How to Get a Monthly Paycheck Even When You’re RetiredBy CondoWong Friday Jaunary 11, 2019
What is Passive Income?
Passive income is money you earn when you’re not working. If you earn enough passive income that covers all your expenses, then you have the option to quit your job as you don’t necessarily need the salary anymore. This is called financial freedom. The question is, how can you earn passive income? Some popular ideas include stocks, real estate investments or starting your own business.
We’re going to see how you can generate an income stream with a rental property. Keep in mind that passive income starts with savings. Without a healthy amount of savings, nothing works. That’s why the salary from your job is important, but you need to think about how to make money with money, sooner rather than later. “Start minding your own business. Keep your daytime job, but start buying real assets, not liabilities.” – Robert Kiyosaki, Rich Dad, Poor Dad
Debt or No Debt
Let’s say you have accumulated a good amount of savings, enough for the down payment of a small condo unit. However, you want to be debt-free and worry-free, so you throw the money into a high rate savings account (GIC / Term Deposits) and let the money grow by itself, at the rate that’s barely enough to cover inflation. And you continue to put away a portion of your salary into the savings account every month. This is probably the approach that most of us are taught growing up with.
Alternatively, you spend the savings as down payment to purchase a condo and use it as a rental property. You acquire an asset, but at the same time you also incur liabilities and expenses. The terms “liabilities and expenses” scare away a lot of people as they are often being viewed as “bad” things. We shall see how the “bad” becomes “good” in the long run, but for now you would have to bear them before you harvest. The good news though, in Toronto, the rent you collect will cover most of the liabilities and expenses. You would only need to chip in $100 - $200 per month to keep this business running. To see real numbers in the works, check out the income statement of a 1-bedroom unit at the Line 5 Condos at Yonge and Eglinton.
要邁向「財務自由」這個目標，首先你必須授受「好的債務」這個概念。在多倫多投資一個入門版出租物業大概需要$20萬首期 (即港幣$120萬), 樓價約為$55萬 (即港幣$330萬)。投資物業令你的資產值增加，與此同時亦增加你的債務和開支。興幸是多倫多的租金收入足以支撐大部份的支出，你只需每月投資$100至$200 (即港幣$1,000左右) 便可營運這盤「租務生意」。確實數字，可參考 Line 5 Condos 一房單位的收入和支出表。
DIY Pension Fund
Twenty-five years later, the mortgage/loan on the condo has been paid off and now you have the condo as an asset and no liabilities on your balance sheet. Now, let’s look at your income statement, the rent is now covering all the expenses and giving you a paycheck every month! As we always emphasize, real estate is a long-term investment and it takes time and planning to generate passive income, we’re not trying to say that you will get rich quickly.
On the other hand, in the savings account scenario, although you have no liabilities nor expenses from the GIC / Term Deposit investment, you are eating up your assets in order to generate a retirement income.
25年後，物業供完，無債一身輕之餘，每月的淨租金收入便成為你的退休長糧！姑且假設租金25年來沒有升幅，以今天的數字來計算，你每月仍可享用$1,800 (即港幣$10,000) 的長俸。這不是一個令人發達的數字，但以今天$20萬的儲蓄換來退休後穩定的收入也確實是不錯吧！正如我們經常強調，物業投資是長線穩健的投資，不要以為胡亂短炒便可發達。
Some Number of Years after Your Retirement
What’s going to happen some number of years after your retirement? The picture for the rental property investment does not change, it just keeps running and cuts a paycheck to you every month! Furthermore, the property stays as an asset that you can pass along to the next generation. In contrast, the savings account picture is completely clean because you were eating up your assets to generate an income and you have nothing left after you spend your assets. If the picture on the left is what you want to see for your own retirement, you need to get started now.