partnering up

i've been talking to a few of my friends about the advantages in partnering up in real estate endeavors. the main advantage of this is that once you get to a certain size, the cash that you can generate can start funding expansion. consider this, let's say that i was 1 out of 10 individual investors, each of us operating separately. if i wanted to add another holding, i could take the income my one property is generating, let's say $5,000 a year, plus another $45,000 out of my pocket to get 20% down plus closing costs on a new property worth 200k. now, i'd be cash flowing $10,000 a year, which is great, but i had to have that $45,000 just sitting around.

consider that the 10 of us individual investors formed a partnership, then with each of us contributing nothing but the $5,000 from our investments, we could each participate in 1/10th of a $200,000 purchase that would cash flow $500. the ROI is the same (10%), but this was done without any additional infusion of capital.

of course, there are some downsides to doing this. your partnership agreement must be well drafted and you need to deal with people you know and trust. even then, there are times when folks will want to get out of the deal and take their pieces with them. you have to have all of those details sorted out. it can be messy. especially when you are talking about lots of people.

change of plans

well, after much deliberation, i decided against paying off rental property #1. the reason for this seems kind of at odds to my approach on finding good cash flow and yield on my investment. you see, the property has about 7 years left on the note, and the rent that we collect is just enough to offset all the expenses related with owning the property. if we were to pay off the property, we would easily see a positive cash flow out of the property. i took that cash flow and projected it over 7 years. it came to be roughly equivalent to the lump sum amount that we'd have to pay in order to payoff the property.

this means that by doing nothing, and leaving our money essentially just in cash or some vehicle that at least keeps up with inflation, we'd be in the exact same position in 7 years whether we pay off the property now or not (assuming no appreciation). in one situation, we'd be out that cash, but it would slowly be building back up, and in the other, we'd have that cash on hand and the property would pay itself off.

instead, if we found some other vehicle for that capital that i was going to use to pay off the property, we'd actually come out ahead (assuming that the capital retains its original value). for example, if we purchased another property, that cash would be converted to equity, and any return on that cash would actually improve our position.

this seems to be a 180 degree reversal from what i was advocating before, which was to seek out investments with good cash flow. though the cash flow would not be as good, it actually makes more sense in the longer term. after 7 years, our cash position would be less, but we'd actually be cash flowing 1.5 times what we would cash flow by paying off the property.

reboot

i've been purposely anonymous (not just by name, but also in not divulging my age, profession, income, etc.) in my writing on this blog from the beginning because i felt that would allow a broader audience to read my posts.

an interesting thing happened the other day that made me rethink this approach, and made me think that i should narrow my focus and write with a very specific and personal audience in mind. you see, i was having lunch with a co-worker and the topic of goals, retirement, and the like came up. now, here's a guy i respect very much, who is about the same age as i am, about the same income level, and for all practical considerations, we could be practically twins on paper.

when the talk moved to retirement, i shared with him that my goal is to retire or semi-retire by the time i am 45 years old. i am currently 36. he was a bit shocked, and floated a big question my way: "what's your secret?"

i was perfectly honest with him. i don't have any secrets. for the most part, i am a pretty normal guy. i have not had any big windfalls occur in my life. i have not made a ton of money in stocks or real estate. i did not come into any family money by birth or inheritance. i am not an entrepreneur. i do not own my own company. i am a hard worker and make a decent wage.

there might be some small things that may separate me from my co-worker. i have never carried any credit card debt. i did not take out any student loans. the only debt that i have ever carried is mortgage and car loans. i have been an aggressive saver most of my working life.

i am married and my wife and i were dual income / no kids for about 7 years. my wife is now part time and we have 2 kids -- a one year old and a three year old. we live in the suburbs some 20 miles north of dallas, texas, in what is for most respects our "dream house".

i used to think that i'd need 2 million dollars to retire, but these days i feel like retirement or semi-retirement can be accomplished with far less. i could be dead wrong. but, this is what i am going to write about.

prosper

i've been sitting on the sidelines on this whole prosper thing for a while now and i'm finally going to jump in and see what the hoopla is about. the story behind prosper, if you don't know, is that it's a web site that allows people to lend or borrow money from other people and they handle the collections, credit scoring, and the whole infrastructure behind setting up and servicing loans. all you have to do is put your money in, set your terms, and approve or deny loans.

i don't know what kind of return that you really could expect -- especially after calculating for losses from defaults, but i do understand that prosper would be able to cut the fat from some of this process and, as such, be able to offer lower rates, which would be interesting to me from a borrower's standpoint.

the problem is, as i see it, that in order to make money, you'd want to service loans on the lower end of the credit spectrum and that would likely open you up to higher risk. if you can balance that and set rates accordingly, it may be a decent place to park some cash.

moonlighting

i was listening to some financial self-help show and after a lot of mumbo-jumbo, the bottom line was that we all need to find ways to boost our income. so, i took a look at myself to see what other things i could do to generate income outside my primary job. here's what i came up with:

1. moonlighting. by networking i can try to pick up some contract work on the side. i do this every year about this time -- many companies are doing the same things we are doing at this time of year, which is resolving to make big differences. you can tap into that behavior and get in and do some side work.

2. rental property. you can generate some side money by renting out property. of course, there's an investment involved and the returns usually don't come until after a year or two.

3. credit card / banking plays. by risking your credit score, you can sign up for credit cards or bank accounts that are giving out bonuses.

4. revolving credit plays. again, by risking your credit score, you can take advantage of 0% credit cards and stash the amount into something that returns better than 0%.

any other ideas?

how to make money online

i'm always looking for ways to supplement my income, whether that's by picking up some contract work or selling something i don't need anymore on ebay, but those opportunities aren't always available. recently, i've been trolling the web for things that i can do to to make an extra buck or two. here's a summary:

1. open up bank accounts. i have several bank accounts that i have opened whenever i have found the opportunity that have signup bonuses. these don't generally end up paying off a lot of money, but it's hard to resist a free hundred bucks.

2. surveys. i take a few surveys online that pay a few bucks a pop. it doesn't amount to a lot of money, but at a few bucks a pop when i'm not doing anything, it'll pay for a burger or something else when i'm running around.

3. 0% interest balance transfers. i've just recently started signing up for some 0% balance transfers and putting the money into cd's.

that's what's on my radar right now, and it's important to know that some of these will have an impact on your credit score.