Secrets the "Rich Know About Real Estate Investing" That You Don't
Attention: This is for people who want to learn about & start investing, in real estate.
Did you know Arnold Schwarzenegger made his 1st Million NOT from making movies, but by investing in real estate? In fact, he started with a 6 plex, and has since built a $300 million real estate empire.
In fact, over the last two centuries, there are reports that about 90 percent of the world’s millionaires have been created by investing in real estate.
How accurate that is, I’m not sure, but either way, many of the richest people in the world have got their, and are continuing to grow their wealth, by investing in real estate.
So, how can you too, join the rich?
Well, by investing in real estate, duh!
But I’m sure your thinking it's too difficult to own real estate.
I myself thought the same thing, that besides owning the home that I lived in, owning additional properties was only for the super-rich.
I thought people whom did invest in real estate had expensive software that analyzed properties in such detail that it would then tell them if it was a good investment or not.
I also assumed that people whom invested in real state were extremely smart.
Whom understood all those fancy financial ratios that investors use.
Such as Net Present Value (NPV), WACC, debt-to-equity and IRR, just to name a few.
confusing right? :)
Before I started buying investment properties, I went on the internet and typed in:
real estate investing software.
I remember the results were for software programs that costs thousands of dollars.
Right there it almost stopped me dead in my tracks from investing in real estate.
I assumed that’s what all real estate investors were using and thought that it was the only way to know if a property would be a good investment or not.
Later on I found out that was not the case at all.
That investing in real estate and understanding the numbers is quite easy, and once you learn it..
..it’s as simple as calculating 1+1=2.
Let’s jump back to the main topic.
Why do 90% of millionaires invest in real estate? Why did Arnold Schwarzenegger invest in real estate?
Do they know something you don’t?
Yes, they do!
So, pay attention, as I’m going to share what they know and you don’t.
Because once you understand these 4 secrets about real estate investing, which are...
The Big 4
The Little 3
The 3 Myths
The 5 Pillars
...you too can become a part of that 90%.
The Big 4
Once you understand the big 4.
You are going to stand up and scream.
Because you will realize that investing in real estate is the best way to invest your hard-earned money.
The first of the Big 4..
..Which in my mind is the best reason to invest in real estate..
What does it even mean? According to Investopedia:
"the investment strategy of using borrowed money".
Specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment.
So how can you use leverage to buy real estate then?
Well with real estate, you don’t have to pay the full purchase price of a property.
Since it is an asset built on land.
There is THEN value in the land.
Financial institutions recognize this value.
And will allow you to only have to pay out of pocket a minimum percentage of the purchase price.
With the bank loaning you the balance. :)
Let me show you in an example.
Buying a $250K Property
You make an offer using a Realtor for the $250K and the seller accepts it.
With real estate though, you actually don’t have to pay out of your own savings the full value of the home; the $250K.
You can leverage the bank’s money.
Meaning, you can borrow from the bank almost the full value, 80-95%, of the purchase price of the property.
Now, the rules regarding the amount that is required for the down payment could change depending on government regulations.
But for now..
We will stick with the current rules of 2018 and use the 20% minimum down payment that is required to purchase an investment property.
This means that the buyer will need to come up with only $50,000 out of their own pocket.
And the bank will finance the rest.
This is why real estate is one of the best investments.
Because you are buying an investment using other people’s money.
In this case, you are using the banks money, and yet you can still make great returns.
Even after paying the bank back for however many years your mortgage is.
Which normally is 25 years.
Now, let me share with you what the rich are doing to get richer and how others are becoming rich investing in real estate!
This is going to be good!
The Rich’s Blueprint
They are using their savings and buying real estate, leveraging the balance of the purchase price of the property.
Here’s what the rich don’t want you to know:
"They are buying more than one property, because they know that after they have paid back the loan they received from the bank, they will own that property free and clear".
Imagine if you were to buy 4 properties each valued at $250K!
You would need $200,000.
But in 25 years, or when you have paid the mortgages back in full.
You would have a million dollars in real estate.
Yup, you guessed it..
That is the power of leverage, borrowing the balance of the purchase price for a property, using financial institutions money.
Adrian Ede says this is one of the FOUR Wealth accelerators of real estate investing in this article.
As investors, we hope our property appreciates over time.
Meaning it will increase in value from the time you purchase it until you sell it.
But you just never want to count on it.
This is because as a real estate investor you want to be conservative.
When analyzing a property to purchase.
I myself never project that a property will appreciate in value upon purchasing it.
"This is because it allows you to focus only on the return the property will make based on the income it generates and how much the mortgage is being paid down".
If the property does appreciate in value..
This just means you’ll generate a higher return on your investment! :)
Appreciation of your investment property is secretly how you can build your net worth quickly.
When a property increases in value, it results in you building up equity.
Which is calculated by taking the money you invested..
Plus, the difference between the purchase price and the new value of the property.
Let's use that property again that we leveraged in an example.
The $250K Property
The equity you have from the day you take possession is $50,000.
This is the amount of the down payment you made.
If that property appreciates..
Increases in value..
Due to numerous reasons.
To $300K over 5 years.
The difference in the new value, and the value you purchased the property at..
Resulting in you now having $100K in equity.
The Rich’s Blueprint
What 90% of the world’s millionaires do and how they became millionaires by investing in real estate is they take that equity..
That they’ve just made from the increased property value..
And they refinance the property!
Then they go and purchase another property.
Leveraging the bank to help purchase it.
Appreciation can be a very 'big cherry'.
It is why many of the world’s rich invest in real estate.
As it can increase your wealth dramatically in a short period of time.
This is the hidden return that most people are not aware.
The rich are aware!
It is why they invest in real estate.
Because on top of the benefits we discussed so far when you invest in real estate, such as:
Mortgage paydown is done by using other people’s money.
The rent you get from your tenants is actually going to pay the mortgage on YOUR property.
Let's look at that $250K property again.
The $250K Property
Let’s say the approximate mortgage you will have on the $250K property if amortized over 30 years at 5%, is $1,000 a month.
(it’s actually $1,073.64 to be exact).
But we will round it down to keep it simple!
A mortgage payment consists of a principal amount and interest amount.
Meaning a portion of the payment goes towards paying back what you borrowed.
And the other portion goes towards paying the interest being charged on the borrowed funds.
If you were to rent your property for $1,000 per month..
Well then you would be able to pay your mortgage payment each month using the rent you collect each month!
You are paying back the funds you borrowed..
FROM THE BANK..
With other people's money! (the tenants) :)
The Rich’s Blueprint
This is just another reason why 90% of millionaires become millionaires by investing in real estate.
They know that the rent they collect from the people whom are renting their investment property are essentially paying down their debt.
What other type of investment can you do that with?
And not even have to pay it back with your own funds.
But with someone else's funds!
Unlike many investment types out there.
With real estate you are the one whom is in charge with how your investment performs. With these other investments, their is nothing you can do to get the companies or the interest rate or the coins value, to do better.
If I’m investing in stocks, such as Apple, and the stock price goes down.
I can’t do anything to make it go up. :(
Only the company has the ability to do that.
And your financial advisor whom suggested you invest in that stock?
They won't be able to do anything either.
You really have no control over any of these other investments.
Which is the complete opposite when you invest in real estate.
"Along with using leverage, the property appreciating in value and the mortgage being paid down by your tenants, when you invest in real estate, you are the one whom is in control of how your investment does".
As a result, you have the ability to increase the returns of your investment.
This can be done by updating the property and/or increasing the rents of the property.
Let's use our $250K property example one last time.
That Property Again!
We are going to assume the property we purchased was actually one that needed some work.
By having control of your investment, you are the one whom is in charge of how it performs, and improving the property is one way to increase the performance of your investment.
This is because, by fixing up the property, you are increasing the value.
Which is also another great way to build your wealth quickly.
By updating the property, you can increase the rents that you charge at the property because now it is much nicer.
The Rich’s Blueprint
This is what the rich know, and how they have became rich.
They want to be in control of their investments.
It's why they buy properties that need TLC and update them, because they are in CONTROL.
It's why they buy properties where the rents are below market value and increase the rents, because they are in CONTROL.
Increased value of the property.
This is great because when buying income properties, you are buying them based on the income they generate..
And when the income of the property is low, you are able to buy the property at a discount, or below market value.
But once the income of the property goes up, the value goes up, increasing the equity in that property.
"By being in control of the asset, you are the one pulling the strings".
Not the financial advisor, whom suggests the stocks to invest in or mutual funds to invest in.
Not the fund manager, whom picks the stocks that are in the mutual fund.
Not the company, whom decides how it will be run in hopes that what they are doing will increase their stock price.
I love having control! :)
Just knowing that it is in my hands and up to me to make my investment better vs. leaving it up to someone else is why I invest in real estate.
Investing in something where you have no control is just like gambling in my mind, which begs the question, do you really want to keep gambling with your life savings?
The Little 3
These are the unknown benefits that the rich know about when it comes to investing in real estate that you don't.
Most people only think about the bottom line or their ROI when they think about real estate investing. :(
But, there are actually 3 other benefits to investing in real estate.
The Little 3 I like to call them.
Let's start with the first unknown.
All Debt Is Not the Same
Many people are against debt.
This is because all their life they’ve heard that debt is not good..
But there is a difference in the type of debt you incur.
There is good debt!
Which is when you borrow to invest.
There is bad debt.
Which is when you borrow to buy wants.
This bad debt is usually the debt that people incur from using credit cards or lines of credits to go and purchase a depreciating asset.
Like a new car!
This is not a wise choice.
But using debt to purchase an investment such as real estate, or to just invest..
This is OK!
Because you are purchasing a money-making asset that will pay for itself!
Hedges Against Inflation
The appreciation of a property is a great way for investors to hedge against inflation.
The hidden tax no one pays attention to.
What is inflation though?
Well think of it this way.
$100 today won’t be worth the same as $100 in one year, and even less in 10 years.
This is because the costs of goods and services are always going up. So the buying power of that $100 won’t buy you the same amount of goods or services in the future.