing, produce email campaigns and live events nationwide.) What really shook things up was teaming up with another publisher to produce a monthly magazine, which created a lot more workload. Now we also help produce REI Wealth Monthly, so I knew the team I had in place would simply not be enough. I needed to hire more people and quickly, but to make it easier on my pocketbook, I decided to invest some cash reserves into two cashflowing rentals, which I could pick up at a discount locally.
My thought process was that these two cashflow properties would be used to pay for the additional payroll expenses that I would initially incur in hiring and training new staff.
That’s the beauty of real estate, it can create a better life for you, your family, and it can even give your business a boost! I can’t think of anything better for me to invest my hard-earned cash then into prime Golden State real estate!
From studying the local market, I know that we recently purchased two rental buy-and-hold properties for half of what they used to be back in 2005 – both were nearly $350,000 before, and we picked them up for less than $170,000 a piece. I predict that they will climb at least 30% in appreciation in the next five to seven years.
So for right now, these properties can help pay for the business expansion that I need. My goal is for the new employees to bring in enough revenue to more than pay for their own expenses in the next 90 days, so then I can revisit the idea again at that time or maybe use the cashflow to hire more people and start the expansion process all over again.
Whatever I choose to do, it’s nice knowing that the passive rental income that our properties generate can be used to help my family and I overcome obstacles in our personal and business lives. Real estate proceeds can be used in a variety of creative ways.
I hope this article has inspired you to use some of your realty earnings to make your business dreams or career goals come true.