Hello, my friends and welcome to another episode of Ask Marco where I answer your investing related questions.
Today’s question comes from Jorge and he writes and says, Marco, I have one shot to convince my wife that investing in passive income with a turnkey out of state situation will work. I have $75,000 to invest. We have paid off our home and ready to retire in a year or two. She sees getting into debt now is too risky. I’ve listened to a lot of your podcast. I understand the process. We own a nice California rental free and clear worth $550,000 again, no debt. What deal on a B class property with good cash flow, low debt ratio could work in your system. Looking forward to hear what you come up with.
Well Jorge, thank you for the question. First off, I emailed you and your investment counselor and I will let him reply to you about the many different B class properties that we have that will generate cash flow in a very positive rate of return for you.
That is not what I’m going to address on the show here. What I would like to address is just your general question here about good debt versus bad debt risk tolerance and your wife. Now I can’t help you with your wife, but I can give you some suggestions. So I’m sure there are many people by the way, that have this situation where their spouse is maybe averse or doesn’t completely understand investing in general, let alone real estate investing and the ability and power that it brings to you as far as being able to liberate yourself and create financial freedom. Because if you have enough passive income, you are financially independent and that brings freedoms along with it. So here’s what I’m going to suggest and comment on. First of all, I want to say that I am not a financial advisor. I’ve said this on many episodes and I just want to keep reminding people so I’m not giving you any kind of financial advice, nor am I telling you what to do.
I will also say that I don’t know what your age is, your income current past future, if you have any existing pensions, retirement plans, I really don’t know your financial situation so I can only talk in generalities here. First of all, let’s just make a few comments as it relates to your spouse. What I would possibly do is ask her, do we honey, do we have enough to retire on? And you just need to take a very objective view and analysis of your current situation. Also where you expect to be realistically around the time of your retirement and if you are in a situation where you’re going to have enough income to live off and be comfortable, then great. Maybe you don’t have to be stressing about anything, but if you feel that you can do better and that you should be investing regardless of whether it’s real estate or something else, then take a hard look at that.
There’s nothing wrong with investing. As long as you do it intelligently. You have the right team. You don’t put your capital or cash flow at risk. Now granted, I will say that there is no such thing as an investment that has zero risks. It’s virtually impossible, but you can control risk and you can make investments that have very minimal risk if you have control of the situation and you have very good understanding of what you’re investing in and you are an intelligent investor. Uh, you know, I remember Robert Kiyosaki saying that there are no bad investments, an investor could be looking at a particular investment opportunity or a deal and lose money and make a mess of it. Whereas another investor can come along and take that exact same deal and know exactly what to do or position themselves in it so they actually make a profit.
So a lot of it rests on you or you as a couple and the investment. So ask yourselves, do you have enough tthere’s just bad investors because one o retire on at the time that you are retired? The second thing that you guys need to ask yourself are what are your options either right now or and or in the future? Ask yourself what options do we have to generate that income, that retirement income that we need to live off of to have that standard of living that we want. And when you have the answers to these questions, then you start to either look for solutions to the problem, whatever that problem may be or you start to eliminate options that you are presently looking at on the table. Now the next thing I’m going to talk about is good versus bad debt. There’s a lot of misinformation out there. In fact, most people are educated on or lack thereof or indoctrinated into the idea or the concept that all debt is bad debt.
And this really originated way back from the great depression when people were taking on excessive debt, basically investing in the stock market on leverage or on margin and using debt to get those incredible returns. But you know, it’s a two-edged sword. You can make a lot of money, you could lose a lot of money. So there is good and bad debt. But the question you might want to ask your spouse is, honey if we got a dollar 10 in income every month for every dollar that we took on and was responsible for in terms of debt, would that be a good idea? Would you be okay with that? I know that’s a very high level, almost superficial question, but really the principle is, look, if I take on a dollar of debt and I’m responsible for it, and when I say responsible, I mean prudently responsible and I’m getting a dollar 10 for every dollar of debt that I take on.
Is that a good deal? Does that make financial sense? Most of the time the answer is yes. You have to obviously look at yourself and say, well, you know, am I comfortable with debt period? But the general principle is that if I take on a dollar of debt with real estate or any other investment and I’m getting a return, something more than that dollar, whether it’s a dollar, $5 $10 20 or more, well that’s a good investment in most people’s books. So the simple rule is this. If you are taking on debt and that debt generates cashflow and or increases your net worth, it’s considered good debt. Bad debt is usually tied to consumables such as vacations and whatnot and depreciating assets such as cars, boats, and whatnot. So as long as you can distinguish between what is good and bad debt, then you are making sound decisions.
Whenever you look at an investment or anything for that matter that involves debt when debt is actually tied to it. So debt is a good thing because debt creates leverage, which is a very powerful tool, especially with income-producing real estate. Now in wrapping up, I’m just going to make a couple of suggestions here. First of all, you need to have a conversation between the two of you and really just look at this and make sure that you guys are on the same page and you both understand what you’re talking about because she might be looking at this from a completely different perspective as you. So as long as you guys are looking at the same thing the same way and you’re asking intelligent questions, then you can get somewhere with this. Secondly, if you have a financial advisor or someone who is acting in that capacity, uh, maybe have a conversation with them.
Again, you know, you want to be objective and rational. Don’t let emotions lead. And also keep in mind if they’re coming from any biased perspective, you know, if they are experts in equities or the stock market and that’s really all they know or are experts at, it’s going to be very hard to get sound financial advice from those types of people, whether it be on real estate, running and owning a business, precious metals, oil, and gas or whatever it may be. So just always keep in mind where someone is coming from. So a conversation with your financial advisor. Thirdly, a conversation with your investment counselor here. I say that because I know you have an investment counselor here that you’ve been assigned to. But if you don’t have an investment counselor and you’re listening to this, of course, you know, have a conversation with someone who is seasoned in real estate investing, knows what they’re doing, knows what they’re talking about and has been around the block and help educate your wife.
You’ve obviously taken the time to educate yourself, listening to my podcast and probably reading some books, maybe some articles and doing whatever else you’re doing, but maybe give your wife that same knowledge and advantage that you have so that way you are on the same page. Education is very, very important. As I’ve talked about many times. It’s really the first rule of my 10 Rules of Successful Real Estate Investing. So help educate your wife just like you’re doing for yourself. And that’s really all I have to say about this. So hopefully that was helpful and good luck with everything you do. So for everybody else, if you have a question, just submit it at AskMarco.com, or passiverealestateinvesting.com and stay safe. Be well. Thanks for listening. I will see you all on our next episode.
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