Just because we are off on our homestead doesn’t mean we have to be alone. In fact, homesteading is all about community and teamwork.
Welcome back to the From Dirt to Dividends series (part 1, part 2, part 3), where we discuss moving away while becoming rich.
Today, I will explain how we can use the community aspect of homesteading to collect some sweet rental income while helping our neighbors. Then, we can invest our hard-earned cash flow into high yield mortgage REITs.
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A word of caution, mortgage REITs can be extremely dangerous in novice hands. Ensure you understand how to wield these excellent investments. If not, stay clear! (I recommend reading Seeking Alpha daily).
What is a community farm? I explained the ins and outs of a community farm in my article “Start a Community Garden and U-Pick-It Farm.” The basic idea is that you have a large plot of land and charge a small fee for your neighbors to plant crops on it.
I first read about this idea in the book “Dirt Rich (farm).” It is funny because I was searching for another “Dirt Rich” when I found the book about sustainable farming. Both books are must-reads for homesteading and community farming.
One book talks about leveraging the community to turn your farm into a healthy business, and the other talks about using tax liens and unpaid taxes to find cheap land. You can use both techniques together to find affordable land and build a community farm.
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Build a farm business. The best part of building a community farm is that you can leverage almost everything you do to create cash flow. You can host in-person courses and sell fruits, veggies, eggs, and wool.
You can start a small petting zoo, raise and sell butterflies, create a beehive tour, etc. The possibilities are endless. Don’t limit yourself to just renting plots of land.
Don’t forget that many city-slickers from the suburbs may want to transition to a more sustainable lifestyle. They will want to get a taste of the farm life before they make the final decision.
If your farm is open for business, you will be the go-to destination for would-be farmers and parents who want to get their children out of the city—at least for the weekend.
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My experience with community farms. When we served in Yuma, Arizona, there was a small community zoo. It was probably 15-20 acres at most. But it was an excellent way to get kids out of the city life and integrate with nature. These farms, gardens, and zoos are vital to the health of our children.
What to do with our money. After a few years, we will become profitable in our farming business, and it’s time to convert our revenue into passive income. One way to invest is through mortgage REITs (real estate investment trusts).
Mortgage REITs (mREITs) focus on lending to homebuyers and institutions buying homes. Equity REITs concentrate on buying homes and collecting rent. One of the reasons I write the article “Debt vs. Equity” is that we all understand interest vs. dividends.
Because mREITs focus on loans, their share prices fluctuate based on specific key rates. Some of the critical rate markers are the two-year treasury bond, 10-year treasury bond, federal funds rate, and mortgage rates.
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This is why I say mREITS can be dangerous to novice investors. If you do not follow or understand these rates, stay clear of mREITs.
When to buy mREITs. mREITs do best when today’s interest rates are low and low term bond rates are higher. When the Federal Reserve keeps its lending rates at 0%, mREITs can do very well.
Mortgage loans are usually for 30 years. Thus, if mREITs like AGNC (AGNC) and Annaly Capital (NLY) can borrow money for 1% and loan it out at 4% over 30 years, they stand to make a hefty profit on the difference.
However, when the yield curve inverts as it did recently, mREITs can be in trouble. A yield curve inversion occurs when the 2-year Treasury bond has a higher interest rate than the 10-year bond.
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For example, the 2-year rate may be 2.9%, and the 10-year rate maybe 2.5%. This is not a healthy economic warning sign, and the market predicts a high probability of a recession. Therefore, mREITs will usually take a beating in this scenario.
Too much to handle. If this is too much to handle, stay clear of mREITs. I love these complex topics, and I continually invest in mREITs. Sometimes, my share price is down 20%, but I know when the economy recovers, mREITs will shine.
If you know what you are doing, you can get massive dividend yields from mREITs. Sometimes between 10-14%. Again, you are basically buying when the economy is in the worst position possible.
Warren Buffet says, “Be fearful when others are greedy, and greedy when others are fearful.” If you learn the principles, you can make a great return on your mREITs.
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A balanced portfolio. Don’t forget to build a balanced portfolio. mREITs can play a small part in your overall portfolio that consists of a high-yield emergency fund, index funds, and a dividend growth portfolio.
You don’t need to have your mREITs be your star players. They can be there to generate a nice income stream to pay for expenses and lifestyle amenities. Therefore, you can have your index funds and DGI portfolio continually growing in the background.
Conclusion. Be a team player by opening your heart and farm to others. As an entrepreneur, you make more money by serving more people.
Income investing is about getting a high-yield portfolio safely. mREITs can be safe if you understand how and when to invest. They are not for beginners or fair-weather investors. They are for hardcore investors who have a long-term mindset.
By combining community farming and income investing, you stand to be a pillar of the community and still provide for your family. What a fantastic combination!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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