A couple years back, I had a fascinating conversation with a friend looking at property management. She was just getting started building a property portfolio to make a passive revenue stream. Before starting Latchel, I had build passive income businesses on Amazon’s platform, a little bit different than property investing, but we talked back and forth about how to start a passive income business. She wanted to know what milestones she should set for her own business for 5 years and 10 years down the road.
My response was not exactly what she anticipated.
She was approaching her business from the wrong mindset. When building a passive income business, I would not build my personal life around the businesses goals. Rather, I want to form my passive income streams around the life that I want to live.
Building a Business Around Your Lifestyle
For me, it was about building a passive income stream that I could support with some weekend work so that I could spend my work week building an even bigger, better, more scalable, and disruptive business.
Often in life, we take the wrong route because we answer the wrong question. We get so tunnel visioned on the wrong questions that we can’t take a step back and see what is REALLY important. It is exactly the same with property investing. The human mind enjoys participating in matches, keeping score, competing with other people, catching up and overtaking competitors. We form our questions around these vanity metrics.
If you are an analytical person, you may monitor the metrics of operation on your portfolio:
Are we cash flow rich and what is our money on cash returns?
What is our return on the equity we've got in our portfolio?
Tracking significant metrics is typically a fantastic idea that has the extra advantage of making you feel as a fantastic steward of your money. But that is where the competitive metaphor can backfire. Our brains have a propensity to optimize and optimize what we concentrate our attention on. Because of this, we begin maximizing and optimizing the metrics we are monitoring: the yields. But what about your personal life? Wasn’t that the reason you started a passive income business in the first place?
While I am a big believer in the usefulness of monitoring your numbers, I believe that it's the right reply to the wrong question. I feel that the most important intention of property investing is that it will assist you in living an amazing life. Perhaps yields really aren’t the most important thing.
Consider it this way: If you construct a"property empire" that keeps you chained to the positioning of your possessions, is that any different than that present job you despise? If that which you actually need would be your time, flexibility to travel like a local (rather than a tourist), would not a more compact portfolio do you better? If you're shooting to get a lifetime of financial freedom, does a multimillion dollar debt burden achieve that goal -- or could you be better off with fewer properties that are all paid off?
These look like philosophical musings, however they're life impacting because the questions that you ask affect the choices you make and also the direction you move.
A Real Life Example
Imagine a property agent with a property portfolio worth $800,000 and corresponding obligations (mortgages) on these assets of $300,000. Since she considers her choices during the next five to seven years, she could either a) focus all of her efforts paying off debt or (b) take money out from her equity and re-leverage it to obtain more resources.
What is the correct call? It is dependent upon the question she is asking herself. Leveraged yields must always outpace un-leveraged yields. However, if her issue is, "What can help me make the most passive income I want with no strings which keep me out of traveling a portion of the year," she then must opt to pay back the debt.
Therefore many property investors function as if they're a portfolio manager at a company whose performance on the project is dependent upon the yields they provide and the way those returns stack up against opponents and benchmarks. You may not understand this, but you do not need to operate like that.
It is possible to opt to operate like you're a life architect employed to construct the life span of your dreams on your own terms. Then you use the right strategies, resources, portfolios and yields as resources which underwrite that lifestyle.
Live the Life You Want
We ought to own investments which help us underwrite the life we would like to build rather than permitting the pursuit of these investments to own our lives.
At first glance it may look to be a subtle difference, but the truth is, it is a considerable mindset change -- the questions that we ask ourselves affect each decision we make. Ask questions that steer you toward a passive income stream built around your life, not the other way around.