Let me tell you a story of the couple I have heard about. They had good paying jobs and already had the first house they bought paid off by the time they were in their mid thirties: they choose not a 30 years loan but 15 years to pay it; but in addition they were paying extra cash monthly toward the principle on their mortgage.
The dilemma they faced by 35 was: what to do with the extra cash they had since the house was already paid. Their choices were to invest in the market or do what they knew well already- get another property and pay it off within 15 years. They decided on the later: by the time they turned 50 they owned two homes- except one of them was the one they were living in the second one was a rental property- matter of fact it was a rental property for over 15 years and it was generating an income most if this time. Yes there were other expenses: taxes, maintenance… however they were able to successfully and consistently rent the house so it was always generating additional income.
Let’s say you are this type of couple and you already paid for your first house; this next strategy might be a good fit for you. Your goal is to generate an additional income of $1610 a month. Let’s say the rental place is a house in the city where the average rental price for a house is $1400.
The good thing is that once the house is rented it returns a steady $1400. Now the payment of the mortgage expenses is handled the same way you have done it until now: your paycheck! So you now just have to come up with additional $390 per month to reach your goal of $1610 in passive income per month.
Because you have $1400 of cash inflow you can reuse all or some of it in various ways. You can put some of it in short term CD’s to let it earn some easy money but at the same time have it available quickly in case of an emergency – repairs and such. The sort term CD’s at M&T bank yield 1.92%. Let’s assume you dedicate $500 at this rate that means after the first three months $2.40 every month. Do not take this amount lightly. Really you are using this cash as a security blanket and you see your $500 available to you after the three months – plus it made you some money. After awhile you can reinvest it in higher yield or in a less conservative place.
Now after securing $500 in CDs there is still $900 that can be reinvested.
In choosing a stock you could look at the more risky market of small cap stocks. Let’s pick MTX stock of Mineral Technologies Inc. In 2009 it was trading at $34.4. So with $900 you could pick up 26 stocks of this company. Now let’s say that the average price you paid for this stock throughout time between March of 2009 and 2010 was $44.25 you were able to accumulate 272 stocks of this company. If you sold it in March of 2010 it provided you with healthy earnings of $2704 or $208 per month. Adding to it $1.92 made in CD’s and $1400 it is together roughly $1610 a month.
Goal $1610 a month
| Cash invested and | % of total | Yearly | Monthly |
| $1400 from rent stock | 86% | $16800 | $1400 |
| $500 in CD at M&T | 1.1% | $23 | $1.92 |
| $900 in MTX stock | 13% | $2496 | $208 |
| TOTALS | 100% | $1610 | $19320 |
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Tags: investment strategies, Passive Income, real estate investing, stocks
