Passive Income vs Equity Growth Which Is Better? (Ep306)
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Passive Income vs Equity Growth Which Is Better? (Ep306)


Passive Income versus Equity Growth. Which
is the better option for you to pursue as a property investor? Hey, I’m Ryan from onproperty.com.au, helping
you find positive cash flow property. This is an issue that a lot of investors need to
deal with. They don’t know whether they should invest in a negatively geared way, where they’re
losing money every single month in the hopes to make good capital growth. Or if they should
pursue positive cash flow properties and get the passive income from those but maybe not
get as much growth in the future because of the type of property that they’re buying.
This is something that you need to analyse and you need to make your decision on before
you go ahead and invest in property. Because if you go down one path, it might not be the
right path for you. Often, we try and compare passive income to
equity growth like comparing apples to apples. Like comparing, if I make X amount in passive
income and I make Y amount in capital growth. If Y is better than X, then capital growth’s
going to be a better option for me. Or if X is better than Y then passive income’s going
to be a better option for me. But that’s not necessarily the best way to go about it. Because
whether or not you’re getting passive income or you’re negatively geared is going to severely
affect your life. It’s going to affect your cash flow, it’s going to affect how much money
you have available to spend on the things that you want. That’s something that not a lot of people
consider when investing in property. We get the greed on, we get really excited about
making money. We see that Sydney has grown 10-15% in the last 12 months and we hear about
friends who bought property and it went up $100,000 in 6-12 months. And we say, “Well,
$100,000, that’s more than I earn in a year. Capital growth is definitely the way to go.”
But what we don’t think about is “Okay, what sort of life do I actually want for myself?”
and “Is capital growth going to get me there or passive income going to get me there?” I was talking to a customer of mine on the
phone the other day who has a couple of investments himself, fully paid off his house and was
getting some passive income from some other investment properties that he had. He has
been talking to some people and some companies and have been encouraged to invest in negatively
geared properties with high depreciation with the hopes that, over time, they will go up
in value. I was talking to him about it, he was really umming and ahhing about whether
this was the best investment strategy for him and he was thinking about the life that
he has now. You know, very low bills because he’s fully
paid off his own mortgage. So he’s not paying any rent, not paying any mortgage. His properties
are generating passive income that’s paying for his council rates and insurances and stuff
at his house. So in terms of living expenses, the only money that he needs to come up with
is the money that he wants to use for food and for entertainment and for his car and
things like that. Being in that position is actually a pretty
exciting position to be in. I don’t know if you’ve ever been in that position yourself.
But if you’re in the position where you don’t need to make a lot of money in order to get
by, that’s a pretty fun place to be in. Because, in a way, the world is your oyster. It’s very
exciting because you can do a lot of different things. You could start a business, if you
want. You could grow your business or you could keep it as lifestyle business. You could
quit your job and work in a lower paying job that was more fulfilling because you don’t
need the income. You may not make as much money in the long
run, but in terms of growing your portfolio over time, for me, it just sounds like it
gives you so many different options in your life as to whether you want to grow your portfolio,
whether you want to change your job, whether you want to do all these different things.
But then you look on the flip side, at capital growth and the potential for making lots of
money quite quickly. And that’s exactly what it is, it’s potential – it’s never guaranteed.
And you think, “Okay, if I negatively gear, then I’ve got the potential to make hundreds
of thousands of dollars some time in the future.” But then, you don’t necessarily think about
the fact that if I start putting myself in a position where I need to pay $100, $200
a week to pay for my investment properties, what kind of cash position does that put me
in and how does that affect the options that I have in my life? So we’re in a position, let’s say we bought
a few properties, $500 per week we’re paying for investment property. For a lot of people,
that is rent for a family house. So, you’re probably paying rent and your this on top
of that. What that does to a lot of people is kind of puts them and gives them tunnel
vision. It puts them in a position in their life where they need to say, “Okay, I need
to make more money in my job in order to pay for these properties that are going to create
financial freedom for me in the future.” So in terms of job progression, in terms of
the way you live your life, the focus is always on working harder, always on trying to earn
more money. In terms of progression, you really funnel down a path where you need to go into
jobs that earn you more and more money. And earning more and more and growing your wealth
over time, obviously, very important. But working, your spending the majority of your
waking hours at your job. So, to be unfulfilled, to be unhappy, to be overstressed and the
way that that can impact your life, is that actually worth it? What I want to do, just in this video, is
just encourage you to think about passive income and equity not from the standpoint
of, “Which one’s going to make me more money in the long run?” but look over the span of
your life and to say in the next 10, 20, 30 years – whenever it’s going to take me to
become financially free. In the span of that time, “Which is going to give me the better
outcome across the board?” If we invest in capital growth, we are negatively geared for
years and years. We work hard, we’re very stressed but then, all of a sudden, we’ve
got a portfolio worth millions of dollars in terms of equity growth. We then quit our
jobs, sell our portfolio and then live off the remainder. When you look at that, pretty
stressful time, not super awesome. Is it worth it? If you look at passive income, and you say
“Okay, well, I’m investing in passive income. It gives me more flexibility in my life to
move to another city or to travel or to spend more time with my kids or to work in a job
that I find more fulfilment that doesn’t necessarily pay me as much. But at the end of the road,
I might still become financially free. But I might become financially free earning $60,000
a year instead of earning $200,000 a year.” When you look over the span of that 10, 20,
30 years, which option do you think is going to give you a better quality of life over
that time? And then, I would definitely look into that option. Also consider the fact that when you’re investing
for equity growth and you’re negatively gearing your properties, you’re putting yourself in
that hole where you need to pay for these properties in the hope of the big pot of gold
at the and of the rainbow. Something that you need to understand, is that you don’t
actually know if that big pot of gold at the end of the rainbow is going to make you happy
or is going to deliver you the particular life that you want. Most people don’t necessarily
think, “What kind of life do I want to live? What kind of life do I want to have? What
kind of relationship do I want to have with my spouse or my family? What is going to make
me happy?” They just think, “More money. More money solves everything, right? So, if I negatively
gear my properties, if I get hundreds of thousands, millions of dollars of equity growth in 10
years’ time or in 20 years’ time, I’ll be rich. And then, thumbs up, I’ll be happy.” But you need to understand that’s an assumption.
You don’t know that having more money is going to make you achieve the level of happiness
that you want. Studies have shown that money does make you happier but only up to about
$75,000 per year. Once you go over $75,000 per year, really, the math doesn’t work out
in terms of more money making you happier. So, obviously, if you’re poor, you can’t afford
clothes, you can’t afford food, you can’t afford vacations, it’s pretty miserable. But
once you get to a point where you can afford some of those niceties in life, going well
and beyond that won’t necessarily make you happier. So, just understand that the pot of gold at
the end, the fact that that will make you happy is an assumption that you have and that’s
not necessarily the truth. And really question, “Will that make me happy?” and “If I had that,
what kind of life would I live?” That’s kind of exactly what I did. Is say,
“Okay, if I got to the end and I was financially free, what kind of life will I want to live?”
And then I kind of realised, “Okay, this is the life that I’m living at the moment.” And
so, I don’t actually need to achieve excessive wealth in order to be happy. That really freed
me up, to change the structure of my business, to change the way I live my life to spend
more time with my family and kids. And to spend less time stressing about money. So when it comes to passive income versus
equity growth, one could make you more money than the other but I think it’s really important
that you look at what’s going to give you a better quality of life and understand that
you’re assuming more money will make you more money will make you happy but you don’t actually
know that that’s true. And you really need to think about, “If I had all the money in
the world, what sort of life would I want to live? And what will create me the most
happiness that I can get?” And then, go and pursue that and consider, “Okay, which tack
is going to get me towards the most happiness that I can have? The most impact on the world?”
Whatever it is, whichever way you measure your life. I hope that’s helpful for you. It’s a bit
philosophical today, rather than talking about specific investment strategies, I just really
wanted to question your thinking as to how should invest and why you should invest and
just start thinking about things a little bit tweaked, a little bit different to hopefully
get you a better outcome in the end. So I’m Ryan from onproperty.com.au. If you’ve
decided that passive income is the way that you want to go and you want help finding positive
cash flow properties, I’ve just released a brand new course on the exact methods that
I use to find positive cash flow properties. So, I actually list positive cash flow properties
for members of mine inside OnProperty Listings and I use certain techniques to find those
properties. I actually share those techniques with you and I’ve got step-by-step video tutorials
to show you how to do that. So if you’re after passive income, if you’re after positive cash
flow properties and you think that that course is going to be good for you, check it out.
Just go to onproperty.com.au/find in order to see all the details about that course and
get access to it. I hope that you guys have a great week. Until
next time, stay positive.

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