easily double digit yields. Other passive income options have the following problems.
- Dividends, investing in stocks
- 1) Returns are too low about 4%
- 2) Tax treatment on nonqualified dividends
- Rentals, being a landlord
- 3) Upfront costs are very high
- 4) Inconsistent income in first two years.
- Unsecured P2P lending, Lending Club, Prosper (other Crowdfunding)
- 5) Defaults rates, loan charge offs, losses
Above you can see an image of my simple COC returns quarterly this is one of the calculations I used to compare investment types and there is a clear winner here. Hit its in green not red.
What about Real estate Crowdfunding:
1) Returns are 2-3 times higher than dividends
2) Taxed the same as nonqualified dividends
3) Can invest for as little as $10 per investment
4) A large quantity of loans leads to regular income
5) The debt is secured against assets in the case of default
The Haters Q&AQ: "But I can get RIET that has a 10% dividend, so you're wrong"
A: "I would argue that RIET won't pay that dividend in the future"
Q: "Dividends are taxed better, and that makes it better"
A: Would you rather do Real Estate Crowdfunding making $10k and be taxed at 30% or Invest in dividends making $4k and be taxed at 15%? You should alway want to make more money after taxes are paid! in this example you
Q: "Defaults!!!"
A: "If your not prepared for some portion of loans to go into default don't invest because it is a very real part of lending money so it will happen" I have had tenants that haven't paid rent for months but I still buy rentals, and I have had loans that were in default for months and evenly the matter get resolved. I have lost more money from evictions and rent loss from deadbeat tenants than from defaults.
Q: "I have to wait like forever to get my money out"
A: I hear this all the time and it wrong on so many levels
First, if you lend someone money for a 12 month loan, you shouldn't complain 6 month later when you can't get your money back, stop doing that! just wait for the loan to end
Second If your not sure when you might need your money back, don't put it into investments like real estate, stocks, P2P lending (even real estate crowdfunding) and cd's. This is because your money might be tied up when you need it. in fact you should have an emergency fund built up to cover 6-12 months of living expenses before you invest serious amounts of money.
Third, if you invest your money in Real Estate P2P, you can spread it equally over time, that way each month you not only receive just interest but a large amount of principal is accessible to be withdrawn.
Q: "why do you hate dividends so much"
A: "I don't, I use a dividend growth strategy, I expect that one day my yield on cost will over take my returns on Real Estate Crowdfunding, but if we are being honest dividends are not my best investment yield right now, and I don't expect them to be in the next 5 maybe 10 years.
Q: "If you like stupid P2P so much why bother with dividends?"
A: "I like to diversify, I currently have 8 passive income sources"
Q: "Bro if your not making money in Rentals your not smart!"
A: "Well I'm just working with averages, and in the first year the standard deviation is much larger than each year after. The standard deviation of monthly rental income vs any other source is bad. I make the highest returns on rentals but, some months are negative (do to repairs), I have never had a company give me a negative dividend, and as for P2P I have never had a negative month. In short there is still money being made but it's less consistent income and therefore dependable as other sources.
A famous guy I'm making up once said "The best way to generate passive income is with a time machine."
The seconde best way to generate passive income is to start now, each month invest every penny you have, cut your spending back to only what's required for your survival.
But hey, I'll keep posting my returns and showing my progress and strategy as they change.
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