This episode of "Beyond the Paycheck" explores the importance of diversifying income streams to achieve financial stability. In this episode, Paula interviews Fred Moskowitz, known as the Alternative Investment Expert, who shares valuable insights on this topic.
Fred begins by explaining his background as a computer engineer and how he realized the inherent risks of relying solely on a job for income. He highlights the importance of creating assets that generate income and cash flow independently of traditional employment or the stock market. This insight sets the stage for a discussion on alternative investments.
One of the primary alternative investments discussed is owning rental real estate. Fred emphasizes the potential for monthly income exceeding expenses when structured correctly. Paula raises an essential question about how someone living paycheck to paycheck can afford to purchase rental property. Fred offers practical advice, including strategies like renting out a room in one's own home and starting with small, consistent investments.
The conversation touches upon the concept of dedicating a portion of one's income to investments, drawing inspiration from Robert Kiyosaki's teachings in "Rich Dad, Poor Dad." Fred recommends opening a Roth IRA, automating contributions, and leveraging technology to establish a strong foundation for future investments.
Paula raises an important point regarding the use of retirement funds for income-generating investments. Fred introduces the concept of Self-directed Retirement Accounts, which allows individuals to invest retirement money in real estate, private equity, or other income-generating assets.
The podcast delves deeper into mortgage notes as an alternative investment, explaining how individual investors can participate in the secondary market by purchasing these notes. The risks associated with alternative investments are also discussed, emphasizing the importance of securing investments and seeking professional guidance when necessary.
In the final segment, Fred and Paula stress the significance of education and building a network of like-minded individuals to avoid making investment mistakes. They conclude by providing contact information for Fred, encouraging listeners to reach out for expert advice.
Overall, this episode of "Beyond the Paycheck" offers valuable insights into the world of alternative investments and the importance of diversifying income streams for financial stability. Paula's direct and straightforward interviewing style, combined with Fred's expertise, makes this episode a valuable resource for anyone looking to enhance their financial knowledge and explore alternative investment opportunities.
Fred's website: giftfromfred.com
For more from Paula, visit www.paulachristine.com or email paula@paulachristine.com.
Paula Christine: Hi, I'm Paula Christine. Welcome to Beyond the Paycheck. Depending solely on your monthly paycheck can be really stressful, so having multiple income streams could be a game changer. Today I've invited Fred Moskowitz, I hope I did that right, who will talk to us about his insights in diversifying your income, which could potentially offer you a little bit more financial stability. Welcome Fred.
Fred Moskowitz: Thank you, Paula. It's great to be here.
Paula: Did I do your name correct?
Fred: You, sure, did. You got to.
Paula: Perfect. Yay. Introduce yourself a little bit and tell me about your expertise.
Fred: Thank you. Thank you. My name is Fred Moskowitz and I'm known as the Alternative Investment Expert. Little bit about my background. I started out having a very long successful career working as a computer engineer, and so I spent a lot of years working at technology companies and startup companies. As you can imagine, just a real roller coaster of ups and downs with the economies, economic downturns.
I went through the dot com boom and then the bursting of the dot com bubble. Through all of that I realized that, no matter how good of an engineer I was or how valuable of an employee I was, that I was always at the whim of circumstances, out of my control, and if things were not going well at the company, or if the company goes bankrupt, goes under, I could quickly lose my job through no fault of my own.
With all that I came to this realization that I was taking on a huge risk because my only source of income was my paycheck for my job. That led me to getting involved in alternative investments. What that is, Paula, is the activity of buying and building assets, assets that you own and control. You can increase their value, and the best part is that they generate income and cash flow for you.
Whether you're working or not, or anything else that you're doing, you have these income streams coming in and they can be completely separate from the paycheck, from your job, from the stock market, from all of these other factors that come into play. It just gives a strong solid financial footing for anyone.
Paula: Give us an example, Fred, of one of the alternative investments.
Fred: Yes, there's so many examples, Paula. The most common one and this is what I started out with, it's owning rental real estate. If the deal is structured correctly, then you're going to be bringing in monthly income in excess of all of your expenses and so you're making a profit on that each month.
Paula: How does someone who's living, say, paycheck to paycheck, purchase rental property?
Fred: Well, there are many strategies. Ideally, you save up money, super a down payment, you purchase property, finance it well, but there's some other strategies as well. You can rent out a room of the house you live in. That's a way that a lot of people, especially young people, get started that way and help subsidize other areas. I always recommend for people to learn about, real estate is the big one. It's the way that most wealth in this country has been created.
Another area which I'm very involved in is the activity of investing in mortgage notes, where you buy a mortgage note and hold it, and you're stepping into the shoes of the bank, and now you're receiving those monthly payments. These things, they do take capital. You do need to have money to invest to get started with that.
It comes down to the idea of and this is something that we all learned from Robert Kiyosaki in Rich Dad, Poor Dad, the concept that it's not about how you earn your paycheck. It's about what do you do with that paycheck once you have it. In other words, are you dedicating a portion of your income for investing, for creating investments for yourself?
Paula: When you talk about having the money to get started in this, are we talking about is it a small investment or large? Are we talking 10,000 or 20,000, or are we talking 200,000 or more?
Fred: It's all of the above, Paula. Remember this. Everyone starts from somewhere. Start from where you are. For some people, it may mean you're setting aside $50 a week out of your paycheck, and starting with that. Start small, but be consistent about it. That's the main thing. Be consistent. Anyone that has earned income is eligible to open up a Roth IRA. This is what I always recommend for people starting out. Open up a Roth IRA as long as you're eligible to do that, and it can be very powerful. Do small amounts, $50 a week. Automate it.
This is the best thing about the world of technology we live in. Automate it so that it automatically gets transferred into the account without you having to do anything, where it'll get deducted from your paycheck, set yourself up for success so that you don't have to think about it, and then with that, you can direct that money, invest it into different investments that are appropriate for the amount. If you're in a position where you have 20,000 or 100,000 or more already sitting there to deploy, now you're in a different scenario, for sure.
Paula: How do you take the money from your Roth IRA and get into different income streams? Because technically, that's for retirement.
Fred: It is. It is for retirement, but you can invest that. You can invest that into real estate deals. You can invest that into mortgage notes, and the way to do that is through something called Self-directed Retirement Accounts. These are available from numerous retirement account custodians around the country, and it's something that's right in the tax code. It's not new. It's not a new thing. This has been around since the establishment of retirement accounts.
It's just that a lot of people don't know about them. If you go to your big brokerage houses, the Fidelity or Vanguard, you go to them and ask them about self-directed accounts, they're going to say, "No, we don't offer that. You can't do that," and the reality is you have to go to a different custodian. You can, absolutely, invest retirement account money into real estate, or into private equity or into a local small business. You can even do lending. You can create loans in your retirement account and loan that out to real estate investors, or local business. You can do business-purpose loans. There's so many options available.
Paula: How does that give me an income stream? If I loan out to a business or something and then they pay me back, I get that with interest, but does that go back into my IRA?
Fred: It does, yes.
Paula: It's not necessarily giving me an income stream today, but an income stream down the road?
Fred: For the future. Yes. I always recommend for any investor, make this a part of what you do. If you're getting good at investing, do some of that in a retirement account because you can benefit from the tax advantages. It's really powerful.
Paula: Let's go back to a mortgage note, explain what that is, and you can purchase a mortgage note outside of your IRA, correct?
Fred: Oh, yes. Absolutely. Yes, you can purchase it outside of your IRA. What is a mortgage note? It's the financing that's behind most real estate purchases in our country. Most people, when they go and buy a house, whether it's a house to live in or an investment property, the property is purchased with financing. The bank creates a loan, you put in your loan application, you apply for it and then what happens often is that that loan gets resold.
How many of you have had this experience where you take out a loan whether you're buying a property or refinancing and within three months you get a letter from the lender saying, "Dear Mr. and Mrs. Homeowner, please know that we've sold your loan. Here's the address of the new lender and starting next month please send your payments to them." What happened there is that the loan was sold on the secondary market and this happens every single day, and so individual investors can participate in the secondary market to buy loans.
Paula: Are they doing that through some like a mutual fund type of situation, some pool? Or are they doing it on their own?
Fred: Both. Since you mentioned that those are the two ways that someone can get started investing in mortgage notes, it's investing through a fund, a mortgage note fund, or buying notes individually to build a portfolio. There's two ways to do it
Paula: Buying one individually, that just depends on, so if somebody had a $150,000 mortgage, you would have to buy that loan.
Fred: Correct.
Paula: Okay. It's interesting. For someone starting out, it goes back to saving money and being able to then, eventually, get into either the fund and then maybe from there you grow. The more you accumulate, then you can start looking at buying individual notes or your own individual property and then turning around and renting that.
Fred: Correct. What happens when you're doing this and you have many years of time on your side, you have that income coming in and it starts to compound. It really does create a snowball effect. All of this, all these concepts we're talking about, it's long-term. It's not going to be in one or two years. You have to think in terms of 5, 10, 15, 20 years, that kind of long-term. It can be very powerful.
Paula: Okay. I apologize, my computer just died, so we're going to finish this up on the phone. Fred, what are the risks associated with the mortgage notes or their rental property?
Fred: Great question, Paula. The risks associated with mortgage notes or any kind of income streams, it all comes down to how is your investment, how is your capital protected? How is it secured? In the case of mortgage notes, there's a recorded lien against the property. If you own real estate, you have a lot of control against that real estate. The thing to look at is, if something goes wrong, how do you get your money back? How do you recoup that?
That's the lens through which to look at that and ask questions about and have a good understanding. In most cases, when you own an asset, you can sell the asset. If it's not going smoothly or if there's problems, you can, certainly, sell it or you can put the work in to correct the issues and then sell it. Then, of course, the value is impacted there. Really it comes down to looking at those different scenarios.
Understand how do I get my money back if something goes wrong and then have the right advisors on your team to help provide guidance to you and direction. All the problems that come up, they've happened before, there's nothing new. There's usually established process on how to recover that. That's what you do. Having good legal counsel is important in most cases because they're going to help you evaluate the different options and provide guidance on the best way to proceed.
Paula: Or somebody could just reach out to you and you have all the knowledge.
Fred: Yes.
Paula: How would they get ahold of you?
Fred: Best way to reach me is through my website, which is fredmoskowitz.com. If you prefer an easier spelling, you can visit giftfromfred.com and that'll take you right to my website. I always love connecting with investors and if you visit my website, you can request a special report I have about mortgage note investing, and I'd be happy to email that out for free to anyone that that's interested.
Paula: That's great. Thank you. This sounds like a complicated subject to talk about in 15 minutes. If somebody is really interested, I would recommend that you reach out to Fred or another expert into the field. If anybody wants to get ahold of me, you can reach me at Paula@paulachristine.com or check on my website at paulachristine.com. Fred, on a last note there before I let you go, it seems to me like this could potentially be risky. How does somebody avoid making mistakes? I'm sure you've learned, you've made mistakes and then had to learn from them. What was one of the biggest things that you've learned when you got into this type of investing?
Fred: Well, that's a great question. How to avoid making mistakes. I would say a big part of it is your education, focus on education and learning and getting around like-minded individuals, building up a close network around you of people that maybe are a little further along in experience. They have more deals under their belt and so they can always provide guidance make recommendations, make introductions.
It really comes down to people you surround yourself with because if you are around people that are successful, then that's the direction you're going to go in. I love that famous Jim Roone quote that, "We become the average of five people we spend the most time with," and that's so important. It's so important. Focus on building a good network of people around you and that's something that everyone can benefit from.
Paula: Yes, I agree with that, 100%. You're the people you hang out with. If you want to change your life, change your friends.
Fred: Yes.
Paula: Thank you so much, Fred. I really appreciate you spending time with us today. If anybody wants to reach out to Fred for his expert advice, his contact information will be in the show notes. Thanks again, Fred.
Fred: Thank you, Paula.
[00:15:51] [END OF AUDIO]