Earn 10,000 a Month Passive Income

Can you imagine getting a check for not working each month for say, $10,000 or (120K) a year in dividends? Wouldn't that be nice? I am going to show you how to do the math and what investment vehicles will do that for you.

I think I became fascinated with the idea of earning passive income at the age of 10 when my dad died. All the income stopped and I watched my mother depend on monthly social security checks and quarterly dividends from stock investments like ATT, McDonald or Coca Cola stocks.

I once read this quote by Warren Buffet, saying, “if you don’t find a way to make money while you sleep, you will work until you die.” This really hit home so I immediately started researching investments I could make outside my business that would provide for me regardless of whether I was working or not.

The first thing I did was get clear what type of investor I was. I wrote the characteristics of my investment nature, (what I am comfortable investing in.) Because let's face it, if its a great investment but it doesn't fit your nature you probably aren't going to make it. Here is the investment criteria that was most important to me; (1) Never lose money, (2) provide dependable passive income monthly, and (3) have a great likelihood of appreciating over time.

I started studying what investments that could fit that criteria to see what best suited me; stocks, dividend stocks, bonds, bank CDs, real estate, REIT's, venture capital, debt obligations and other alternative investments. I quickly found most didn’t provide all three of the things important to me.

(1) Never lose money, (2) Provide dependable passive monthly income, and (3) have a great likelihood of increasing appreciating over time.

Look, I admit I am a coward when it comes to investing and simply can not stomach the idea of losing money that I busted my ass to earn. What initially got me so interested in apartment investing was the dependable cash flow provided while I wait for appreciation.

It is almost impossible to actually lose your initial capital when investing in cash flow producing commercial real estate. As long as the property produces cash flow, someone will always want to purchase the property. Unlike the home you live in (residential real estate), commercial real estate’s future value is determined by its ability to provide cash flow to the investor. A home's value is based on the comps in the area. The value of a stock is dependent upon many more conditions; the market, other stocks, politics, technology disruptions, new developments, economics, market conditions, and more. Commercial real estate's value is based on the cash flow it produces. When I realised this I was hooked.

It is almost impossible to actually lose your initial capital when investing in cash flow producing commercial real estate.

As long as you pick real estate in markets where rents continue to grow, the value the property will do the same. Unlike stocks, real estate can provide monthly distributions to its investors (if the operator is willing to distribute cash flow each month.) The best-known dividend stocks in the world; Coca-Cola, Walmart, & AT&T, pay quarterly, not monthly and I don't want checks every quarter—I want them every month. It's funny, because ATT charges you monthly for the phone bill, but pay investors dividends quarterly (the float).

Ok, enough of how I got to real estate as the investment for me. By the way, maybe stocks, cryptos, bonds, hedge funds or hard money lending is better suited for you. I think everyone needs to find the vehicle their investment style and personality is best suited for. Real estate is easy for me to understand. I can see it, touch it, borrow against it, visit it and sell it.

So once I decided commercial real estate was my vehicle to create passive income and future appreciation I learned how to do the math. The same math applies to stocks, bonds and bank deposits. Let’s say you want to earn $120,000 a year in passive income and want to know how much you would need to invest to do so.   

Here is the math - Take your desired annual dividend income amount and divide by the dividend percentage of return you think the investment can deliver.

Desired Income / Expected Return = Amount of Investment Required

The real estate we target for purchase we believe can deliver a total return of 15% to the investor with both cash flow and appreciation. So here is the math to determine how much I need to invest to earn %10,000 a month.

Take the $120,000/15%= $800,000 (this assumes cash flow and appreciation.) If you want to be even more conservative and want to know what it takes to earn $10,000 a month on just the cash flow distributed before appreciation, simply calculate just with cash flow expectation not total return. If the property is anticipated to throw off 6% a year in cash to investors, divide the desired annual amount of cash flow ($120,000) by the anticipated percentage of cash flow (6%) gets you $120,000 / 6% = $2,000,000 (required cash).

At CardoneCapital we offer accredited investors a 6% preferred cash on cash return (paid monthly)* and that is before the calculation of appreciation, debt pay down or the likes. By the time we are done selling a property we expect a 15% per year return to investors.

Compare that to Apple Stock at 1.9% (paid quarterly) you would have to invest $6,315,000 to earn the same distribution. That represents 3X the amount of the Apple investment just on cash flow.

This is what hooked me on real estate, but it gets better.  An even bigger benefit is that your original investment in real estate, because of leverage, buys 3X -4X the amount of real estate investment.  You can NOT do that with stocks.

Because real estate provides stable cash flow, banks are willing to provide the investor with leverage allowing you to multiply your buying power without over leveraging the real estate. The bank is confident the debt will be paid off by the real estate’s income paid by tenants. The banks won't allow you to do this with stocks. You can buy stocks on margin, but this is a very risky and anytime the stock falls to certain point the bank will call your stock and liquidate you to cover your margin. 

Considering that Bank of America will lend me money to buy real estate but will not give me a loan to buy Bank of America stock. (Let that sink in.)

This is why real estate became my investment vehicle. My first big investment in real estate was $350,000. I earned $3,000 per month in the first year, $5,000 per month in the second year and by the third year I was earning over $8000 a month. Rents were going up which means the value of the property was also increasing. I leveraged $350k to buy a $2M piece of property and was paid monthly income while I waited for the value to go up. I later sold that property and 10X my initial investment plus the cash flow I was paid.

Since then I have bought and sold almost $2B real estate. Even during 2010 when all my other businesses suffered the real estate continued to pay me.

Let me know what your take-aways are or where I might have missed something. I know there are many smarter than me who will punch holes in my math. Certainly, many will tell me about all the investments I could have made that would have been better; Google, Netflix, Amazon, Bitcoin.... but I didn't invest in those because I am an admitted coward when it comes to my money. 

CardoneCapital distributed almost $1.3M to our accredited and non-accredited investors just last month. So many of my friends and customers asked me to allow them to invest alongside me I did. Check out some of the properties we just closed and do some research to determine whether buying your own deals is good for you or would you rather invest with someone who has been doing it. Love to have you onboard as a partner if this fits your investing personality.

Grant Cardone

CEO, CardoneCapital