In America, we are only taught how to earn money, not necessarily how to make it. We are taught to get a job, save and retire on 401k’s and Social Security. This often isn’t enough money for most people to live off of, though. My mission is “making sense of making money for making a difference”, and I want to help you make sense of how to make money!
Investing in real estate is a great way to build wealth and leave a financial legacy. Can you imagine what it would feel like to not have to worry about finances? What if you could be secure while earning a passive income? You can, and I believe real estate is the best avenue to get you there. It worked for me, after all.
Increase Your Income with Real Estate
Three Levels of Income
In my experience, there are really three different levels of income: money you work for, money that works for you, and money that works without you. Level 1 income typically comes from a job, and it is non-leveraged. This means that you get paid for the amount of time you put in. We all start out at this level, but we must not stay stuck there.
Only about 5% of Americans reach Level 2 income, which is primarily from assets. Assets are anything you own that has value, such as stocks, real estate or businesses. Therefore, those with level 2 income are usually business owners or investors. Here, you still have to manage your income, but you don’t have to work for it. For example, if you are a real estate investor, you should build policies and systems so that you don’t have to spend more than 10 hours a week managing it, but you are living full-time out of the income. That is leveraged income. Once you establish level 2 income, you want to acquire more and more assets. This leads to a snowball effect where once your income increases from your assets, you’re able to purchase more assets, and the snowball gets larger and larger.
After a certain point, you will reach Level 3 income. At this stage, you have multiple assets, but someone manages them for you, so you are able to have “absentee asset income”. You are primarily an investor, and you still make the decisions, but it doesn’t involve a lot of time. Typically, this level involved people with $10,000,000-$20,000,000 in assets.
Return on Investment
I have a teaching called the “$10,000 Millionaire” where I teach you to turn your initial investment of $10,000 into a million through real estate. The idea behind this is leverage. If you have $10,000 in the stock market, it would buy you $10,000 in stocks which would mean you have $10,000 in assets. If you received a 10% return on your assets that year, you would have made $1,000.
However, because of leverage in real estate, you’re able to take that same $10,000 to purchase a $100,000 property. Now, you have $100,000 in assets, and that 10% return is on the $100,000 asset, not your initial $10,000 investment. This means your return would be $10,000, which is a 100% cash-on-cash return.
There are many other financial benefits of real estate investments, such as depreciation, appreciation, cash flow, equity-build up, and more! The point is that you get the best return on your investment with real estate.
Building Real Estate Assets
There is so much you need to know when building real estate assets, but I’m going to give you a cliff notes version here. First, focus on single-family homes. They have a lower entry cost, and they are the most in-demand real estate properties. This means you will have less trouble finding tenants, and your property will spend less time vacant, which means you make more money. They are easier to find, easier to finance and easier to sell. You must always have an exit strategy as an investor, and selling single-family homes is pretty easy.
Secondly, you want to find properties that you know can get a 1-1.5% monthly return for rent. For example, if the total cost of the house is $100,000, you’re looking to get $1,000-$1,500 per month in rent. This is largely determined by rents and income in the area, as well as how nice your property is. You may have to fix-up the property in order to get that type of return, but the return is important.
Thirdly, you want to make sure you are earning $300/month in positive cash flow after principle interest, taxes, management, and insurance. This is why it is important to find bargain properties that you see have a good potential for value. Think about it, if you have 30 properties and you were making $300/month in positive cash flow, you would be making $100,000 a year, tax-free. Isn’t that crazy?
If I were to give you a dollar and ask if you could double it, or turn it into $5, could you? Most people would not be able to. That is why building assets are so important.
I am hosting a real estate workshop April 20-22nd, 2018, and I’m inviting you to come. Whether you are just beginning to look at real estate, or you’re an experienced investor, I guarantee you will learn some new things this weekend. Click here to learn more about the event, and if you’re ready to invest in yourself and in your future, click here!