Buy Income Generating Assets First

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While I have said in the past that it would be great to buy a house and treat it as an investment, I want to take it a step further. What if instead of buying a house outright, one would first buy an income generating asset that would generate positive cashflow and help take care of the monthly amortizations of the house that one would then buy afterwards?

stuart-miles-investJust this morning I mentioned this idea to my wife and I said “Wouldn’t it be a great idea to buy an investment property that would be able to pay for the monthly amortizations of the house that we intend to live in?”

Call it coincidence but while I was driving to work,  while I was listening to an audio book entitled “You can choose to be rich”, I heard the author, Robert Kiyosaki, mention that one big difference between the rich and the middle class is the rich buy assets first and then they use the income from these income generating assets to buy their liabilities. At least that was how I understood what he said.

Furthermore, the middle class buy liabilities first and then hope that someday they will have the chance to buy income generating assets. Believe me when I say that it really is difficult to buy assets once you have already bought liabilities that don’t generate any income as you already have a big burden which comes in the form of those big monthly amortizations. Furthermore, this makes it really difficult to raise the capital needed  for the downpayment for income generating assets.

In effect, the scenario of buying liabilities first produces a situation that traps a lot of people in the rat race. They have no choice but to work hard to keep up with the monthly payments and they lose the opportunity to buy income generating assets first. This sounds like the situation we were in a few years ago. I guess this time around, a little delayed gratification is needed.

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Am I making sense? What do you think?

To our financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 3194
Follow me in twitter:http://twitter.com/jay_castillo
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Text by Jay Castillo. Copyright © 2009 All rights reserved.

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About Jay Castillo

Jay is the founder of Foreclosurephilippines.com where he shares real estate investing tips and foreclosed property listings. He quit his job as an I.T. Manager to focus on Real Estate Investing and Internet Marketing. He is a PRC licensed Real Estate Broker (REB License # 3194)... [Read more]

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  • Gladys

    Hi, I found out about assets and liabilities quite late and only recently through reading Bo Sanchez, Kiyosaki, Napoleon Hill, etc. I currently own a liability – a house mortgage. I currently have no problems paying it since I’m earning enough. But through readings and new learnings, I recently figured that if I invested the monthly amortizations, say in the stock market for only 5 years. I could easily pay off the house in full and don’t have to slave away for the next 25 years. I also want to start building on my assets. What’s the best thing to do?

  • Meg Yago

    Hi Jay, I’ve been on track of your blog.
    I can so much relate to all your subjects as I am also passionate with real estate development. Initial reason though was not for financial freedom; it’s my love to subdivide a Lot into many units, maximize space for the floor plan, with still a little space left for breathing (e.g. garden), but all at an affordable/reasonable price. This vision is brought by what my family has gone through- not having our own permanent dwelling, and renting a small shabby house at a very high rate (Manila area that’s why).

    Today I am glad to tell you and everyone, that I have started fulfilling this vision. Well, not as developer yet but in real estate investing. I have acquired my first unit thru PagIBIG Rent-To-Own in year 2000, property at Dasmarinas Cavite; the second unit also thru PagIBIG under the name of my husband after we got married in 2007 property at Bacoor Cavite, and the third unit (conjugal) thru In-house in 2009 property at Sta.Mesa Manila.
    How I did it? The biggest contributing factor is having a very supportive husband. If both has the same goal nothing is difficult. I know I will be able to reach all these too, by myself, but it will take me decades.
    My husband and I both have the same type of job, started out as call center agents(where we met). Then we both decided to try abroad, and now we are in Dubai. The Sta.Mesa Manila property still has balance but it is paying for itself as it is being rented-out at P15k/mo. The Bacoor Cavite property is already paid, and is also currently being rented-out at 4000/mo. The Dasma.Cavite property is also fully paid and is where my parents currently lives. Now we are ready again for another housing loan thru PagIBIG but we have decided to rest a while and enjoy having extra cash on hand. You see, to achieve all these we have saved as much as we can. We stick to our budget and we eliminate every unnecessary expense. So the saying goes: Kapag maiksi ang kumot, matutong bumaluktot.
    I’ll keep myself updated thru your blogs- so updated, so informative. Many many thanks.

    • red

      Congratz po sa inyo! WOW!

      paltan ko lng ung isang sinabi nyo, there are abundace in this world.

      ” Kapag maiksi ang kumot matutong pahabain ito ”

      corny po pero sana na gets nyo ugn message nung sinabi q.

      thanks

      Red

  • http://blog.bizworldabout.com stevenglobal

    Buy assets that generate income first, sure, right. Normally should start from the small property first as it will burden you if it couldn’t be rented out.

    Do research on the place, and read some article on financial literacy. An “I” quadrant is basically a WIN + LOSS game. If you unable to get the rent, how do you solve the problem? Are you out of the game. Ever heard that Rich Dad quite strict to Robert Kiyosaki?

    Study well.

  • http://manilaofficespace.com/furniture office furniture makati

    Thanks for the thought. I am now in my 4th year college and still I am on the stage of planning what to do in the future, whether I would run my own business, go for a master’s degree or work abroad. Moreover, as I’ve seen many older people, they are really depressed because of financial burden. I don’t want to be like them. I want to be rich and experience the goodness of life. I am not reading any financial IQ books, so your post strikes me that I must be wise financially. I must buy first assets before buying liabilities. Thanks again.
    .-= office furniture makati´s last blog ..RP’s top 25 contact centers post P68.5B revenue for 2007 =-.

    • red

      Kuya/ate sana malaman mo po ung totoong goal mo. Good Luck! hmm.. you can start your business while your taking master’s degree. part time lng..hehe..

      PLEASE read the book Rich Dad Poor Dad. It will change your life. It change mine.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hello, just like Red mentioned, I hope you will find your true goal in life. Whatever it is, I wish it includes being financially literate. I believe the financial burden being faced by other people can be attributed to lack of financial literacy.

      I’m glad that my post has somehow made you consider buying assets first. Echoing Red’s suggestion, why not read Rich Dad Poor Dad? It can make a huge impact on your goals in life. ;-)

  • Maredith Lyn Cabrias

    Hi everyone! I’m reading Rich Dad Poor Dad and it tickled my interest in learning real estate investments. Yesterday I bought Think Rich Pinoy by Larry Gamboa because it’s for the Philippine setting. I stumbled upon this website to know more about investing in real estate (a beginner at age 29!)…not too late right?

    Hope to learn from this website more and more. Thank you!

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Maredith, glad to know you’ve already read Rich Dad Poor Dad and TRP(you should be finished reading it by now…hehe).

      You’re 29 years old?! Definitely not too late… I started when I was 36. I hope to see you here often, thanks for dropping by!

  • http://philippinestockmarket.org Ronald Cagape

    Hi Jay,

    Buying assets should be mission #1 for anyone on a serious bid to be financially free. Liabilities slow you down and your journey begins to feel like running a marathon in the mud. Buying assets on the other hand feels like taking a bike up a hill in the beginning but when you get to the top, it’s all downhill from there. Let’s all meet together at the top. :)
    .-= Ronald Cagape´s last blog ..Seven Steps to Online Stock Trading in the Philippine Stock Market =-.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Ronald, thanks for the excellent insights! The sooner one realizes that buying assets before doodads is a much wiser choice, the faster he/she will gain financial freedom.

      I notice you are also into stocks. That’s one thing I would like to seriously explore this 2010. I attended the Rich Dad Asia seminar last November 30 and one thing I learned is I am too conservative and I should also venture into stocks. I also have a draft game plan and I intend to implement it soon. Yes, let’s all meet you at the top!

  • Edgar Garcia

    saw your site as i am cramming knowing the latest rent control law because I need to issue my first two contracts for two commercial stalls I’m leasing out. I constructed three storey building with four stalls on the ground and six apt. on the second and third floor in Pampanga. The roof top will be re-designed to cater to function hall for rent area. It is almost finished just waiting for the water and electricty connection but got two store tenants already. This is one sample of investing in income revenue generating properties if you just get out of the box of the dream house and lot and car thing especially to the OFW’s like me. I added your site to my favorites, sometime browsing the internet is very fruitful but normally I’m not a fanatic.
    Regards.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Edgar,

      Now that is what I call an excellent example of an income generating asset! Yes, I totally agree with you, we really need a change in mindset and I’m glad you’ve already done it, thanks for sharing! This should help inspire other people to do the same.

      Goodluck with your lease contracts and thank you for adding my site in your favorites!

  • http://www.newhomessection.com Edi N. Rochman

    I love reading Robert T. Kiyosaki book about his “rich dad” and “poor dad”. Really inspiring! I agree with you Jay, we should think to buy realties which can be income generating assets. For example, we buy a house in a good location, and then we rent it to other people. Is it right??

    • http://www.foreclosurephilippines.com Jay Castillo

      You got it Edi, that’s the way to do it! Funny you mentioned Rich Dad because I will be attending the Rich Dad Asia event in a few hours from now. Thanks for the visit and goodnight for now!

  • aileen

    Completey correct!! 5 years ago, we are planning to buy a lot in which we can build a home. But, lucky we didnt found a lot, instead we build an apartment near our parents house. I couldn’t imagine how we completed the contruction of a million cost asset. But from the rental of the firt unit, we was able to complete the next unit until we finally completed all the units. We are really happy of the out come and never regret our decicion, though we still dont have our own house. But now, we are searching again for a lot and bumped into this site.

    Great site Mr. Jay! Thanks for all the info.
    More power to your site!

    • http://www.foreclosurephilippines.com Jay Castillo

      Wow Aileen, looks like you are well on your way to financial freedom with your formula of using the rental of the previous unit to finish the next unit… and you have actually completed all units! Even if you don’t have a house right now, I’m sure it’s just temporary and the delayed gratification is well worth it! Thanks for visiting and I wish you all the best!

  • RG

    I agree totally. I saw this property near our place that under my calculations would give me enough to pay for the amortization, pay for my current rental rate, and also a little extra. I just hope that I can acquire it.Wish me luck.Thanks and more power Jay!

    • http://www.foreclosurephilippines.com Jay Castillo

      Good luck RG! Go for it, looks like you have a great deal!

  • http://www.akosiallan.com Rich Money Habits

    I totally agree. My wife and I are also looking for a house but at the back of our minds we are also challenged because we want to make an investment which generates cashflow, not a liability which sucks away our hard-earned money.

    I remember the same message from Robert Kiyosaki in Increase Your Financial IQ Part 3 – Budgeting Your Money @ http://www.akosiallan.com/increase-your-financial-iq-book-review-part-3-budgeting-your-money/

    Under Budget tip #3 – My assets pay for my liabilities, it says…

    “..Instead of using your hard-earned money to pay for your liabilities like a car or a flat screen TV, make that money work for you by using it to build assets and use the income from those assets to pay for your car or your flat screen TV.”
    .-= Rich Money Habits´s last blog ..8 Best Home Budgeting Software Features I’d Really Love To Have =-.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Allan, thanks for the valuable insights! After two weeks of looking at various properties, I am beginning to feel it is easier to find an investment property than a house to live in.

      I guess we have no choice but to buy liabilities like a house to live. What’s important is we know the difference between assets and liabilities and we should have both so that the assets that generate positive cashflow can offset the negative cashflow caused by the liabilities.

      By the way, you have a great book review of RK’s “Increase Your Financial IQ”. i hope to read the book soon! Thanks for dropping by!

  • jenefa

    have that in mind yesterday…amazing that its the first thing/message i saw today as i open my email. i need help how and where to find list of those assets-HELP!

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Jenefa, you can do what my wife and I are doing right now, we are visiting lots of properties and we are constantly analyzing the potential income of all properties we stumble upon. I really believe that if we keep at it, we will find those income generating assets!

  • shersmaker

    Pls give examples of this income generating assets.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Shersmaker, the most common income generating assets would be rental properties that produce a good positive cashflow. Other examples would include stocks or mutual funds that give dividends, certificates of deposits, etc. Of course I am more into rental properties. Thanks for visiting!

  • http://bhaikubo.blogspot.com Dinah

    I am rooting for you as to make this work! Goodluck!
    .-= Dinah´s last blog ..Travel Wish List: Europe =-.

    • http://www.foreclosurephilippines.com Jay Castillo

      Thanks Dinah! I also hope our Pag-IBIG insurance gets released soon, although I’m sure yours will be released sooner because you were able to file it earlier. Good luck!

  • http://www.investingpinoy.blogspot.com Bryan Uy

    Hi Jay!

    Makes complete sense. In fact, that’s what also struck me from Robert Kiyosaki’s book about increasing one’s financial IQ. In effect, we should buy assets first (e.g. stocks, bonds, rental houses, rental cars like taxi, business like franchise) and then use the profits from these assets to pay for your house and car amortizations and other such liabilities, a flat screen tv or a planned vacation.

    Another thing that really got me was how he considers allotting a fixed consistent percentage (10% was suggested) from your income to (1) giving, (2) savings and (3) investments AS COSTS/EXPENSES and NOT as an OPTION. Thus, Kiyosaki says “Pay yourself first” by deducting these amounts for the three “expenses” first and live with the money that’s left (e.g. budget the remaining 70% for your monthly expenses). Me and my wife Mishu are now doing this. We pay ourselves first by deducting 10% for God, 10% for giving (helping others), and 10% to savings and another 10% to investments. Then we get our daily expenses from the remaining 60%.

    I just pray that God will bless us in our commitment to be financially free. Hope this helped your readers, too!

    God bless bro! Di pa din tayo nakapag-meet!:)
    .-= Bryan Uy´s last blog ..Invest in Cash in a Flash: A P300k Package for only P750 by Mark Victor Hansen and Robert G. Allen =-.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Bryan! Excellent insights and I’m impressed with how you are actually paying yourself first, kudos to you and Mishu! Please give her my regards. Hey, we can meet to play cashflow 101 with Earth one of these days! Are you open to a meetup in Makati? By the way, I’m attending the Rich Dad Asia event in a few hours… hehe. I’ll make a post about it afterwards!