This is an *excellent* question, Cactuswren.Cactuswren said:
We chose our fastlane vehicle after months of research (with lots of help from the Richdad forums and a gal that used to hang out there long ago-- named Diane Kennedy
)Thanks again, Diane. I sometimes wonder how many lives you've changed for the better. A very cool legacy. :smx9:
How we chose our fastlane vehicle:
I should start by saying that we didn't exactly fit MJ's fastlane definition of $10M in 10 years.
Our endpoint was simple: Have enough money for our family to live on. Not just subsistance living ($25K/year). We wanted to have enough money to have fun, and not need to track every darn penny like we do now!
So we settled on $100,000 per year. This is a decent sum today, but 20 years from now, it may well be the equivalent of $20K per year, subsistance level.
If that's the case, we'll be adjusting our PLAN to build more wealth as inflation increases.
*****
Once we had the $100,000/year goal, we needed to figure out a time frame to get to this point.
And we needed to figure out how we would be making our money work for us (i.e., our passive income vehicle).
Passive income vehicles are not typically "fastlane". They're conservative, hands-off investments that throw off a decent, consistent amount of interest or dividends.
Examples:
-30 year US Treasury Bills (5% per year)
-Triple net leases on commercial properties with VERY long term tenants
-hundreds of units of apt buildings w/great mgt companies in place
All of the above examples require a certain amount of monitoring-- some more, some less. The T-bills pretty much just sit there and you get checks (very, very low monitoring). The commercial props w/triple net leases need diligence to make sure your tenants (who pay for ALL repairs/maintenance) are keeping up with things.
And the apt buildings need a bit more diligence-- you need to keep an eye on the area (making sure it doesn't change for the worse, demographically), and you need to keep an eye on vacancy rates and the mgt company.
There are LOTS of other examples (stocks, bonds, CDs, etc).
*******
We decided on 30 year T-Bills (note that this may change when we get to this point).
T-bills return about 5% a year.
So if we wanted $100,000 in passive income, we needed:
($nest egg) x .05 = $100,000
$100,000 ÷ .05 = $2,000,000 nest egg
******
Let's say we had chosen NNN commercial props instead, that paid 8% net:
($nest egg) x .08 = $100,000
$100,000 ÷ .08 = $1,250,000 nest egg
******
The above example is very real world, and it's also important to note that if we have made our $$$ in real estate, we'd have to "cash in" the RE (sell it and pay the taxes) to use T-bills. Meaning we'd need to get MORE than $2,000,000 if we needed to pay tax when converting.
But w/NNN leases or Apt buildings, we could just 1031 our RE investments.
*******
Let's do another example:
-You generate RE equity worth $5,000,000 (after realtors commissions, closing costs, etc)
Putting this into 30-year Treasuries:
$5,000,000 x 70% (amount left after aggressive tax strategy) = $3,500,000
$3,500,000 x 5% Treasury bills = $175,000 year in passive income.
*****
Putting this into NNN commercial props w/8% annual net:
$5,000,000 x 99.5% (amount left after well planned 1031) = $4,975,000
$4,975,000 x 8% NNN leases = $398,000 year in semi-passive income.
******
Same nest egg ($5M). Different passive income vehicles.
And quite a big difference in annual income.
Which is why we may choose to do something else besides 30 year T-Bills.
******
Next post: Choosing our Fastlane Vehicle that would generate $2,000,000 (this was our original goal needed to get $100,000 a year if we put that into 30 Year T-bills at 5%).
-Russ H.
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