Marc Guzman's West County Blog
Michael Zuber at The Bigger Pockets Blog wrote a great article on the new Baby Boomer strategy. Michael wrote, “I suggest all of them stop focusing or even worrying about net worth, and instead focus on creation of passive income streams.” The Bay Area real estate market is prime to take advantage of low prices and above average rents. Below is more of the article written by Michael, you can also find it here. At the end of the article, I provide a few examples of what great deals are available in today’s market here in Contra Costa county.
… They need to create dependable and secure income streams that pay them every month without their having to work in a conventional way. Obviously the larger the income stream they create, the better.
They have a couple of options to achieve this.
Here is my analysis of The Good, The Bad and The Ugly.
The Ugly: Have you noticed how low Money Market, Savings or even CD interest rates are these days? Can you say Ugly? It gets much worse when you factor inflation into the equation. Inflation has to be running at north of 4%, regardless of the officially published number. Ask yourself this question, if you earn 1% and lose 4% to inflation are you really winning the battle? Answer: NO
The Bad: It has been decades since the average dividend yields on stocks exceeded the 10-year treasury. Boomers could buy high yielding stocks to secure the dividend stream and deal with the ups and downs of the stock market. Buying dividend paying stocks certainly could turn out to be a viable solution, but then again what happens if something really goes sideways?
I call buying dividend paying stocks “The Bad” due to the headline risk of stocks. When you are living off a limited stream of income, high risk does not translate well. In addition, let us not forget that it is not uncommon for companies to stop paying dividends, which will kill cash flow if things get really bad.
The Good: Everyone needs a roof over their head and a place to call home. Baby Boomers should take advantage of the current real estate market. They should think about becoming either active real estate investors buying their own rental properties. Or they should think about becoming a passive real estate investor by partnering with active real estate investors.
Many Boomers have been negatively impacted by the real estate bust and are now shying away from the market. The good news is that they can participate and secure nice sized returns by simply taking on a first or second deed of trust on a rental property with limited downside risk, when done correctly. These returns are easily 5 to 10 times greater than they can earn in money market accounts.
Being a passive investor allows Boomers the opportunity to secure larger dependable cash flows without the daily management and ownership risks. They will need to investigate the investor to ensure that both the investor and the program are rock solid.
Why is investing in real estate different this time around?
The difference is that the yield/return on investment is much higher than it was 5 years ago. If an investor has a documented track record of success, a clear and easily understandable plan that offers a large margin of safety for all parties then a Boomer could secure above average returns.
Remember Baby Boomers need to focus on securing passive monthly income to insure their ability to retire and sustain their retirement years, without taking on unnecessary risks.
Stop talking or thinking about net worth. Instead Think or Plan for how much Cash Flow comes in every month without having to work!!!
