Where to invest? Which investment route to take to reach that illusive goal, Financial Freedom, also known as Financial Independence? Meaning, get yourself rid of the chains of money, which bind us all, and make the money work for us instead. So ourselves, can dedicate our most precious resource, time, to jobs and work we want to, not have to do.
Sherry and I, we love traveling and have long decided to work towards that liberty, being able to explore new places and experience new sensations, while not being worried about those experiences crippling our finances and endangering our future. No one can relax while looking over shoulder! So, not only to blow hot air, we decided – to act.
Roth IRA
First step, the one Sherry did even before we met, is available if you are a US citizen. If you are, great, you will learn about something that can allow you to retire a millionaire! No sensationalism involved! If you are not a US citizen (like myself, then), you will still have your country’s pension plans, which is what Roth IRA basically is. It is available for middle-class income only, as if you make more than 135k USD a year, you cannot put money in this tax-free pension plan. And that’s what’s so great about it! Every year you can put 5,500 USD in it, pick whatever stocks you want to invest in, and watch it grow without ever being taxed! The real magic ingredient is the compounding effect, which makes Roth IRA account grow exponentially the longer you have it / invest in it. Numbers-wise, that means if you, at age 30, start putting 5,500 USD, by age 65, when many of us are ready to retire, that amounts to 192,500 USD of your money. Because of magic of compounding, meaning your balance had time to grow, your account will actually be worth 1,023,562 USD! That’s taking in account average market return of 8%. If you start doing the same thing only 5 years earlier, at 25, final account balance rises by 50%, to over 1.5 millions USD! Beauty of compounding and being able to withdraw money tax-free make up for strong financial combination for those golden years.
Real Estate (Empire)
Second step was, in sense logical, because both of us love aspects of Real Estate, and happened after we met. Although, I have to say, just before we met, Sherry was on the verge of buying a house on her own. So, kudos to you, hon!
Our first investment property, or our first “flip” as we like to call it (even though technically it’s not) was a condo we bought in St. Peters, Missouri. You can check Sherry’s first post dedicated to it for cash flow and more details. Suffice to say, we were and are still extremely happy with it, and the main reason is, because we got it way below the market price. That, in a nutshell, is where you make profit in Real Estate, when you buy. We’ve had it rented out for a year and a half now, to very nice tenants, and that’s our plan with it at the moment, rent it out, and get another source of income every month. Hey, that’s what started us on this journey in the first place, isn’t it?! So, definitely we can say, Real Estate will be part of our investment future, “building a Real Estate empire” is another of our terms that we use to describe it, but hey, go big or go home, right?!
Which investment route to take next?
This is a question we were trying to find answer to in the last months, as we are in a specific situation at the moment. Normally, if we were still in US, we would be trying to repeat our already successful recipe, or would be on the lookout for similar opportunities. As we are not, we have to adapt, but luckily, there are options available.
We moved to Shanghai because Sherry got a really great work opportunity, working for a tech giant that should allow us to save money, and then re-invest it, a lot faster than we planned. Besides, Shanghai is a city where we already lived in and which, for us, allows amazing and affordable life style at the same time, so, that helped as well! (You can check my post Living in Shanghai for more details).
Unfortunately, living abroad and being out-of-state investors, also means we no longer can find Real Estate deals just on our own, we have to involve other people as well. Of course, the more people is involved in any sort of investment deal, the less money in the end trickles down into investor’s pocket. But hey, any profit and positive cash flow is better than having no cash flow at all, right?
And so, we delved into research regarding Turnkey companies.
As the name states, Turnkey companies provide investor with “Turn-key-and-ready-to-go” properties. What that means, is that they do all the “hard work” of finding a property, renovating and fixing it out, and finally providing a property management that places a tenant in and takes care of any issues in your place (you still cover the bill of course!). Your part of the bargain involves coming up with the sack of money to buy the property, either as cash purchase, or a down payment for the loan. The end result is basically the same as you bought it yourself, you own the house/condo/apartment, it is rented out and you are collecting monthly checks. Again, we will cover Turnkey companies in a more detailed post where we will list all the pros and cons of going down that route.
There are plenty of people going down this route, and most of them will advise to use loans for this option. The idea is, for example, if you are a buying 100k USD Turnkey property, you put in 20k of your own money as down payment and the rest is covered by a conventional loan from the bank. The interest rates are still relatively low, around 5%, so when you do a, let’s say, 30-year conventional loan, a 1000 USD rent money will cover the loan payments and still leave you with a healthy cash flow in your pocket. So, barring any major expenses, on a good Turnkey property, after all the expenses you should be pocketing on average, around 300 USD a month. Not bad, considering you yourself shouldn’t be getting involved in daily matters, it should be pretty passive. If you’ve got 100k saved, you can get 5 properties and pocket potentially 1500 USD a month.
For us, after doing months of research (mostly into Kansas City area as it is up-and-coming area and Missouri as well, which we know), attending webinars, interviewing Turnkey companies, we had to scrap the idea for now, as in the end, we were not able to qualify for a conventional loan, Sherry working for US company but being paid in Chinese yuan, and me ironically, being paid in US dollars, but not being US citizen.
So, we had to explore alternatives, but we are always on the lookout for new knowledge and new ways of achieving early retirement.
Please check second part of this post (link below) to see how we started to diversify our investments and explore different types of Real Estate deals…