It’s hard to believe it’s already been a year since I first greeted you all here with a financial independence day greeting. This time around I would like to greet you all again by sharing a story of how an Information Technology professional was able to cross-over to Real Estate investing. I hope this inspires not just IT professionals but also just about everyone out there that it can really be done.

Cross-over: from IT to RE

(The Philippine Star) Updated June 11, 2010 12:00 AM

MANILA, Philippines – For Jay Castillo, crossing over from heading the IT department of a multinational company to investing in real estate seemed like a very big risk at first glance. But there’s no denying now that he’s enjoying real estate investing and making good money out of it.

Jay wanted to get his feet wet in real estate investing after reading Think Rich Pinoy by Larry Gamboa. He still had a lot of unanswered questions, though, on how exactly he could start investing. Fortunately, he was able to attend Urban Institute of Real Estate’s Investing in Real Estate Series. “I also attended Urban Institute’s Comprehensive Real Estate Seminar and Review (CRESAR) to gain knowledge in real estate and I also passed the real estate broker’s licensure exam a month after,” Jay shared.

At present, Jay continues to look for bargain and foreclosed properties to buy and sell. He is also considering buying lots where he can build townhouses which he could sell or rent out afterwards.

“This would be a big departure from what I did last year which was to buy and renovate foreclosed house and lots and then sell them through a rent-to-own scheme” Jay said.

According to Jay, the real estate business can be very lucrative if one focuses on bread-and-butter properties or single-unit houses and lots priced at P2 million and below. “These are the kinds of property many buyers are looking for.”

The other more saleable properties are single family homes below P2 million with 2-3 bedrooms, 1 toilet & bath, with a floor area of 50 to 60 square meters (sqm), and lot areas of around 100 sqm.

Jay’s first completed deal is always the most memorable for him. “For my first completed deal, I bought the property through an auction after many attempts in bidding for properties at public auctions and not winning anything. After I won a bid for the first time, I was very happy, but a feeling of anxiety also began to set in: “What if I am not able to rent out or sell this property?” “What if I encounter a problem with the title of the property, the taxes, the house’s structure, etc?”

His fears were unfounded after all. That property was a perfect example of a great investment as he was able to have it tenanted in just 55 days. “I learned so much from that deal,” he enthused.

One of the more important considerations a serious buyer asks is whether the property is flood-free and was not affected by Ondoy. “Of course, buyers would also want to know if the property is accessible to public transport and near their place of work, in a safe and secure location, and has good investment potential.

Is it true that to be able to sell a property, you must be able to fully explain or answer all the questions a buyer may ask? “Yes, and one also has to be able to answer sincerely,” replied Jay. “I credit Urban Institute of Real Estate for giving me the kind of training and know-how that gave me a lot of confidence in dealing with clients,” he added.

Jay believes that Filipinos have become more intelligent and discerning buyers seeking more value for money and looking for sound investments like real estate.

Before enrolling in Urban Institute, all Jay knew were general concepts on real estate investing but had no idea how exactly they can be done.

“At Urban Institute, I learned exactly how real estate transactions are conducted considering the laws, rules and regulation, taxation, etc. When there’s a difficult question I encounter, I can ask Urban c/o Engineer Enrico Cruz “Engineer Cruz has probably encountered just about everything there is in real estate investing so he is able to answer all of my questions quickly.” Cruz is the president of Urban Institute of Real Estate and has more than 40 years of working experience in the field of engineering, construction, real estate, and education.

(For details about real estate courses at Urban Institute, call 509-7402 or 796-8019, or CP# 0916-426-9174 or 0939-137-9242 or email at info@urbanet.ph or urbanet.ph@gmail.com.)

Article source: Philippines Star, June 11. 2010 (page C-3 on the printed edition)

Here’s a little trivia, if you will notice my picture on the printed edition, I appear to be very serious and somewhat concerned. This was because I was checking what was my maximum allowable bid as I had a lot of competitors who were also bidding for the same properties during this auction of UCPB foreclosed properties. I did not win in any of my bids for properties I was bidding for during that auction but I was able to win three months later with another bank. I guess persistence really pays off!

Happy financial independence day to all!

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

A financial independence day story: Cross-over from IT to RE is a post from: Foreclosure Investing Philippines

Welcome to the third part of this series on the 3 types of income one can get through real estate investing. This was supposed to be the third and last part which is about passive income, but it has turned out to be a huge article in itself (more than 4000 words) , which is why I will have to split it in two. This will be the first half .

Before you begin reading this article, I recommend you review the first two parts about portfolio income and earned income:

How to get portfolio income through real estate investing

Earned income through real estate investing

Next we continue with passive income…

What is passive income?

Wikipedia defines passive income as income from “trade or business activities in which you do not materially participate.” Furthermore, the IRS website defines that “in general, all rental activities are passive activities, even if you do materially participate. You materially participate in an activity if you are involved in the operation of the activity on a regular, continuous, and substantial basis.” These may sound complicated so I would rather stick to the simpler definition that passive income is income that comes in consistently without having to do much physical work.

Examples of passive income are dividends from paper assets like stocks, bonds, and mutual funds, interest income from certificates of deposits, mortgages, income from advertisements  on the internet, income from a business where the business owner need not work in the business, residual income from royalties from the sale or use of intellectual property and multilevel marketing activities, and of course, rental income from the leasing of real estate.

Passive income from real estate investing

In real estate, you get passive income by investing for cashflow. This is when you focus on buying properties whose rental income exceeds all expenses, including taxes, and any payments for loans, if any. Basically, the monthly cashflow would be the monthly rental income less monthly expenses less the monthly amortization you pay to the bank if the property was bought through financing.

Using our previous example again, where I bought a foreclosed property for Php1Million by putting down 20% downpayment or Php200,000, with a remaining  loan principal balance of 80% or Php800,000, let’s assume the balance is payable in 20 years at 8.5% annual interest rate(this is the current rate for Pag-IBIG for a loan of Php800,000).

This results in a monthly amortization of Php6,942.58/month( You can verify this by using our mortgage calculator)

For this example, lets also assume that my monthly expenses as the landlord are monthly homeowners association or condo dues, maintenance, property management, real property taxes(I just divide the annual real property tax by 12 to arrive at monthly figures), maintenance reserves, etc. all add up to about Php4,000/month and the property can be rented out at Php15,000 per month.

My monthly cashflow for the example above would then be as follows:

Monthly Cashflow = Monthly Rent – Monthly Expenses – Monthly amortization

=Php15,000 – Php4,000 –  Php6,942.58

=Php4,057.42/month

Do take note that the cashflow figure we arrived at above is before taxes, more on the applicable taxes later.

Examples of rental income

Rental income can come from the leasing of houses, lots, house and lots, townhouses, condominiums, parking slots, apartments, buildings, hotels, office-space, space used for cell-sites, billboards, or just about any residential or commercial space. Did I forget any?

One can even earn passive income by having a real estate business, more on this later.

Advantages of passive income from real estate

Least taxed – Passive income in the form of rentals is the least taxed among the types of income one can get through real estate investing. Remember, income in the form of capital gains are taxed at a rate of 6%, while earned income is taxed up to a high of 32% in the form of income tax.

For rental income, the taxes range from a low of 3% percentage tax to a high of 12% VAT. Please take note that percentage tax and VAT are mutually exclusive, you pay one or the other, depending on which is applicable.

The lease of residential units where the monthly rental per unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of such rentals during the year do not exceed One Million Five Hundred Pesos (P1,500,000.00) are exempt from VAT, and shall be subjected to three percent (3%) percentage tax.

It follows that the 12% VAT applies to the lease of other properties not covered by the statement above. Please refer to this article:  Save Money On Taxes: Exemptions From VAT On The Sale And Lease Of Real Estate for more information and a sample computation.

Of course, income tax is still applicable. The good news is you can still lower your taxable income through allowable deductions, thereby lessening the payable income tax. My wife will create a more detailed article about this in the future. I will force her to do this if needed.

Income comes in without the need to sell the property – An obvious advantage with passive income through rentals is you have income coming even if you don’t sell the property. If you don’t have to sell the property, you obviously do not need to pay any of the major taxes like Capital Gains Tax (CGT) for capital assets or Creditable Withholding Tax (CWT) for ordinary assets, whichever is applicable.

Less affected by a recession or financial crisis (at least for residential properties) – If you invest for passive income, I believe that you are less affected when a recession or financial crisis happens, unlike flippers who might get devastated because they will no longer be able to sell their properties at their desired selling prices as property values  plummet.

Even if flippers rented out the properties they could not sell, most may still end up with negative cashflow because the cashflow was not considered at the very beginning. It is easier to find a property that can be flipped for a profit but has negative cashflow, than a property that has both positive cashflow, and can be flipped for a profit. If that were the case however, I would think twice before I sell a passive income generating property as it is like a goose that lays golden eggs.

Without the need to sell a property, investing for cashflow is simply less vulnerable and less risky, in my opinion.

In addition, I believe that demand for residential properties that are for rent would still be pretty high, as people still need a place to live in, even if there was a recession or financial crisis. It would be logical to conclude that the people who would forego buying their own homes would  just rent. On the other hand, commercial properties that are for rent would face less demand in times of a recession or financial crisis and would most probably be greatly affected.

Provides a consistent stream of income – Passive income in the form of rentals of real estate provides a reliable and consistent income stream that can really replace a person’s earned income that comes from having a job.

Money works for you - We often hear about the sayings “instead of working hard, we should work smart” and “instead of working hard for money, money should work for you” and passive income from real estate fits the bill. By finding a good rental property, the work is front-loaded, and the rest is just maintenance, and yet the money just flows into your pocket. Now that’s working smart!

You get to enjoy the fruits of property ownership - As you remain as the owner of the property, you also get to enjoy the fruits of ownership like gaining equity as time passes where part of your rental income is paying off your loan, if any, and you also have the benefit of any future appreciation of the property, if you do decide to sell or refinance the property down the road.

The disadvantages of investing for cashflow

Smaller income as compared to capital gains - The example above illustrates that the passive income we can get from a rental property looks small compared to the capital gains that we can get through flipping. Php4,057.41/month versus Php100,000/property(assuming you can really flip at least 1 property per month with a net profit of Php100,000). However, I still prefer rental income because in the long run it will help you get out of the rat race, more on this later.

Furthermore, you can have bigger passive income by focusing on properties that command higher rental rates, decreasing expenses through better and more efficient property management and maintenance, increasing the loan payment term to lower the monthly amortizations, etc. You can even go for a rent-to-own agreement where the option to own the property justifies higher monthly payments, resulting in bigger positive cashflow.

Requires property management – Property management is not really a problem if you have 1 to 4 rental properties. Beyond that, property management would probably feel like you you are back in the rat race , another 9 to 5 existence where the only difference is you own your job.  This is just my opinion. Again, you can eliminate this by going for a rent-to-own scheme as the tenant-buyer will the one to manage the property as the property owner.

It is harder to find properties that can generate positive cashflow – Like what I mentioned earlier, It is easier to find a property that can be flipped for a profit but has negative cashflow, than a property that has positive cashflow. If you are consistently doing the numbers with the free foreclosed listings that you get from foreclosurephilippines.com, you would know what I am talking about. If you are not doing the numbers, what are you waiting for, Christmas?! Knowledge gained left unused is knowledge wasted!

Rent control – The coverage of the Rent control act of 2009 include all residential units in the National Capital Region and other highly urbanized cities, with a monthly rent for each of which ranges from One peso (Php1.00) to Ten thousand pesos (Php10,000.00) and all residential units in all other areas, the total monthly rent for each of which ranges from One peso (Php1.00) to Five thousand   pesos (P5,000.00).

One can avoid this by investing only in properties that command a rent higher than Php10,000, although this could mean VAT becomes applicable. Another option to avoid rent control is to use a rent-to-own agreement, although in effect you are already selling the property, even if you still get positive cashflow for the duration of the rent-to-own agreement.

You get all the expenses related to property ownership – Expenses like maintenance, cost for fire and acts of nature insurance, real property tax, property management, and other expenses that cannot be passed on to your tenants, remain to be your responsibility as the property owner, unless you enter into a rent-to-own agreement. Monthly dues, utilities, and other miscellaneous expenses can be passed on to the tenant.

You might encounter tenants from hell – Tenants from hell are probably the most dreaded thing that would-be landlords are afraid of. Yes, it happens to the best of us, it even happened to Larry Gamboa, which he shared during the recent Think Rich Pinoy Seminar. The only way to get around this is to pre-qualify your would-be tenants or tenant-buyers.

Things to remember about passive income from real estate investing

Each passive income generating property is like a goose that lays golden eggs – If you remember Aesop’s fable “The Goose That Laid the Golden Eggs”, the goose laid a golden egg consistently each and every day. A rental property is just like that as it lays “golden eggs” in the form of passive income every month.

Passive income generating real estate still needs maintenance and some work; you still need to take care of your “goose”

• You need to have property management which can be done by you if you have 4 rental properties or less, or you can just outsource it to other competent people who can do it better than you if you already have more than 4 properties. Take note that the 4 properties is just my own estimate. You may even start outsourcing property management with your first rental property, as this will make it truly passive, and avoid those things that go with property management that might turn you off, like fixing toilets at 3am.
• If you don’t take care of your property and your tenants, either the golden eggs will become smaller and smaller as expenses begin to pile up because of deferred maintenance that eventually catches up with you, or the eggs will just stop when the goose dies as you lose your tenants or when your property becomes unlivable, whichever comes first.

Don’t sell the goose – If you sell your property that lays “golden eggs”, then you will obviously have no more eggs, just like when the farmer decided to kill the goose to get all the golden eggs inside of it. But unlike the farmer who found no golden eggs inside the goose when he killed it, you might end up with a big golden egg in the form of capital gains if you sold the property, but that would be the last golden egg, and you will have to find another goose. It is always tempting to make a lot of money quickly. Don’t be too greedy!

How to turn earned income to passive income – There are actually ways to convert earned income into passive income. Here are a few of my ideas:

A. Treat real estate investing as a business – The key is to set it up like a business where you are the business owner who works on the business, and not in the business. You need to systematize your real estate business and delegate as much as possible, among a number of things, that would help make a business like this succeed, and this will turn you into a true business owner, not just someone who owns your job.

It would be like setting up your real estate business to function like it was a franchise of McDonald’s or Jollibee, where the least skilled can do most of the work, which lets you, the business owner, work on the business. Some aspects can even be outsourced like internet marketing for example, which can go for as little as USD2.00/hour, right here in the Philippines, as mentioned here by Yaro Starak. A working system used for such a real estate business can be easily replicated and can even be turned into a turnkey operation like a franchise, as described in the book “The E-myth revisited” by Michael Gerber. I believe this is also Larry Gamboa’s goal when he started his Think Rich Pinoy Franchise.

B. Setup a passive “residual” income stream – Another way to turn earned income into passive “residual” income would be to set it up like a legitimate multi-level-marketing (MLM) company. For real estate brokerage, what if it was setup in such a way that real estate agents are assigned the bulk of the offline tasks and leg work? They do this for the licensed real estate broker they are registered with, who in turn earns a small override for each sale. Lets say the agent and the broker split the 6% commission(now referred to as professional fee as real estate brokers are now under the PRC with the RESA Law) with 4% for the agent and 2% for the broker. The agent will do a lot of legwork but this will justify the additional 2% they will earn, which results in twice the earnings of what they usually get. You as the broker earn the 2% passive “residual” income. Do you think this idea of mine would work?

Devote time and effort in finding properties that generate cashflow – If you just focus on flipping properties, it would still be like a 9 to 5 existence because you will always have to flip a property to have cash coming in. If you invest for cashflow however, those small income streams in the form of rental income will eventually become as big, if not even bigger, than the income flipping can generate, as the number of rental properties increase.

The only difference is, if you reach your passive income monthly goal, you have a choice of stopping and yet the monthly cashflow still comes in. If you only have earned income, even if through real estate, you won’t really be out of the rat race.

Coming up next: Financial freedom and how it can be achieved through passive income from real estate investing

Now that you have a general idea of what passive income is, along with its advantages and disadvantages, I will next share my thoughts on what financial freedom is from my own perspective, and what it would take to become financially free through real estate investing.

I will also try to answer questions and statements like “Can it really be done?”, “Where do I start?”, and “In reality if it was easy, everyone would be doing it…”

See you next week for the second half about passive income which would be the series finale on the 3 types of income one can get through real estate investing.

*Click here to read the final part of this series!

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

Passive income through real estate investing – the path to financial freedom (Part 1) is a post from: Foreclosure Investing Philippines

Incoming search terms:

This is the second part of a series on the three types of income one can get through real estate investing. If you missed the first part, please read it before reading this. You can find part one here – How to get portfolio income through real estate investing

Earned income is the type of income that only comes in if you work for it. Sometimes it is also referred to as active income. In real estate, we can get earned income by investing for capital gains, and also through commissions or professional fees by acting as a real estate broker or agent. For beginning real estate investors, earned income is arguably the easiest to earn.

Earned income through capital gains

A common way to get earned income through real estate is by investing for capital gains. We can get capital gains through buying and selling properties quickly for a profit, which is more commonly referred to as flipping. Flipping can be further divided into wholesaling or retailing.

Wholesaling

From what I understand, wholesaling is when one ties-up a property under contract, turns around, and sells it to a buyer who is usually another real estate investor for a small but quick profit. The wholesaler basically buys a property below market value and sells it at a higher price but still below market value, leaving enough room for profit for the next buyer. Sometimes it is also possible to just assign the contract.

Retailing

Retailing on the other hand is when you buy a property, renovate or rehabilitate it (hence the term rehabbing), and  then sell  it for a bigger profit as compared to wholesaling. Although flipping is usually associated with quick deals, retailing is also often described as flipping, even if it obviously takes longer to complete.

Wholesaling and retailing examples

In our previous example on portfolio income, I bought a foreclosed property for Php1Million, renovated it, and sold it for Php1.5 Million. That’s a perfect example of a retail deal.

What if I just tied-up the property by putting an earnest money deposit, and then sold it to another real estate investor by assigning the contract to him for a total contract price of Php1.2Million, leaving him with still enough room for a significant profit if he himself would renovate and sell the property for Php1.5Million afterwards? That’s wholesaling! Your profit of Php200,000 is your earned income.

By the way, if one is investing for capital gains through flipping, one can be greatly affected when market conditions deteriorate and property values go down. One may not be able to sell the property at the desired selling price.

Earned income through commissions

Another way to get earned income through real estate would be through commissions, either as a real estate broker or agent. Take note that I said through real estate, not through real estate investing. In my opinion, when one is after commissions, it is not really investing in real estate but is rather selling time and effort, more on this later.

In the Philippines, the common commission rates for brokers are 3% to 6% while agents usually get 2% to 3%, at least that’s what I often see from other real estate brokers and agents. Remember, I am also a licensed real estate broker.

Advantages of earned income

1. You get quick cash – There is a potential for quick cash because of the quick turnaround time for selling the properties when filliping or acting as a broker. Obviously, there is still a need to actually sell the property and close the deals

2. Requires little capital – When you structure a wholesale deal, one might be able to tie-up or get the property under contract with just a little earnest money which means there is little capital needed. If you act as a broker, there is really no capital needed as you are just selling someone else’s property.

Disadvantages of earned income

1. No sales, no income. Effort driven – If you are unable to consistently (1) find a property to flip or to broker and (2) complete the deal by actually selling it and closing the deal, no income comes in.

2. Need buyers or investors lined up – For flipping to work, you obviously have to have a lot of ready buyers or investors lined up to buy the properties from you.

3. Highest tax rates – If you consistently buy and sell properties and the BIR sees that you are already habitually engaged in the real estate business, your earnings will get taxed at earned income levels, and you pay this through income tax. If you end up at the highest tax bracket, your income will get taxed at a rate of 32%, if I’m not mistaken. Take note however that one can still  lower the taxable income through allowable deductions, thereby lessening the payable income tax.

In our example above where the wholesale deal netted a gross profit of Php200,000, one would have to pay income tax amounting to 32% of Php200,000 or Php64,000. If one is also habitually engaged in real estate (you already have at least 6 real estate transactions in the current year), you also have to consider Creditable Withholding Tax (CWT) and VAT if applicable. Yes, you read that right, CWT should be considered instead of Capital Gains Tax (CGT).

If you earn commissions by being a broker or an agent, you also have to pay income tax.

4. Earnings might be inconsistent – Earnings become inconsistent because there will surely be months with no sales or when there are no ideal properties to flip. In case market conditions go bad, one who is investing for capital gains through flipping, one can be greatly affected as market conditions deteriorate and property values go down. One may not be able to sell the property at all.

5. You are actually selling your time, instead of investing in real estate – One drawback is you really have to put in a lot of time and effort into this type of income. I can’t help but say that this sounds like you are back in the rat race.

6. You let go of a property and its fruits – When you flip properties, you let go of the potential cashflow it can generate, along with any appreciation that the property may have as the years go by. How many times have you heard other seasoned investors say that they regret selling a property because of the excellent rental income they could have had up to now, along with the appreciation of the property ? In a way, all the effort in finding a good deal goes to waste.

Is earned income through real estate for you?

I guess it depends on one’s answer to the question “Why are you getting into real estate investing?”

Is it for quick cash? Do you want to get rich quick? Or is it for financial freedom?

Either way, I suppose this is meant to replace the income you would get from a regular 9 to 5 job and right?!

To illustrate, let’s just say your target income is Php100,000 per month. Lets run the numbers and see how we can achieve this through flipping or through commissions.

How many deals would it take to make Php100K per month through flipping?

In my opinion, a wholesale deal worth pursuing should at least make a net profit of 100K so this means you need to complete a deal at least once a month. Again taxes must be considered, the Php100,000 should already be net of all applicable taxes.

If your profit will be taxed at a rate of 32%, then your gross profit should be at least Php100,000/(1-0.32) = Php147,058.82

For retailing, which usually takes 3 months to complete on the average, a decent target would be to earn at least Php300,000 of net profit. This means your gross profit should be equal to Php300,000/ (1-0.32)= Php441,176.47

Do take note that the above should apply when you are already categorized as someone who is habitually engaged in real estate by the BIR.

Again this is on target for the goal of making at least Php100,000 of net income per month.

But there’s a catch. If we apply the 100-10-3-1 rule where for every 100 deals we analyze, we can expect to have 10 worth inspecting, and 3 are worth making offers, to end up buying one, this means we need to have more than enough leads that would lead to 100 deals worthy of being analyzed and we have to do this each and every month, 12 months a year, or else your income won’t come in. And we haven’t even considered marketing which is needed to sell the properties, which is also very labor intensive.

How many deals would it take to make Php100K per month through commissions?

Let’s say you are a licensed broker and are entitled to a 5% commission for each sale of a property worth less than Php10Million. How much worth of properties do you need to sell just to make Php100,000 per month.

Assuming that you will have to pay income tax at the rate of 32%, then the actual commission one needs to earn would be Php100,000/(1-0.32) = Php147,058.82, similar to the example above for flipping. If this amount represents the 5% commission, then the property should be worth Php147,058.82/0.05 = 2,941,176.47. This means I need to sell about Php2,941,176.47 worth of properties per month just to take home Php100,000 of earned income.

Why does it feel like I’m back in the rat race if I focus on earned income generating activities? Is it just me or are you also beginning to feel that getting earned income through real estate is no different from having a job?!

So much work and taxes to pay and income stops when you stop working

If your goal is financial freedom, then earned income in itself might not be able to provide this mainly because of the amount of work to be done, the huge amount of taxes to pay, and the income stops once you stop working actively, unless you find a better way…

My thoughts on earned income

Earned income is okay if it will eventually be used to buy passive income generating assets. Earned income through flipping properties is great for the short term. The long term goal is to use these earnings to eventually buy properties that generate passive income.

I also believe it would be a good source of supplemental income as opportunities arise, where significant and quick profits are hard to ignore. Supplemental in the sense that it can supplement our income while we ultimately build our passive income streams.

Earned income generating activities as explained above like flipping through wholesaling/retailing and earning through commissions are okay if they can be turned into a business where you are the business owner. When I say business owner, I mean the business can thrive even without you. If a business can’t survive without you, then you own a job, not a business, as paraphrased from Michael Gerber’s book “The E-Myth Revisited”.

Let me try to explain these further in the next part of this series.

Coming up next: Passive income – the path to financial freedom

Coming up in the third part of this series, I’m going to tackle how one can build passive income streams through real estate investing, which I believe is the path to financial freedom.

Passive income through real estate investing – the path to financial freedom (Part 1)

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in Twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

Earned income through real estate investing is a post from: Foreclosure Investing Philippines

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A guest post by Samantha from MortgageFit

Taking out the right kind of mortgage can be a harrowing experience unless you know your mortgage requirements well. Many consumers take out mortgages only to repent later as they are unable to negotiate with mortgage lenders on favorable terms. It is best to walk into your lender’s office and talk it out at length about your finances. Talking directly to the mortgage lender has an edge over online mortgages.

Online mortgage loan will undoubtedly help you to save a lot of time, money and energy and you don’t have to run around to look for a mortgage lender or rates offered. But you take out a mortgage depending on your individual requirement. Do online mortgages treat mortgage applications taking into account individual needs? Not to a very large extent.

If you approach a mortgage lender personally, you can discuss about your finances directly. You may also get valuable guidance from the lender and settle upon a mortgage that suits your needs best. In fact lenders will co-operate with you since the mortgage market is still fragile and lenders will not want to lose consumers.

How will you identify the best online mortgage lender?

If it is easier for you to apply for a mortgage online, do a bit of research that will prevent you from being duped.

• When you are looking for the online mortgage lender, find out if the lender is a member of Mortgage Bankers Association (MBA) and National Association of Mortgage Brokers. Visit the websites of the above to find out whether or not the mortgage lender is a current member.

• A good and reliable website will have a security and privacy statement. So, look for the same. A reliable and legitimate website will always try to protect your privacy.

• Online mortgage lender will not make use of pop up advertisements for promoting themselves.

• If the data or information you enter into the website is encrypted, it is likely to be a legitimate website

Repeat the same procedure for all the websites you visit. Once you have done your homework, it is time for selecting the right mortgage deal for yourself. If you adopt the above measures, chances are that you won’t get duped easily and you will be able to decide upon the right lender better.

Samantha is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit. She has been an active participant in the forums wherein she offers mortgage advice and suggestions to people in loan problems.

Are online mortgages reliable? is a post from: Foreclosure Investing Philippines