EXCELLENT POST! Exactly my sentiments! I am 47 years young, I need to relace my income which is a multiple 6 figure category. Not bragging just an illustration! I am scared to death of retiring below my current standards or better. To me this means I have not planned my life well. Retiring with a $40k. Per year lifestyle is easier to achieve compared to a 6 or 7 figure passive income. To me Net Worth and passive income are the true measures of wealth. To achieve large passive incomes, it`s best to have properties paid off and at the same time reducing exposure. I want to golf the world`s best courses while most others are watching TV with lot`s of time and little money! Just sharing my opinion. I`d like to hear other`s. This an excellent thread by the way!
QUOTE (JoefromTO @ Sep 30 2009, 11:27 AM) I wanted to make a comment regarding your comment...if paying down debt does not increase cashflow and make you rich...what exactly does? By the way, this is not meant as a stab by any means, just asking a general question. So here`s my observation/opinion. By paying down debt, your reducing the cost of borrowing, which means that when the time comes to renew or refinance, your monthly cost should be lower(depending on how much debt and the current interest rates at that time)...which would increase your cashflow. Also, by paying down debt, your increasing your equity on THAT property. Now I realize that many investors have the opinion that the more property you buy, the potential wealth you should acquire. There is a constant cost associate with this as well. You have to use todays cash to buy a property and borrow other peoples money. Then after a number of years, you can pull equity out of that property to purchase others...thereby increasing the size of your portfolio. Buying more property that has alot of debt on is how you acquire paper equity...but its the debts getting paid off that fills the empty equity. Yes.. there is appreciation equity as well, but a conservative mind knows not to factor that in...so its the forced savings accounts that properties provide that give a form of wealth creation, on top of the positive cashflow that a "smart" buy provides. So what I`m saying is...who is to say what being wealthy is? For example, lets say you own 20 single family homes with a value of $150,000.00 each with a 90% loan to value provides $100.00 monthly positive cashflow, so that 20 x $100= $2,000.00/month or $24,000.00/year and on paper you have a net worth property wise of $150,000.00 x 20= $3,000,000.00. Your true net worth on paper is 10% of that=$300,000.00. Or you have 10 single family properties with no debt each worth the same $150,000.00, but now they are each bringing in $1,000.00/month positive cashflow, which is $1,000.00/month x 10= $10,000.00/month or $120,000.00/year. Plus you have a net worth of $150,000.00 x 10= 1,500,000.00 real net worth. The first thing each person has to do is figure out what wealth means to them. I don`t know what wealth means to you, but if I was making $120,000.00/year...thats not bad! Now, I personally am no where near that goal yet...soooo...I have to follow the on paper -coloro:#000000-->path first! Eventually I will decide when I have either accumulated enough or wish to buy more. I have this personal theory...There is an obvious cost of living. Depending on how you live your life, it can cost little or alot. Some people spend over $40,000.00 year when you consider the obvious stuff like home expenses, car expenses, private schools, vacations, etc...So if you have an expensive cost of living, you need to replace that cost AND save to invest...thats IF you don`t go the route with joint ventures and some people chose not too, they want to invest on their own. So its my opinion that in order to be able to reasonably save and invest (slowest way to do it...i know) you should bank at least twice your annual expenses..so in this case $80,000...we`re talking after tax dollars. Now, true wealth in my opinion is where you can stop working and at least maintain your own standard of living. So that would mean that rental properties would at least need to replace the $80,000.00/year total income...BUT to truly feel wealthy means being able to enjoy your life<insert personal belize here> and your income is providing for it. If someone is frugal with the extra $40,000/year income after personal expenses, they could buy another property in the $200,000.00 range every 1.5 years or so with conventional lending terms. So that $80,000/year income could continue to grow with the purchase of more properties to a point where someone is making as much as they want... So please understand something, the reason why I added this comment is because Iv`e seen more than once in these forums how people say you don`t become wealthy this way, and you don`t increase cashflow that way...instead...provide an example of what wealth means to you so that others can see what your using as your vision.