Tuesday, August 3, 2021

The important retirement surprises and how not to be wise too late (Part 6)


Your Real Estate Assets Would Become a Liability

Real estate is one of the great investment assets to have for two reasons. First, it helps you end rental burden and second it produces rental income. This means that ideally real estate investment is a great investment and should help you reduce cost and produce profitable income. However, the way and manner that you invest in real estate can convert this great asset into a money sinkhole. I would be happy if many people were investing in real estate the right way. Painfully many are not. In fact, the majority are increasing their costs, increasing their workload, and making no money. Let us look at the two types of real estate investments that are common with the working class. The Homeownership real estate investment and the Income Producing Real Estate investment.

1.Home Ownership

Most people would only be able to own their own homes before retirement. This means that there would be no income generating activity with their real estate investment. Worst of all is that these groups are also increasing their cost. The majority of working professionals fund their homes using a loan. Loan funded homes are the most expensive kinds of homes. They eat cash and make cash difficult to access. Yet loan funded homes are common among the middle class because most are not doing the math. And where they are doing the math, they are too blinded by the emotional appeal of adding the landlord title to their name. That they throw caution to the wind. There are five main reasons why funding your home using a loan is a bad idea.

i. Homeownership is not an investment, it is a liability

An investment is any asset that has two phases-the investing phase and the cash flow phase. The investing phase is where you save and invest to acquire the assets. And the cash flow phase is where you reap the reward for your investment. A Liability is anything that consumes money and is perpetually dependent on you to care and maintain it. That is exactly what a real estate home is. In fact, your real estate home is one of the most expensive liabilities you would ever own second only to medical bills. Thus, when you want to invest in an asset that does not produce any money, the logical thing to do is to invest with caution. Do only the necessary and leave your ego, showmanship, and emotional cravings out of the door. The more money you tie down in your real estate home the more you would struggle financially in retirement.

ii. As long as there is a loan you are still a tenant

One of the main reasons people give for purchasing their own home is that they want to be free from rental burden. However, there is no freedom in debt. For as long as you are still paying someone else for the house that you live in, you are still a tenant. And you can be chased out at any time. The truth is when you fund a non-income producing asset like a home with a loan here is what you have done. You have dramatically increased your rent (cost). You have transferred the recipient of the rent from a landlord to an expensive bank-lord that has the capacity to repossess your home and cancel your years of hard work. You have also increased your risks and have chosen to put every other goal on hold until after full repayment. This means that you are financially worse off and more vulnerable than before you own a home.

iii. No loan funded home can be profitable

In the Homeownership transaction, there are three players. The first is the developer or owner of the land or house. The second is the financier which is mostly the bank for most people. And the third is You, the owner of the asset.  The developer makes money when they sell the land or house to you. The financiers make tons of passive money when they finance your home. You make no money. You are the biggest loser in the entire transaction. And worse of all is that you have turned your liquid cash into permanent blocks that are extremely difficult to liquidate.

If you must own your own home, do it debt-free and do it in ways that do not sacrifice your financial freedom.  This will ensure that you save big, reduce cost, and keep your ego and emotional tendencies within budget. If an asset is not producing income why give an arm and a leg for it? With your own cash at least, you can achieve one of the goals for investing in real estate. This is a better outcome than perpetuating your own financial bondage.

If you need help knowing how to fund your own home debt-free. we can help you. Send an email to info@createsolidwealth.com.

iv. Owning a home too early can derail your retirement plan

Income is the most critical asset to have in retirement. And owning your own home is also important. It takes about 5-15 years to build a solid retirement income. And it also takes about 10-20 years to fully pay for a loan funded home. This means that both goals require about the same timeline. The problem is you only have 30 years of active career life to work with. And if you are already close to retirement you have spent a major part of that time.

So, what do you do when you have two big goals with limited time and resources? Assuming both goals are still pending for you.

The smart thing to do is to pursue both goals at the same time. That is side by side. That is the only way you can make it. If you do not do it this way, you would fully achieve one goal and partially achieve the other. Whichever goal you neglect you would suffer the consequences in retirement.

But what if you have achieved one goal and are now ready to pursue the second goal?

There is still a problem. Because the question is not about whether you have achieved one goal. But whether you have a sizable cash reserve left to achieve the second goal. Doing one goal first before the other can make you lavish your savings on one goal and starving the other goal. If real estate is the goal, you pursued first, chances are high that they will be only little left to pursue retirement income goal.

So, what can you do?

The solution for you and those that still have both goals pending is the same. You must earn multiple high incomes, save big and focus on investing for financial freedom. There is no other way.

v. Homeownership investment fails the retirement stress test

Another big problem with homeownership real estate investment is that it fails the retirement stress test. The retirement stress test is the test that shows you which investment is likely to give you stress in retirement. Our stress test toolkit contains very carefully curated questions. That shows how an investment is likely to cause stress or anxiety in retirement. Below are some of the questions contained in the toolkit. You can get the more detailed questions by ordering the book – ‘The Passive Retirement Blueprint”- How to Create a Better Life in Retirement than your active Career years. Send an email to info@createsolidwealth.com to order a copy.

Below are some of the stress tests that we take an investment through.

  • Difficult to Lose Stress Test- How easy is it to lose this Investment?
  • Hands-Off Stress Test-Is this Investment fully passive and hands-off. And would it require ongoing investments and maintenance?
  • Liquidity Stress Test-How easy is it to convert this investment into cash.
  • Guaranteed Income Stress Test-Will this investment produce stable or variable income and can it last for a lifetime.
  • The Burden Stress Test: Does this investment become a burden after a while and how quickly can we dispose of it.

The truth is your investments choices would determine whether you have rest or stress in retirement.

vi. The first asset your children would dispose-off is your home

Real estate investment, especially homeownership, is a liability for any generation. First, it is immovable and not useful for children that are not within the same country or location. With most children now schooling and residing abroad there is zero chance that your children would live in your home. Thus, the idea of overbuilding for children is a mistake. Second, by the time your children are independent and thriving your home would become old school. Every generation sees the older generation as old school.  And your home would not meet your children’s standards by the time they are adults. Third, you built the home to your standard and most likely your standards and taste are different from that of your children. Also, your children’s tastes will change over time. Fourth, you are most likely to have built the house on a slim budget. This means that this house is not your dream home. If it is not your dream home, it will not be the dream house for your children either. In instances where it is the dream home, this dream house would become obsolete in the next 20 or 30 years. The lifespan of most homes is 40years. So, you would have already used up a major part of your home at the time of your exit. Next, you built the home with lots of emotion that blinded your concept of a profitable investment. Your children will not share the same sentiments and will see things clearly.  And finally, real estate is a semi-active investment. This means that it requires maintenance. Looking for quality tenants. Evicting delinquent tenants. Renewing land documents and paying taxes all of which would naturally drive the next generation to the negotiation table.

Thus, anything aside from liquid assets requires little or no work. And can be accessed from anywhere in the world. Is of little value to the next generation. So, what is the use of sacrificing your retirement income for an asset that is of little value to the next generation? And why are you going into debt over an asset that your children may not want to inherit?

If you want to leave a great inheritance for your children, focus on income-producing real estate or better still liquid assets that can produce regular income. Cash is King and every generation loves cash. As for your real estate homes, they would either sell them or leave them to waste.

2. Income Producing Real estate

A few people are smart and disciplined enough to go beyond homeownership real estate. These people can generate income from their real estate investments. But most of them still suffer the same fate as homeowners. This is because real estate is fundamentally the same. And the owners of the investments are still largely making emotional decisions. They are holding on to poor performing real estate investments. They are focusing too much on the Box called real estate instead of using the Box to create multiple income streams beyond rent. And they are builder quantities that can hardly break even within a short time. To succeed with income-producing real estate investment you must do it the Donald Trump’s way. You must focus on creating multiple streams of income and converting the solid asset into liquid cash that is readily accessible. And you must think beyond rental income. You must also build the right quantity to break even with speed.

Income-producing real estate is a number and cash-flow game. The more units you can build at the same time and the more cash-flow systems you can create beyond rental income. The better would be your yield. Focusing too much on the hard asset leads to building an income consuming asset and not an income-producing asset.

If you want to learn more about how to build income-producing real estate the Donald Trump’s way and model one of the great real estate legends of our time, send an email to info@createsolidwealth.com.


Your purchasing power will crash without protection in retirement

In the next 20 or 30 years, your current income would be worth less than it is today-thanks to inflation. This means that the default progression for your income and purchasing power after retirement is downwards. And the only way to stop it from going downwards is to protect it today if you want to maintain the same quality of life.

Purchasing power is the ability to buy anything you want at the market value and maintain your living standard regardless of the prices of goods and services.  This means that to maintain your purchasing power in retirement your income must be perpetually bigger than expenses. And the only way to make income bigger than expenses is to increase income each year in ways that rise above inflation.

More income is the only true way to beat inflation and preserve purchasing power throughout life. To earn more income, you must look at the two sources of income.

Income comes from only two sources-Active income through active work and Passive income through Investing. These two types of income are what you need to maintain your purchasing power in retirement.

So how can you preserve your purchasing power?

To preserve your purchasing power, you need to understand what is preserving your purchasing power now. Most people care less about purchasing power during their active career life. This means that their purchasing power is pretty much stable throughout their career. Purchasing power only becomes an issue when retirement is approaching. Thus, the first place to begin is to first understand what is maintaining your purchasing power today. And then to decide if your current purchasing power is what you want or you want to elevate it.

There are two factors that are currently responsible for your purchasing power. The first is your main income system and the second is the padding income system.

Your main income system comprises your salary. And your padding income system comprises all the extra income paychecks like bonuses, allowances, investment returns, lump-sum payments and low-interest loans. Thus, to preserve your purchasing power in retirement, you must create a strong main income system and a strong padding income system.

This is a herculean task for you if you have lost ample retirement planning time because you will have to build passive income that is worth your current income and all the extra paychecks within a limited time.

Nevertheless, you must build a semblance of this kind of income system to protect your purchasing power from depleting in retirement.

There are two ways people try to protect their purchasing power today. The first way is through Local Investment solutions. And the second way is through foreign investment solutions. Below let us look at each option in detail.

Local investment solutions and purchasing power

To protect purchasing power locally and in retirement, all you need do is to replicate what is protecting your purchasing power now. Your purchasing power is protected by income that is bigger than expenses. And if you want to protect your purchasing power in retirement you must ensure that your income is consistently bigger than expenses. The biggest fear most people have is what the effect of exchange rates and inflation would have on their retirement income. So, let’s look at both situations.

Effect of exchange rate and inflation on retirement income

In the days of Ex-President Sani Abacha (1993-1998), and throughout his reign as president, the official exchange rate of the naira to the dollar was 22 naira to $1. And N88 to $1 black-market rate. So, if we take the black-market rate in 1998 and compare it to the black-market rate of today- 2021. The naira to the dollar exchange rates has grown from N88 to $1 to N500 to $1 in 23 years. Meaning that the percent increase is 468.182% in 23years.

So, let’s assume that the same percent increase is possible in the future. This may or may not be true. But let’s assume. It means that in another 23 years the dollar will increase by another 468.182%. To maintain your purchasing power in retirement means that you have to increase your income by a higher percentage rate within the same period.

So, let’s look at your income and see how it has increased over the last 23years.

Let’s assume again that you started with an income of N20,000 in 1998. And today after 23 years of working you now earn N400,000. The percent increase for your income within the same 23year period is 1900%. This is much bigger than the percent increase in the exchange rate and about four times the exchange rate value. This means that if you add all your extra income and paychecks the differential in exchange rate would not be a match.

My point is if you focus on increasing income year after year, the effect of exchange rates will have minimal impact on you.

Now let’s look at Inflation.

According to Macrotrends.net data, Nigeria Inflation rate in 1998 was 10.00%. The inflation rate today is 13.25%. This is a 32.5% increase. The highest inflation rate has increased since 1998 is 18.87% in 2001. Even with this inflation rate your purchasing power is still higher. This is why working professionals at the peak of their careers rarely care about purchasing power. It is retirement that makes purchasing power important. And it is because in retirement your income and income padding system is lost.

Thus, focusing on inflation and exchange rates is channeling your energy the wrong way. The best place to focus is your income- how you can increase it and maintain that increase throughout life.

So how do you consistently increase income?

You increase income by doing three things.

First is developing high-Income skills so you can multiply income. The second is to build rich relationships so you can expand your opportunities. And third is leveraging high income earning platforms so you can earn high income.

Foreign investment solutions and purchasing power

Sometimes you may need to leverage foreign currencies strategies to boost your purchasing power. This is especially important if you transact with foreign currency often or do business with it. There are two strategies that is common. The first is the Cash Reserve strategy and the second is the Investing strategies. The cash reserve strategy is simply storing cash in foreign currency rather than in naira to achieve two goals. First to gain the differential in currencies and second to give your cash reserves certain stability. The key to note here is this. Storing cash in foreign currency is not investing. It is gambling. You are making a gamble that they would be some gain in currency differential, and you are also making a gamble that the economy of the country would be stable.

Thus, storing cash in foreign currency only serve you if you need it for transactional purposes. The gains and benefits are unpredictable, and the growth slow.

Investing abroad is also one of the ways people try to preserve purchasing power. But again, the benefits are marginal. This is because investments are fundamentally the same. Stock investing in Nigeria is also Stock investing in the United Kingdom. And the investment has the same characteristics. The only difference may be in the yield and this difference is not very far apart compared to the risk of investing in a foreign country.

Thus, if you must invest abroad, you must recognize that the advantages are limited. And you must know that the key factor for success is not the currency per se. But the amount of money that you invest and why you are investing in the first place. There is no use investing N100,000 in dollars when it cannot achieve any real goal for you. Your investment should be backed up with a goal-based strategy and not just investing for investing sake.

Four things determine the success of a foreign investment strategy. The First is your goals. The second is the currency power. The third is the yield. And the fourth is the economic stability of the country.

 Your goal

Your goal is what should guide your investment strategy. And if you can achieve your goal locally better choose that option. What objectives are you trying to achieve investing abroad?  Can these objectives be achieved locally cheaply and easily with minimal risk? How often do you engage in transactions that involve foreign currencies? And why is investing abroad the preferred option for you? These and many more questions are what you need to answer to know if investing abroad is appropriate for you. There are only two reasons why you should invest abroad. First, the investment does not exist locally. And second, investment abroad has a beyond average advantage that local options do not have.

The currency power

All currencies have different power ratings. And this power rating only affects you when you trade a low-value currency for a higher value currency. The more frequent you engage in this type of trade the more it makes sense to acquire more of the higher value currency. Thus, a foreign currency investment strategy may be appropriate for you if you trade against the dollar frequently.

The truth however is that you only have a trading advantage when you buy low and sell high. So simply exchanging your money into dollars will not serve you without a huge differential in the exchange. So, the time you buy and the amount in which you buy is the biggest factor in trading success.

So, what are your options if you want to invest in transactions abroad?

There are two options-Liquid investment and Solid Investments. Liquid Investments are better than solid investments. Solid assets like real estate are better if you intend to use the asset personally or intend for your children to use it. This is because abroad is not your home country. And the policies are not exactly set to favour you. Also, world power can change, currency power can change, and certain policies could wipe out your investment. You need the ability to exit a country if you need to swiftly. With solid investments, you are tied down.

Examples of liquid investments you can do abroad include Stocks, Mutual funds, Annuities, Life Insurance and Bonds. The main solid asset is Real estate. Agility and mobility is key when investing abroad.


Yield differs among countries, and it is one of the things to consider when investing abroad. Research shows that the yield is better in developing countries where growth is rapid than in developed countries where growth is more stable and slower. Thus, if you are getting a better yield here in Nigeria there is no need to go abroad to invest. Guaranteed yield and yield that are cash flow based are better than fluctuating yields and yields that are variable return based. Also, higher yield is better than lower yields.

Economic stability

The economic stability of the country you invest in affects the yield and safety of your investments. Thus, stability is key to investing success. The key to success when investing in an unstable country is to purchase more stable assets and assets that provide guaranteed yield and returns. The more unstable a country the more you should adopt a safe investing strategy.

These are the investment risks and surprises that you should know and prepare for before retirement. I hope you make the right investment decisions.

If you need help navigating the investment landscape or building a solid passive income that you can depend on in retirement, we can help you. Send an email to info@createsolidwealth.com.

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