Planning for Retirement: Build Your Passive Income Stream

Posted by Kris Lindahl on Thursday, March 23rd, 2017 at 10:49am.

There are many ways to plan for retirement, but one of the best and most effective is to build a portfolio of real estate investments that will give you a constant passive income stream. Other investments can generate income, but buying real estate, either multi-family residential buildings and small commercial or retail buildings, is an avenue uniquely suited to the small investor. Because real estate appreciates over time, your initial investment grows as well, offering the investor additional growth in terms of net worth.

If "escaping the rat race" is your goal, whether you are currently making real plans or just dreaming, there are some concrete steps you can take. A recent article in Bigger Pockets suggests that it's entirely possible to quit your job and become a full-time investor within three to five years. Of course, it doesn't happen without some planning. There is a learning curve and some choreography required to chart your course to retirement sooner rather than later.

Basic steps include knowing your goals:

  • Determine your "rat race" number: All successful retirement planning focuses on realistically putting a dollar number to your monthly cash requirement once you give up your paycheck. It differs, of course, for every individual. But if you think about retirement in terms of monthly needs rather than total worth, you will begin to see how regular passive income can help you trade the office for the golf course at an earlier age.
  • Assess the time and involvement you are willing to devote to business affairs in retirement: You may want to continue an active role in your investment business, even though you won't have to go to an office every day. Again, it's personal choice. If you simply want to cash checks and spend your money on vacations, then skew the financial planning to hire a full-time property manager.
  • Be realistic: Analyze the differences between multiple small apartment buildings and a single 36-unit building. All the standard real estate investment principles apply. Learn about cap rates and ROI; be aware of cash flow and maintenance needs; always do your due diligence before a purchase, and remember that real estate investing is not without risk. Also know that lenders generally look favorably on multi-family investment, and you may find the road surprisingly easy to navigate. 
  • Finally, Work Your Strategy: That means that you may have to revise goals and rethink purchases. You may not "win" with all of your investments, but as one successful multi-family investor notes, "The more doors, the better." Grant Cardone, in an article for Business Insider, says that buying a single-family home is a liability rather than an investment, because it does not generate monthly income. 

The resounding message is that it's the passive income stream that will allow you to follow your dreams. While the per project return on fix and flip properties or other forms of investment may be tempting, it's the constancy of receiving monthly rent checks that will add to your long-term wealth and stability. Now is a great time to get started, according to most real estate gurus. A higher percentage of the population today, nationwide, actually prefers renting; demand is up and occupancy rates throughout the Twin Cities are high.

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