If you are serious about wealth building for you and your family,
who should go to for advice?
This post will be a little journey about your mindset before we get to the "how-to" part.
Should it be a stockbroker, a local financial planner, your neighbor, coworker, friends, lawyer, or a successful real estate investor?
Most successful real estate investors I know look and act like the guy next door. You may never know how wealthy they are. Many years ago, when I came to California, I was looking for a real estate investing group to join. Someone referred me to a club in Orange County, CA.
The first meeting I went to, I thought it was a bunch of homeless guys. In my mind, I pictured them as more flashy and showy. After attending several meetings and being introduced to many of the investors, it hit me.
The investors turned out to be very wealthy, and have used a great wealth building plan. They have a terrific retirement which is safe and secure.
They live good lives and also like to help people, and to me, that is what real estate investing, and the freedom it provides is all about.
These are the people that Thomas J. Stanley Ph.D. & William D. Danko Ph.D. wrote about in the book "The Millionaire Next Door."
Most, if not all, of the hugely successful people I know, are great people. Not the typical stereotype of greedy, self-centered, non-caring person that is depicted on TV.
So don't judge people by how they look.
Our culture here in the US seems to be heading in a terrible direction. It seems that in our public school system, run by the government is filling the young minds that success is a bad thing.
I will agree that in a lot of cases, big corporations and extremely wealthy individuals are abusing our system of government.
The entire capitalist system is not corrupt only certain people who think only of themselves and not the consequences of their impact on future generations.
One day I was walking near a well respected local college, and four college girls were talking about the evil wealthy people. When we got to the corner, we had to wait for the light to change. While we were waiting, I asked them if any of them wanted to become wealthy?
They all answered, of course, they did.
Then I asked why if you want to become wealthy, are you bashing what you want to become?
All of a sudden, all four became quiet, and you could see on their faces that they never thought about that.
You can't become something you despise.
So, what are your thoughts about becoming wealthy?
You must have the right perspective on becoming wealthy to become wealthy.
Some want to be investors I have met feel that buying a house for less than market value is ripping people off.
That belief will not let you purchase houses below the market value.
You may be the only person that can help solve their problem of selling the house.
The way I look at being an investor is from the perspective of a doctor.
What happens when you have a problem and go to the doctor? They ask you a bunch of questions so they can narrow down what the problem is. The doctor needs to do this to advise you on what to do.
As investors, we need to do the same thing. We need to ask questions to find out what is the situation of the seller so that we can offer a solution.
OK, so how do we start wealth building with real estate? Wealth comes from owning assets that produce an income over some time.
The idea is to buy and or control single-family houses.
Why single-family houses? They are something most people are familiar with, and they are all around us. Most people would only need to own 7-10 houses over the years.
The Benefits of houses, they are plentiful and easy to buy and sell. So if you had to sell one for some reason, it would be relatively easy. We are looking for good houses in nice neighborhoods.
The goal is to buy a house that will rent for enough to
cover the cost of ownership.
If you do this correctly, the tenant is paying for the house you own. In the higher-priced areas such as where I live, you may have to do some creative financing to make the numbers work.
A creative real estate investor needs to learn numerous techniques of
financing so that they can offer alternative solutions to the seller.
My definition of "creative financing" is anything outside of the realtor world where they only understand cash or conventional financing. Nothing against realtors or sales agents, but they are not taught any creative ways to purchase a property.
So, we are looking for nice houses in nice neighborhoods where the owner needs to sell, and it will cash flow to cover all monthly expenses. If they don't need to sell, they may not be motivated enough to be flexible in the purchase terms. This lack of flexibility makes it more challenging to deal with them.
In some ways, this restricts who we can buy from, maybe down to only 10% or less of the market. But that's alright we don't need to buy 50 houses.
Remember, we only need 7-10 houses to create a very comfortable retirement.
Let's walk through an example. These numbers are for illustration, only the prices in your area may differ.
Seller is asking: $200,000 (market value)
We can negotiate to buy it for $170,000 (85% of value)
Monthly Expense: $1,500 (Keeping existing loan in place, PITI, maintenance)
Monthly Rent: $1,600
Cash Flow: $100 (monthly)
Now You have a house with $100 cash flow to you, and the rental income is covering expenses. Each year you raise the monthly rent by 3%. If you continue at the same rate increase in 30 years, rent will be $3880 /month (rounded).
If the house also goes up 3% year on average, the house is now worth $485,452.00. That is a 243% increase in the value of the house.
So now, at the end of 30 years, you have an asset that pays you $3880 monthly rent. Your expenses drop by $812 month because the loan is paid off. and you have a free and clear property valued at $485,452.00
Who paid for the house?
If you have no investment money out of your pocket,
what is your return on investment?
These numbers will work out in real life to be slightly higher or lower but still work out to be a significant investment. Definitely better than Social Security.
Show me any other investment that can do that!
When you buy your first house, you are on your way to wealth building. You begin generating more income from the cash flow, and are taxed at a lower rate than your normal income from a job. Also, many deductions become available to you to reduce your overall taxes.
As always, speak to your accountant for the specifics regarding your situation.
Using this process, you can start your wealth building. Now you see why it doesn't take that many houses to create a safe and secure retirement through investing in real estate.
Check out this post on getting started.
Learn more about investing by joining our list below.