Making Real Estate Part of Your Retirement Nest Egg

Guest post by Young

At one time or the other, everyone will retire or be retired (by organisation or by nature). You cannot continue to work with the same passion and strength forever. One day, you will be tired of work or the work will be tired of you. Faced with this inevitable end of work, you need to have a solid, reliable and stable retirement plan.

Many employees are discovering nowadays that most companies and organisations are more interested in employees taking care of their pension rather than relying on them.

Even more disheartening is the unfortunate realisation by those who were part of previous pension programmes that their money had been invested mostly in the stock market and other financial schemes and had been lost. This shocking discovery came to many when they had passed their peak working years.

One of the reasons for this unfortunate development is the fact that apart from real estate, only very few investments are under the control of the owners of the funds.

In real estate you are literally in charge. However, in several other financial investments, you are either at the mercy of the fund managers or those running the company you have bought into. That is why astute real estate investors keep a significant portion of their funds invested in real estate. So, if you are interested in retiring young, and rich, or you are already approaching your retirement age, then use real estate as a retirement vehicle.

One of the basic issues you need to decide is the amount of money you need annually to sustain or maintain your standard of living after your active working years. You will have to estimate the likely rate of inflation and other expenses that will come with it, such as increased school fees, feeding, transportation, health care and other utility bills.

The essence of this is to help you estimate the minimum income you need annually and set a real estate investment goal that will generate the income you need and more.

In addition to the above, you need to determine the real estate investment that seems best suited for your purpose. For instance, a person who has set an investment goal of having a steady cash-flow of 6 million every year could focus on residential properties located within certain environments that will generate the desired amount yearly, or is projected to generate such an amount yearly.

This individual could also focus on commercial properties such as shopping complexes, or event centres with a similar projected cash-flow. Whatever your goal, there is a suitable real estate investment vehicle for you.

There are several models that have been used and have worked for others. I believe you can adopt any of them and make them work for you. Some years ago, a property developer built a mini-estate of about ten (10) semi-detached duplexes in a GRA as a retirement investment. His aim was to rent them for residential purposes and use the income coming in to maintain himself and his family.

Another individual concentrated on buying prime properties during his working years. By the time he retired, he had three properties in prime locations including the one he and his wife were living in. By then all their children had completed their university education and were all settled.

He then sold two of the properties at very good prices and used the gain as a fixed deposit at his bank. The interest accruing on the money was always in excess of their monthly expenses.

These individuals were not dependent on any government pension plan for their upkeep and survival. This is the essence of planning for your retirement yourself.

Real estate fulfils several roles. It provides cash-flows as well as capital appreciation. Over time, real estate is usually the asset that will eventually outpace inflation in its capital appreciation.

With proper planning and sacrifice, an individual can focus on the number and type of real estate properties he or she would like to have as at the age of retirement. Those who successfully achieve this feat would have a peaceful and more relaxed old age.

Finally, you need to understand that practically any goal is achievable if you give it enough time and sacrifice. For most people, their earning years span between 20 and 30 years, during which a person could save and invest in having at least two or three rental properties.

The key is to start early, start now and stay focused. Using the law of compound interest, appreciation and leverage, and several other tools, an individual can secure his or her future with real estate as one of his retirement nest egg to compliment other asset classes.

But before investing in real estate, understanding /interpreting an agreement, understanding a search (cautions, restrictions, and encumbrances), caveat emptor and paying due diligence is necessary. This will be covered in the upcoming lessons. 

Personal Financial Management Part 2

Part 2 (Continued from Part 1)

More on passive income:

• Money working for you - Investment earnings from financial instruments (stocks, bonds, T-bills, money markets, mutual funds, owning mortgages and other assets that can be liquidated for cash
• Business working for you – Generating income from businesses where you do not have to be personally involved (rental real estate, network marketing (e.g. Forever Living Products among others), royalties (e.g. books and music), licensing your ideas, becoming a franchisor, owning storage units, coin operated machines i.e. any business that is systematized to work without you.

Without savings, it impossible to invest, and opportunities come and pass (Ecc. 9:11). Even if you are going to leverage funds, most financiers require you first put down your commitment (e.g. 30 %) before they can lend to you. So, despite the amount involved, it is good to develop this habit. Open a separate bank account (Let's call it Purse Fattening Account (PFA) or Financial Freedom Account - FFA) and put there at least 10% of all money you receive (wage, gift or whatever income). This money can only be invested, never spent! For a Christian, it is good to tithe (also 10 %) as worship to God, for his work and to support the Great commission (Mal. 3:8), meaning you have only 80 % to live on. This means you have to simplify your life by living below your means. The more you can save in the PFA/FFA account e.g. 30 % instead of 10 %, the more funds you will have to invest (Ecc. 11:2). If you are in debt, 20 % should go to repaying debts, and never at the expense of the 10 % supposed to go to PFA/FFA. Getting out of debt is not easy and often requires a fight, but the freedom that comes with it is so worth it (Ps 37:21; Prov. 22:7). Mortgage payment should not exceed 35 % of your income. Budget Allocations – Depends on individual, it is up to you to customize to your situation. But do not compromise. Remember, the habit is more important than the amount.

How we have been Programmed/Conditioned in life about money determines how we think. How we Think, determines how we Feel, Act and thus the Results we get. In other words, the Roots determine the Fruits in a cause and effect relationship. The Fruits are the financial situations we find ourselves in.

God has given every one of us potential at birth in the mind to create, manage and grow things that you desire - including wealth. We exist in 3 forms [Spirit, Soul (mind) and Body]. Before you can achieve anything in the physical world, you have to design and create it in the mind. Spiritually speaking, God has already blessed us with all that we need to succeed in life in the Spirit, and it takes faith (James 2:17) to get these things to manifest in the physical, i.e. praying and acting in faith in God the Creator, The Master Designer, The Intelligent Being! But do not be cheated, God will not do things that man (yourself) are supposed to do. He (God) is rather waiting on you to change your attitude, think and act by faith in spite of fear or the appearance of the situation, and you will get the results you desire. But, if you keep mismanaging your finances with a Spenders motto of “It is only money” and “What goes round comes round”, choosing immediate gratification instead of long-term balance and same time keep on praying, trusting and waiting on God for financial breakthrough, I can tell you without a doubt, you will wait forever. This is where most Christians are mistaken and no wonder many are ignorant, because they lack understanding of God's principles (Hos. 4:6). God do not contradict his word. Miracles happen where the ability of man reaches limit. So do not sit and wait for God to budget your income, track your expenses and balance your books. You have to do it yourself. If you lack wisdom, ask him (James 1:5). Note that, wisdom is application of knowledge, with understanding (Prov. 4:4-9). 

We are creatures of habit. The habit of managing money is more important that the amount (Luke 16:10). So, one should be disciplined and persistent with the above plan and percentages despite the amount. Do not compromise even with 100 Euros/Shillings - put 10 Euros/Shillings to your PFA/FFA. If only you saved and invested at least 10% of all the money you received over the last 1 month? What of the past year, decade? Do the Maths yourself!

Nowadays we have technology like M-SHWARI (mobile saving and credit), M-PESA (mobile money transfer) and M-KESHO (mobile banking) in Kenya for example which we can utilise to make our financial management more efficient. We can also utilise free software like Excel templates, dsBudget and Budgetpulse.com among others.

Where attention goes, the energy flows and the results shows. Focus on the four factors of Net worth: Income, Savings, Investing, and Simplification. Learn, Act and you will get Results.

Do not risk your principal, invest it in secure places under the wise council of those who are wise in handling money (Prov. 21:5; 15:22), and not the allure of tricksters in get-rich quick schemes or establishing a business you are not skilled in.

Money is a big part of life, and when you learn how to get your finances under control, all areas of your life will soar - confidence, happiness, relationships and even health. Either you control money, or it will control you.

Learn how to budget your income and track your expenses. This is fun for an individual and for a couple. Discussing finances openly as couples, making it fun tracking your net worth and strategising on how to minimise expenses, increase savings, where to invest so as to maximise your passive income enhances your communication and your relationship flourish. Many marriages are breaking because of financial disagreements. Two cannot walk together unless they agree (Amos 3:3). Harmonise your goals and strategise how to achieve them. Be accountable to each other. You will be surprised how much you can achieve in one year together (Ecc. 4:9) when you start doing things following these principles. 

Above all, put your trust in God who gave you life, health and strength, and trust him to supply all your needs (Phil. 4:19; Matt. 6:33). Do your part, prepare your land for the rain and plant your seeds on time, then leave the rest to him!

In the next post, we shall look at the three important tools of personal finance. 

Personal Financial Management Part 1

Part 1: 

The other day (Sunday, 26^th August 2012) my husband was speaking at church here in Gent about 'Financial Stewardship'. His key scripture was Matt 25:14-30 NIV, The parable of the Talents. This is deep in our hearts, to see people manage their finances properly. He was telling the listeners, 'Our money is really not our own. We are merely stewards of what we have been given by God. We have the priveledge of being stewards, like for all other resources we have received (time, relationships, health, intellect etc), which calls for responsibility. When you are slack or wasteful with your money, it is not your money you are wasting, but Gods. In so doing, you waste your life. Why work so hard, sweat your strength out, earn, only to spend the income (the seeds) buying liabilities and luxuries (riches): Bigger TVs, Smarter mobile phones, better cars etc, chasing the tech-wind?’ These only impoverish you, so you become poorer and have to keep on working. BTW the moment you touch it, it is used (second-hand) so the resale value plummets!

Instead, one should buy assets - things that makes you wealthy like real estate (land, own house, rental houses), commodities (Gold, Silver and Oil), stocks, money market, mutual funds, shares in OTC market etc, and generate passive income (that is money working hard for you to get you more money). One can then spend the earnings (the fruits) from the assets (the tree) to buy luxuries and riches, for charity and enjoying life. This way of thinking and doing things is never taught in school! No wonder many people including graduates have little or no practical knowledge on managing their finances well. We share this secret with you, whether you do it or not that is a personal decision. Most Youth would you rather have a smart phone worth 600 EUR, and sneer at the proposal of buying an acre of bush land (with Title!) or a high-yielding Dividend stock somewhere in Africa worth about the same amount. Five years down the line, what is the scenario? Smart phone, kaput! Became too old with technology changing by the hour. The acre of land, always appreciating, and stock paying you dividends plus bonuses. We yearn that you can learn the difference and practice it in your life, then teach others.

It starts with learning by reading books (starting with the Book of Proverbs in the Bible) and practicing what one learns (Prov. 19:8). It is important to invest time and energy to learn to be a good investor. Saving alone is not enough! Save and invest in assets, period! Learn the difference between Assets and Liabilities. Assets bring money to your pocket while liabilities impoverish you. Buy assets (Fig. 1) while you are younger in order to live richer lives when you will become older  (Prov. 23:21).

Fig. 1

Fig. 2

Fig. 3

Then, track your Net worth (All what you own minus all that you owe) (Prov. 27.23) (Fig. 2). This is your Balance Sheet.

The more income you have they more your net worth can grow. Sources of money (Fig. 3) include:

• Employment – You trade time and skill for money.
• Self-employment – Profits from his own effort but is limited to only his personal effort.
• Business owner – combine his effort with effort of others and that of his money. Management issues.
• Investor – Works hard and smart, saves, invests and re-invests and uses it to work for him (He saves & invests in assets; and re-invests the gains to get more income).

Aim to increase both your working and passive income so that even when you are not able to work, loose your job or retire, the assets can still earn an income for you. Working income is money earned in active working or in business, while passive income is money earned without you working. Never have a ceiling to your income/how much you can earn. Think biggest when it comes to earning. This means you have to be smart and diligent in whatever you do in exchange of money. God honours diligence, and most people, employers and organisations do too! The more diligent you are in what you do, they more likely that you will keep your job or business, and the more you can earn (Prov. 12:11; 10:14).

We will pick up from here in the next post......

How to create wealth and attain financial freedom

Stop mismanaging your money well

The century old book by George S. Clason © 1929 The Richest Man in Babylon points out these secrets to offer yourself ability to increase your networth and have money work for you:

1. Pay ‘yourself first’, put away at least 10% of your income consistently. "What have you to show for your earnings of the past month? What of past year? You pay to everyone but yourself! A part of all you earn is yours to keep. And it should be no less that a tenth no matter how little you earn." Open a separate bank account designated your Financial Freedom Account (Read T. Hav Eker's Secrets of the Millionaire Mind).  The job of this account is to build a golden goose that lays golden eggs called passive income. And when do you get to spend the money? Never! It is never spent-only invested. Eventually, you get to spend the income from the investments (the eggs), and never the principal (the goose) itself. In this way, it always keeps growing and you can never go broke. So,
2. Act today, start saving not less than 10% of every dollar you receive (after taxes) to this account.
3. Invest your savings where it’ll earn more money safely - use it for buying assets and investments to create passive-income streams. Re-invest the earnings to get more earnings. Increase your ability to earn  and multiply your income sources.
4. Control your expenditure (live on less than you earn, at most 60-70% of your income – Budget and track your expenses).
5. Guard your savings from loss - do not invest in areas you are not familiar with, or have no wise guidance in doing so.
6. Make of thy dwelling a profitable investment - owning the house you live in is a plus to your net worth
7. Insure your future income

When to take action

Time to start taking action towards a wealth goal is now. Why now? Because;

}  You spend an enormous amount of time thinking about money if you do not have it

}  Newton's First Law of Motion applies: A body in rest remains so and a body in motion tend to remain in motion, unless, it is acted upon by an unbalanced force. Nothing will change in how you manage your money if nothing changes!

}  Just like other natural laws, there are certain laws that govern acquisition of money and property (wealth)

}  To produce effect (result) there must be a  cause (law of cause and effect)

}  Financial success is not a result of entirely dependent on Environment, Talent, Hard-work, Thrift/ frugal rather it depends on doing things in a certain way – following the laws that govern acquisition of wealth.

}  If you set for yourself a SMART Goal, God has already given you potential to achieve it.  On the contrary, if you aim at nothing, you will achieve it.

It does not matter whether you have a lot of money (which is good), or have nothing. Until you show you can handle what you've got, you won't get any more! You must acquire habits and skills of managing a small amount of money before you can have a large amount. Remember, we are creatures of habit, and therefore the habit of managing your money is more important than the amount. Either you control money, or it will control you. To control money, you must manage it well. 

Our next post will delve more on personal financial management.