Investment Property and developing Permanent Wealth are a key parts of the 37th Parallel Properties investment philosophy and approach.
It is a slightly different concept than just net worth, and it is worth understanding the difference.
Your net worth is purely a function of your assets minus your liabilities and is basically your personal balance sheet. This metric — net worth — has been the de facto standard for understanding someone’s financial health for centuries.
When it comes to understanding your true financial health however, it is flawed.
Net worth does not take into account the nature of your assets, the income they produce, if any, or the quality or lack thereof of your liabilities (note: not all debt is bad).
What we have found, through hundreds of hours working with new, sophisticated and high net worth real estate investors, is that understanding their passive cash flow and contributing assets is much more effective than just net worth.
Let me explain.
It is not about the money
Money intrinsically has no value… None. It has extrinsic value and only because it is the facilitator of two things that matter: Time and Choice.
Time and choice
Money, specifically passive income, is the greatest enabler of time and time freedom.
When you don’t have to worry about how you are going to cover your monthly expenses, you can live the lifestyle you want with the time freedom to do the things you want.
Volunteering at your church, starting a foundation, spending time with your children or grandchildren, traveling to wherever you want whenever you want–it is all much easier with passive income.
You have time freedom
Money is also an enabler of choice. For probably 90% of the planet, money, specifically how much money you have either in the bank or arriving every month, is what controls your options.
The more money you have, the more options you have
Owning a second home in Tuscany, a sailboat on the Caribbean, taking vacations every 3 months, building an orphanage–it is all possible with the right amount of money.
Developing Permanent Wealth is about acquiring assets that increase your net worth steadily and consistently year after year that provides current passive income that increases every year.
Sounds good, right?
The only issue is that very few assets are able to offer the types of return — steadily increasing cash flow and consistent equity growth — that we want. The stock market is too volatile and offers very little in the way of cash benefit. As of January 2011, the stock market was pretty much where it was in 1997. That’s 13+ years of no growth, with a tremendous amount of volatility.
Precious metals can provide appreciation and capital gain, but provide is no current income. And they can be quite volatile, especially at market tops.
In fact, there are several investment types that don’t work. CDs provide returns barely above inflation with no passive income. And Oil and Gas are depleting assets, even though they provide good cash returns.
The best investment class is…
The only investment we have found that provides the best mix of safety, predictability, stable cash flow and equity growth is multifamily apartment projects.
Now, obviously, not all apartment investments are perfect. You also have to have the right asset manager and work with properties in only the best markets…something we have a track record of providing for our investors and education clients.
Imagine earning 8% to 12% cash on cash returns
If you can though, imagine what earning 8% to 12% cash on cash returns every year (passive income) and a total return of 18% to 22% per year would do for you and your family.
With that kind of stable return you could:
- Predictably double your money every 4 to 5 years.
- Increase you cash flow every year.
- Generate truly passive income.
- Start developing Permanent Wealth and achieving Time and Choice Freedom.
You would be developing Permanent Wealth.