Special Report on the 2021 Q1 & Q2 Rental Market in Montreal

In planning for the up-coming rental season, it’s good to know what sort of weather we’re heading into. Are we talking about a flurry of vacancies or scattered showers of good tenants looking to move?

 

The data is wonky right now, and so we need to delve a little deeper to prepare ourselves properly.

 

According to data published on Rentals.ca and Padmapper.com average rental prices have declined across most Canadian cities. In Montreal, Rentals.ca reports a modest increase (4%) year-on-year while noting a month-on-month decrease of 1%. Padmapper’s stats are more depressing; their stats show rents have decreased an average of 13% in the past year.

 

What’s going on? How can rents go both down and up at the same time?

 

First, let’s correct for rent-control. As rent controlled units “turn over” and prices are corrected to market standards, rents are inevitably dragged upward. Consider a rent controlled unit (let’s say a 5-1/2 renting for 700$) where the tenants leave. The landlord renovates and rents the unit at today’s (pandemic afflicted) market value (let’s say 1200$ instead of 1400$ in 2019). The statistical average of rent prices across the market may increase even if current market value goes down.

 

Vacancy rates are high at the moment in Montreal (6%), according to CORPIQ.
This could lead one to understand that current market value for rent has and will continue to come down (say from 1400$ for a 5-1/2 to 1200$), but that rent controlled units turning over can still be corrected upwards.

 

What’s a landlord to do?

Economic and demographic trends right now will make it difficult to rent units at the same dollar amounts as July 2019. Sorry folks, but the cavalry probably won’t arrive by July this year. Foreign students and immigration likely won’t be back to normal levels by summer, and neither will tourism. Forget about maintaining the rental value of higher-end units in the downtown core and elsewhere. You may have to adjust your expectations downward by a few hundred dollars to attract decent tenants this year.

 

In lower-income brackets, the same might be true. Low-wage earners have been hit hard by the pandemic (CIBC estimates a 20% unemployment rate). Good tenants for lower-end units will likely be harder to come by this July.

 

A few tips.

5 Ways to Make the Most of Covid Restrictions

Challenges & Opportunities for Real Estate Investors in 2021

“Not so fast,” said 2021 to those of us who were hoping to leave the Covid mess in 2020. Funny story from the property manager’s desk: bathroom tile is non-essential in Quebec. The plumber can make holes in the wall, but the maintenance guys can’t always buy the material to fix them.

 

**Shrug**

 

For all of us, boredom and social isolation are compounding like credit card interest.

No one said these next months are going to be easy, BUT – people – the time will pass anyway. Why not have something to show for it?

The question we should be asking is: how can I use this time wisely?
Here are some ideas.
 

1. Invest in Coaching.

 

Social isolation can be depressing. It can also be difficult to stay motivated and accountable if you don’t have to put pants on in the morning. One way to create deadlines and inspiration is to hire a coach, especially if the program they sell has action-items or deliverables. A bonus is the added FaceTime with someone (hopefully) inspiring to you.
Consider defining what skills you want to learn or level-up this year and invest in some coaching. What better way to use the March break budget?
 

2. Purchase Instructional Videos

 

What aspects of your game do you want to level up? Want to learn more about creative financing? Finding deals? Putting together joint ventures? There’s no time like the present to focus on the parts of your Real Estate game that might be lagging behind. Instructional videos are a cost-effective way to accelerate your levels of knowledge.

 

3. Focus on How You Can Leverage Technology

 

Environmental pressure is the biggest driver of evolution. In the face of stress in the ecosystem, species adapt or go extinct. Technologically there is a giant leap forward going on. A year ago, very few people used Zoom or ordered groceries online. Today my parents in their late-70s use these services. The rapid advancement, adoption and deployment of technology is going to be a lasting aspect of the Covid-crisis.
How can you leverage or become proficient at apps or online services that industry leaders use? How can you use technology to become more efficient in business and in your personal life?

 

4. Audit Your Personal Habits

 

Are the choices you’re making every day hurting or supporting your health, energy levels and success? Maintaining a healthy routine is definitely made more challenging with gym-closures and lack of access to social energy. The home office is also dangerously close to the fridge.
Wake up call: the choices you make now will have lasting effects, either negative or positive.
Take 5 minutes this evening to scan your personal habits and see if anything needs a bit of correction.
On the flip side: are you open to “hacking” your personal habits with technology? WeightWatchers has an awesome app for tweaking (or overhauling) your diet. You can also get the most out of your home gym with a work-out app like FitBod. It adjusts daily workouts to your equipment and fitness level, levelling up as you get fitter. It’s also a great way to combine points 3 & 4.

 

5. Separate Enduring Changes From Temporary Ones

 

When mass-extinction events have taken place in the past, the species that have ended up with a bigger “slices” of ecological Real Estate are the ones who’ve managed to adapt. As we go about our (constrained) daily lives, try to identify the trends that are going to be long-lasting.
Perhaps tenants- and home-buyers will continue to favor larger units as working- and training at home become enduring fixtures of the post-Covid world. Will the move to online education diminish the number of exchange students? How will this affect downtown rentals? Are the trends in the short term rental market likely to outlive Covid? What about the low-interest environment?
As you look into the medium-term future, do it with a mind to adapt to permanent changes, while not over-reacting to those that are not.

 

Yours in Real Estate Investing,
Terrie

The Great Debt Shift

Do low mortgage rates have you thinking about pulling equity?
Are you blown away by the low number on your credit card statement?
You’re not alone.
Canadians have been saving more and racking up less consumer debt. One consequence of the pandemic is that credit card spending and consumer debt have decreased. On the other hand, low interest rates have many Canadians running to the bank to borrow more against their homes and income-properties. The mortgage lending sector is booming. You can listen to this week’s podcast for more analysis here.
What is everyone doing with their cash?
First, a lot of liquidity is seeking deals. The market for investment properties is hot, in part because so many buyers have pulled cheap cash in the hopes of acquiring more units. Debt coverage ratios are also affected by cheap money (as monthly payments go down, lending can be based on these lower numbers, which allows institutions to finance higher amounts). Banks are willing to lend more because interest rates are lower. With lending conditions altered to make buying more attractive, it’s hard to resist making offers.
The question is: are we kicking the can down the proverbial road?
Time will tell. It may seem like a good idea now to leverage to acquire more units, but will rising vacancy rates exert downward pressure on the price of rental property? At what speed will interest rates rise, driving the price of real estate down? Will an oversupply of condo units and employment uncertainty drag certain market segments down, influencing the supply of units across the board?
Without a crystal ball, it’s hard to know for sure. No one has the recipe for secret sauce!
It may be wise to think like the CHMC and introduce a “stress test” into your financial models. If you were hoping for a certain percentage of market appreciation, rent increases, or low vacancy rates, be pessimistic. Create a best-case and a worst-case projection. What about if interest rates bounce back when your mortgage term is up? How may your employment prospects change if the current recession becomes prolonged? What if finding good tenants gets harder?
Make sure your financial model is solid by broadening your horizon to potential negative outcomes. If your doomsday model holds water, don’t be deterred by analysis-paralysis. Even the wisest investors are operating on projections. Uncertainty doesn’t have to mean inaction. Make sure you account for a variety of possibilities, and flexibility will lead to sound decisions.
It’s better to build an arc and not to need it.
Happy investing!
You can check out the data for this Market Report here
photo Terrie Schauer Alex Avery

Interview with Alex Avery : The Wealthy Renter’s Real Estate Advice for Covid-19

 

Real Estate Advice for Covid-19: What The Wealthy Renter Has to Say About Investing Now

How Are You Using your Covid-19 Crisis?

Covid-19 Crisis has us transforming confinement-psychosis into new pass-times. Amateur bakers and hair-stylists are popping up all over the place.

I admit I’m going through a lot of flour these days, but I also decided to have as many interesting conversations as possible. My goal is to connect with people who have insights, especially on Real Estate investing during the Covid-19 Crisis. Last week, I spoke with a favorite real estate author of mine, Alex Avery. His book, The Wealthy Renter, changed the way I look at home-ownership.

Is this a good time to get into the Real Estate market as a home-owner or an investor? See what the author of The Wealthy Renter, Alex Avery has to say. Here’s some of his Real Estate Investment Advice During the Covid-19 Crisis.

Is Your Home an Investment?

Avery’s thesis is that home-ownership (in the principal residence sense) isn’t the “investment” it’s touted to be. He’s suspicious of the advice that we must all “stop throwing money away on rent”. When he unpacks this statement, it appears as questionable investment advice. Home ownership makes investment sense as a premise if – say – a savings of 2000$ or whatever per month on rent justifies using a large amount of seed-capital (read: down-payment) to then carry a (possibly larger) mortgage payment.

For an investor, the answer is often “It doesn’t”.

Use Your Capital Wisely

In investment terms, capital should be placed where it generates the best returns (correcting, of course, for risk – eg. betting on the horses might give you good returns, but I wouldn’t recommend it as a sound investment). If we use our hard-earned seed capital as a down-payment for a single-family-home, our returns will be sub-par.
What return does this so-called “investment” generate?
  • It provides no cash flow or dividends.
  • Maintenance- and interest costs are out-of-pocket and not tax deductible.
  • Home owners have a tendency to spend MORE money on maintenance, upgrades and extras than owners of rental properties.
  • The mortgage on our homes get with after-tax dollars (read: with 50 cents out of a possible 1$).
  • We don’t have tenants to help pay our mortgage.
  • Yes, a principal residence is an appreciating asset, unlike – say – a car or a washer/dryer set. But then rental properties appreciate too.

Your Home as Consumption Not Investment

Avery’s distinction can be summarized as follows: the money you put into your home – in the form of a down-payment, as upgrades or as mortgage payments – is basically a form of consumption. If you have disposable capital and cash-flow that you want to “consume” in a single-family home as a lifestyle choice, go ahead. Avery himself admits to being a home-owner. But it makes more sense to view a principal residence as an object of consumption and not as an investment.

 

How Do I Make My Real Estate Plans in the Covid Crisis?

Avery has a few points of advice on this question.

  1. He advises that, if you have plans to buy a home, it may be wise to review how much leverage you take on. The economic downturn, he projects, will be more check-marked than V-shaped.
  2. As an asset class, Avery sees residential rental buildings doing fairly well. Federal and provincial governments have launched stimulus plans that secure the minimum income of the vast majority of workers. As a result, he doesn’t see massive residential rent defaults in the cards.
  3. Beware of commercial Real Estate. Commercial rentals were on a downward trajectory before the pandemic. Retail had begun to move online pre-Covid. Many companies were already running experiments in tele-work. The Covid Crisis will accelerate both of these trends, probably irreversibly.
  4. If you want to invest, choose a market with “land constraints”. For example, Toronto is bounded by the Green-Belt, the island of Montreal by water, and Vancouver by the sea and the mountains. Avery sees these markets as being more “recession proof” than, say, secondary markets like Quebec City, Calgary or Kingston. In the American crisis of 2008, markets like New York fared better than, say, Las Vegas, where builders could keep constructing ad infinitum.

 

When Everyone Has an Opinion, Who Should I Listen to?

Covid or not, Avery’s last piece of advice turns on where we get advice on Real Estate investing decisions.

  • Your father-in-law who bought his home in the 70s and hasn’t been in the Real Estate market since? Probably not the best source.
  • Your real estate broker who makes commission on home purchases or sales? Also not the best source of advice, because there’s an obvious conflict of interest at work (he or she gets paid when you sell or buy ANYTHING, not when you make good investment decisions).
  • Active players in the real estate industry. Investors, economists, experts with established track records in their field, or professionals make money whether a transaction takes places (accountants, independent consultants, property managers etc.). They are probably better sources.

Want to Learn More?

Purchase Alex Avery’s book The Wealthy Renter here.

Or check out my book The Mindful Landlord.

Why Quebec Moves on July 1st

Factoid : Most Quebec leases end on June 30th, making July 1st “Moving Day” for the whole the province.

Read more

Thinking of Investing? Learn How to Landlord Like A Pro

User’s Manual For Rental Property

Want to avoid common mistakes made by new property owners?

There’s now a user’s guide! Introducing a new Online Property Management Course for New Real Estate Investors

When you buy a washing machine or an air-conditioning unit, there’s always an instruction manual in the box or available online. Same goes for a new- or used car. When I want to know how to jump-start my car or change a tire, I take the user’s guide out of the glove box.

How many times have I wished that my buildings had a similar booklets!

Sadly, investment properties don’t come with a manual. That’s why I created my online course:

Winning at Property Management in Quebec

Affordable Online Real Estate Course

Few quality and affordable resources exist for small landlords to educate themselves. For years I wished that after helping a new investor acquire a property, I could refer them somewhere. I wanted a resource to help fledgling landlords know what to do with their new investment.

That’s why I created “Winning at Property Management in Quebec”. My course takes the guess-work out of property management especially in Quebec, where tenancy laws are some of the most tenant-friendly in the country. There’s now a user’s guide for new landlords in Quebec.

What Do I Need to Know as a New Landlord ?

My course aims to cover keys points in investment property in Quebec. My goal is to help you learn how to effectively set up your rental properties from top to bottom. I want you equip you to pursue the ultimate goal of real estate investing: solid, trouble-free cash flow.

You will learn how to:

  • Maximize building revenues
  • Understand and lower building expenses
  • Effectively screen tenants to avoid problems before they happen
  • Structure leases to your advantage
  • Deal with typical problem-situations
  • Create a renovation & maintenance game-plan to protect your investment
  • Implement time-saving strategies that minimize headaches and risks

Finally, a bonus section will give you tips on Time Management in the real estate business.

Want to learn more?

Check out the course page here:

https://www.clubimmobilier.ca/en/activites/real-estate-training/winning-at-property-management-in-quebec/

Want to Invest in Real Estate? Not Sure How? Get Started in 5 Easy Steps

An Antidote to Confusion About Where to Start

Lao Tzu wrote: “The journey of 1000 miles begins with a single step.”

Ah, but which step? There’s the rub! Start with the wrong one, and you may travel 1000 miles in the wrong direction!

It’s precisely this fear that kills dreams in their infancy. Don’t let this confusion end your real estate dreams!

Here are some really simple steps you can take to begin your journey.

Educate Yourself

This doesn’t mean talking about your project to Uncle So-and-So who once owned a duplex, or Aunt Thingamajig who wrote her Real Estate exam, unless they were successful at what they did in a way you’d want to repeat. Seek out resources who have a proven track record. Before launching a networking offensive, either read some books, watch some videos, or take a cheap online course. With a base level of knowledge about Real Estate Investment strategies you’ll have more useful conversations.

As you branch out and start shaking hands and making calls, you’ll be happy that you took the time to understand some basic concepts and terminology.

One caveat : expensive Real Estate courses, while often of some value, sell information and coaching at a very, very high mark-up. If you’re willing to apply a little discipline and do some work on your own, you can easily educate yourself without signing five-figure cheques or paying thousands of dollars for mentorship or classes. Why spend your down-payment money on Real Estate classes when the information is available at a very low cost? Try these resources first.

Where to seek affordable education?

  • You can check out the Recommended Readings on my website. Pay particular attention to the “Real Estate Investing” section, where you will find good “starter” books.
  • Consult online education platforms like Teachable or Udemy. Both have Real Estate sections. Online courses sell for a either tens- or a few hundreds of dollars. They’re easy to follow and are usually consumed on demand. You can go through the material at your own pace, in the comfort of home, and even follow a few different subjects that outline the major strategies for making money in Real Estate (Flipping, Buy-and-Hold etc.)
  • Organizations like the Real Estate Investors Club sell in-person/classroom or webinar training for a few hundred dollars.

 

You really shouldn’t pay any more that this.

Book An Appointment With a Banker or Mortgage Broker

Your mortgage banker or broker is a bit like a general practitioner in medicine. He or she will be able to give you a general bill of your financial health. Is your credit any good? What’s your borrowing capacity based on your current revenues? Very few of us know the answers to these questions, especially when we start out in the real estate game. Before defining your project, it may be a good idea to have a professional analyze your file.

Even if you’re sure you won’t qualify right now, it’s best to know what you need to do in the future in order to obtain financing. This will allow you to build a plan to get there. There are a million strategies! But, like that fateful visit to the doctor, if you don’t know where you stand, it’s very hard to move forward. Don’t let fear of bad news stop you! You need to know your starting position in order to plan your journey.

Bad credit? No down-payment money or insufficient revenues for conventional financing?

Okay. In this case, AFTER you’ve spoken to a conventional financing person and they’ve told you what you need to do to become creditworthy, go back to Step 1. There are a ton of resources out there to learn what’s called “Creative Finance”.

Network With Other Investors & Professionals

Remember what I said about Uncle So-and-So and Aunt Thingamajig?

Talking to them about their Real Estate debacles is NOT networking. If you want to succeed at something, learn from someone who is where you want to be.

I’ll repeat myself because this is really important: Take advice only from people who stand where you want to be! If you don’t yet know such people, no problem! It’s time to leave the house and start building your network.

You can join my Meet-Up to attend networking events in the Montreal area. The Real Estate Investors Club also hosts monthly networking events.

If you want to learn more about how to network effectively, check out my blog article on How to network effectively.

You could also check out anything by author Ivan Misner, founder of BNI (Buisness Networking International).

Find A Mentor

A few months ago, a woman approached me at one of my workshops. She offered to take me to lunch.

“I want to learn from you,” she told me. Naturally I was flattered and I accepted. We went to lunch, and as we were chatting, she had another interesting offer.

“Let me work for you for free for some months,” she proposed. “I’ll do anything, I just want to learn the business.”

What do you think I said?

This situation is now a total win-win. Instead of paying thousands of dollars for private mentorship, my new intern has access to me 24/7. Her boots are on the ground meeting tenants, seeing construction problems, talking to every real estate professional around: contractors, notaries, mortgage people – everyone who is involved in my business.

Do you think I’ll give her free advice on her own investment decisions now? Of course!

Not only is she learning for free and building her own network in an organized way, she works maybe two evenings a week and an hour or two on the weekend. If she was taking a (paid) class, she’d have to devote the same time and IN ADDITION pay.

You’d be surprised how accessible successful- and knowledgeable people are when approached with a little flattery. An offer for lunch or a coffee might be all it takes. Try it!

 

Fail Forward

Above all – don’t be afraid to look silly or make a few mistakes. Everyone who’s built success over many years remembers how little they knew at the beginning.

I tell my clients this, when they’re shy to ask what they think is a silly, basic question.

“We all start in the same place! With a dream and no bloody idea of how to make it happen.”

Anyone successful who’s acting puffed-up is doing so just because they want to feel big, NOT because you’re somehow unworthy or stupid. Don’t feel ashamed to be where you are.

“The journey of 1000 miles begins with a single step.”

person doing puzzle

Giving Back to Hochelaga-Maisonneuve: Holiday Food Drive

Charity does not decrease wealth

– Hadith

I’ve been managing properties in the Montreal district of Hochelaga-Maisonneuve for over fifteen years now. The district has been good both to me as an investor, and to my clients who own rental units in the area. Property values have appreciated and gentrification has raised our rents.

These changes are not without their consequences, especially for poorer residents in the area. Hochelaga has become more diverse as higher-income tenants have begun to move in, and the amount of affordable housing has decreased.

Many of Hochelaga’s low-income residents have not benefited over the same time-period. 32% of households were considered low-income by the latest Canadian census. Hochelaga-Maisonneuve is also one of the districts with the highest rate of elementary school students living in poverty.

 

A Complex Issue

I’ll be honest: I don’t have a magic-bullet solution to propose to these problems.

Real estate investors have done well in Hochelaga. The area is close to downtown. As rents in the downtown core have appreciated, the rental market has changed in HoMa. Foreign- and local students have moved in. So have young families and young professionals fleeing the now-expensive areas of the Plateau and Rosemont. Investors have been all to happy to accommodate them: renovating crumbling properties that were in need of some love and increasing the rent accordingly.

These profits haven’t been shared with many of the local residents. Gentrification has changed the types of stores that serve the area: fancy and expensive cafés and local fruit markets have replaced pawn- and discount shops. Low income tenants now have less places to shop. The number of affordable apartments is decreasing every year. Given the choice, landlords move out low-income residents when they can, raising their profits in the process and avoiding many social issues common with very low-income tenants.

It’s not easy to know what to do with this if you want to have a social conscience and make money in real estate.

 

Analysis-Paralysis

Is the solution to somehow stop investing in Ho-Ma? To impose tighter rent control? This will discourage investors and perhaps gentrification, but it will have the same effect as rent control more generally in Quebec. The Regie’s policies for raising rent creates disincentive for property-owners to invest in maintaining their units. As a real estate professional working in Quebec, I can tell you this unintended consequence of rent-control is ubiquitous. No owner will invest to redo a unit to see a 10$ increase in rent. It makes no economic sense. The result is our buildings crumble, and low-income tenants live in ramshackle and decaying apartments that no landlord will invest to fix.

My gut instinct would be to say we need more social housing and perhaps higher municipal taxes to help finance them. This might increase the overall standard of housing available and benefit everyone – investors and lower-income families – alike. But I’m no sociologist.

 

Give Back to Ho-Ma’s Low-Income Families

Just because we don’t have a magic bullet doesn’t mean we should do nothing. That’s analysis-paralysis. Politics and large-scale, top-down solutions are important, but we don’t have to stand by while the politicians create them. There are simple and politically uncomplicated ways to make a difference. This holiday season, we’ve chosen to support CAP St-Barnabé, a charity organization that aims to fight poverty and increase the standard of living of theHo-Ma’s low-income residents. CAP St-Barnabé has a year-round food bank and special initiatives for the holiday season.

You can send cash donations here: https://www.canadahelps.org/fr/organismesdebienfaisance/carrefour-dalimentation-et-de-partage-st-barnabe-inc/

This holiday season we’ve set up donation-points for non-perishable food items that will go to their food bank. You can find the drop-off boxes at our two locations before December 13th :

3835, Wellington Street (Verdun) & 3965, Saint-Catherine Est (Hochelaga-Maisonneuve) during office hours.

Just find these boxes & drop off your donations.

decorated box

 

 

hand writing on blackboard

What’s The Number One Reason People Invest in Real Estate?

Or how is wanting properties like wanting a six-pack?

“I really want to make more money!”

This is often where conversations about investing start. Is this really the true reason why we want to invest?

Think about it this way. How many gym memberships are bought with the words: “I want a six pack for summer…” ?

Do we really want the six pack? Or are we after something else? Wouldn’t it be better to feel fit, healthy and confident when you wear that bikini or pair of board shorts to the beach?

My guess is it’s more about how we want to feel and less about the six pack itself. Maybe the six-pack is just shorthand, because we’re a bit too lazy to think about what will really make us content and confident in our skins.

Perhaps the gym membership is only part of the solution.

Why Invest in Real Estate?

Real estate investing isn’t that different.

Most of us start out thinking it’s all about the money. But what do we want more money for? When we really look at our motivations, we may find that we’re really after something else… something that will be better than a big bank balance.

To find out more, watch the first video in my five-part series on the basics of real estate investing…

 

Why Should You Stop Selling Your Time & Build Passive Income through Real Estate

We all know real estate investing is a good way to create wealth… but why exactly?

The answer: passive income. Real estate is such a powerful tool, because when we invest, we use capital to generate passive income. Maybe you’ve heard the word “leverage”?

Do you really get how it really works? How is investing different from working a job?

Let’s find out!

Active Income

Do you have a J.O.B. ?

We first need to distinguish between passive and active income.

If you have a job, your income can be calculated with the following equation:

Number of hours worked    x    Hourly rate     =      Income

See the problem here?

There are only two ways to increase your wealth.

  1. Work more hours. For obvious reasons this isn’t a good idea, especially if your quality of life matters to you. Even if you overwork yourself, you only have a finite number of hours. Your time is the upper limit on how much you can make.
  2. Increase your hourly rate. This strategy may work if you put time into educating yourself or running after promotions, but sooner of later your industry will place a cap on the value of your time. Promotions aren’t a silver bullet either. They often come with more responsibility, more stress, and more hours, and there may come a time when getting promoted becomes a law of diminishing returns.

You need to find a way to unhook your income from your time and your hourly rate.

Professionals & Salespeople

Listen Up!

So, you’re a professional – an accountant or lawyer maybe – and you think I’m not talking to you.

Think again!

You don’t escape this problem just because you have a high hourly rate and no boss. Your income is still limited by the number of billable hours you have to sell.

Want more money?

You have the same options as an employee: raise your rate or work more. Either your clients will eventually balk at your fees or you’ll get too tired and overworked. It’s the same issue served with a different sauce.

Real estate agents, independent brokers and salespeople of all kinds – you’re in trouble too! While the money you make for an individual transaction may be high, your income still depends on the man-hours you have to create money.

Your income will be limited by the hours you have to put into generating business.

 

Passive Income

What is it? Why is it so good?

Passive income happens when you own a system that doesn’t obey the equation of hours x hourly rate = income. Think business ownership, stocks or real estate investments.

Passive income systems generate money whether you get out of bed or not. This is why creating or buying a system for producing passive income is the key to building wealth and to gaining control of your time.

Passive income is the means to escape the trap of selling your hours.

 

Leverage

How do we create passive income?

We create passive income with leverage.

In real estate investing, you use capital (a down-payment) to set up a system that generates income with other people’s money and the market. Tenants pay the rent. You property appreciates. All this happens without you having to get out of bed.

Real estate investors also – perhaps without knowing it – leverage knowledge and social capital. Investors have networks that help find deals. The professionals, advisors, and contractors they work with help make good decisions, which end up making them more money. Knowledge about the property- and rental markets, tenancy laws, and so on can be leveraged to increase the profitability by making smarter and smarter moves.

This is another kind of leverage.

Of course leverage isn’t only to be found in the real estate sector. It’s a property of how businesses work. Business owners leverage specialized knowledge and human resources (other people’s time) to create income generation systems.

You’ll probably do this too when you become a landlord. Think of the concierge’s hourly rate versus yours. If his hours cost less than yours, you’re leveraging human capital to make more money.

Leverage is a powerful tool, because it allows you to move away from selling your time.

You can learn to use different kinds of capital – social, financial, and cultural – to create systems that provide return on investment in a way that is basically not tied to the amount of time you work.

This is how leverage and passive income fit together.

 

Should I Quit My Job?

“I understand passive income, should I tell the boss to take a hike?”

Not so fast!

Building passive income systems takes time. If you start investing today, it’ll likely be years before your passive income begins to exceed what you earn at your job. Real estate – like investing in stocks or starting a business – is a long game.

So, should you tell the boss to bite it today?

Probably not yet!

Should you start building a passive income system that will free you from selling your time?

Absolutely! Start right now!

And if you’re not sure how, pick a passive income vehicle (real estate, stocks, business) and educate yourself until you know how. Otherwise, you’ll be trapped selling your time for the rest of your productive life.