Why your 2020 portfolio needs real estate cash flow: Ken McElroy

For 2020, investors should seriously consider adding real estate assets that generate positive cash flow to their portfolio versus putting more money away in a 401k or IRA. By generating multiple streams of income through revenue-generating real estate, you’ll be better prepared if you face a major “outlier event” such as an illness, major home repair, major stock market correction or loss of a job.

While stocks soared almost 30 percent higher last year, as measured by the S&P 500, many analysts are predicting a 10 percent correction this year. And while a recession is never certain, many believe a more reliable statistic is that U.S. stocks fall at least 10 percent from all-time highs once every 18-24 months.

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So here are the top 5 reasons that investors should add income-earning real estate properties to their portfolio this year:

Prepare for Economic Change - Yes, we’re living in the longest bull market in history with the stock market skyrocketing to new highs every week. But what happens if a breaking news event, global recession or the 2020 election suddenly cause your 401k portfolio to drop by 50 percent? While this fall in value may sound drastic, many investors saw this decrease on their financial statements during the Great Recession in 2008 and 2009. So don’t wait any longer to invest in real estate cash flow assets. When the next downfall happens (and it will), you will not feel as big of an impact.

Beat Inflation with Real Estate Returns - Banks are now paying pitiful interest rates that don’t even come close to keeping up with inflation. Many investors do not understand that they are losing buying power every year by keeping money in a savings account. For example, if inflation is 3 percent and your money market is making 1.5 percent, you lose 1.5 percent of every dollar. So, a dollar, after a year, is really worth only 85 cents. In comparison, real estate investments tend to go up consistently if you research and buy the right property at the right time.

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Generate Rental Property Income – You want to start investing in property that can result in positive cash flow every month. For example, if you buy a condo, and your mortgage is $2000, but you can rent it for $4,000, you’re making $2000/month income. Yes, you are still in debt for owning the property, but your renter is paying the mortgage! And if you already own a home or vacation property that is empty part of the year, why not consider renting it through Airbnb to generate additional cash flow?

Increase Your Tax Savings – There are many tax benefits for real estate investors. With the right tax strategy, investors can put money back in their pocket by simply investing in the property. Home renovations, maintenance, new equipment, expansions, property management fees, insurance and more may all be tax deductions. Investors can also gain tax breaks if the property is rented out via Airbnb, VSCO or others.

Produce Revenue from Land Assets – To increase your income based on the land, consider investing in a property that grows produce. The fruits and vegetables can feed you and your family, along with providing additional income. The land may have apple trees, a vegetable garden or honey bees, which can all generate positive cash flow.

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Yes, you will need to take out a mortgage unless you have a lot of cash to invest. However, it’s important to understand that there is a difference between good debt and bad debt. Good debt results from investing in an asset that generates income. Bad debt is racking up credit card debt. It’s impossible to get ahead with interest rates on credit cards soaring, so take time to invest in assets that will generate monthly cash flow back to you instead.

Your overall goal should be to generate enough cash flow from real estate assets to become financially free. So if you buy 5 rental properties that generate $2000/month, it quickly becomes $10,000/month in positive cash flow income. If this $10,000 monthly cash flow income covers your total expenses, then you are officially out of the 9-5 rat race and can relax more.

Instead of buying that boat that you don’t need, put the money into a real estate income-earning property this year. So start researching real estate assets across the U.S., work with people who understand the space, and start adding positive cash flow properties to your portfolio in 2020!

Ken McElroy is the CEO of MC Companies, Real Estate Investor, Entrepreneur, Speaker, Podcast Host, Rich Dad Advisor to Robert Kiyosaki ("Rich Dad Poor Dad" author), and New York Times Bestselling author of five books (including "The ABCs of Real Estate Investing") – and now a new business novel: "Return to Orchard Canyon" (December 10, 2019, RDA Press).

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