“I Quit My Job and Bought Real Estate with no Money and I’ll Show You How”

There’s a bunch of courses, youtube videos, headlines, instagram and facebook posts making this same claim. 99% of it is bull$!t.

Are there people who manage to make all of their money solely through real estate investing? Sure, but ask them how they got started. It was by making money some other way and then funneling that money into real estate.

It takes money to make money, and real estate is no exception.

A wise person once said that the key to wealth is to:

1. Make Money.
2. Keep It.
3. Multiply It.

Investing in real estate helps with steps 2 & 3, but not really with step 1. We’ll explain. But first,

Don’t get us wrong, we still believe that Real Estate is the Key to Generational Wealth. We just want to clear up some myths.

Buying Real Estate

You need money to buy things: a car, clothes, food, and obviously a house. 99% of people need a home loan in order to purchase a home.

What’s the first thing that lenders use to qualify you for a loan? Your income, particularly your last two years of income.

In other words, you need to already be making money in order to buy real estate. You don’t buy real estate and then suddenly make money.

Keeping Money

Some people call a mortgage, which is what you have when you are able to secure a home loan from a lender, a forced savings account.

When you pay your mortgage every month, part of the payment goes towards your principal, and the remaining part goes to your interest (and taxes and insurance).

The principal is basically the amount of money you owe the lender. For example, if you have a 500K loan from the bank, and they gave you 30 years to pay it, every single month, you pay a little money to reduce that 500K principal balance.

Every dollar that goes towards reducing this balance builds your home equity – the percentage of the home you own. As your equity increases, your net worth increases!

Compare this with renting. Every month you pay towards rent, but none of this money goes towards building up your personal net worth, your equity. You’re building up the equity/net worth of your landlord, not you.

This is why some people say renting is like throwing money away. Not really, we disagree, renting makes sense in many situations for many people. But this is where the idea came from.

The Numbers

Let’s say you have reached the point where you own several properties totaling $1,000,000. It might be 2 single family houses in California or 5 duplexes somewhere in the midwest.

Real estate investors often refer to these as doors. I own 2 doors, 10 doors, 20 doors etc…By the way, don’t get impressed when someone says they own a bunch of doors, doesn’t mean they’re actually making money…yet.

Over time, they should absolutely be profitable because real estate goes up in value over time. But again, slowly. Depends on the market, but around 3-5% appreciation per year on average.

Numbers

• Combined 30 yr Mortgages for $1M worth of property is around $5,500 (assuming 5.5% rate)
• For 2 single family homes in LA perhaps you charge $3,250 rent for each property.
• Income = $3,250 x 2 properties = $6,500/month
• Expense = $5,500 mortgage payments.
• Gross Profit = $1,00/month
• Annual Income = $1,000 x 12 months = $12,000.

You will have additional expenses like paying property managers, paying for repairs, paying for tenants when they turnover etc..but let’s keep it simple.

You make $12,000/year for $1,000,000 worth of property. Not bad, but not great either. This is basically what the average landlord makes.

Let’s say you need to make $100,000 year to live comfortably. You will need to own around $8,500,000 worth of property in order to generate that income on an annual basis in the short term. That’s…alot.

The Exception

There’s an exception of course. If you’re a big shot who consistently raises a ton of capital from private investors who trust you and you can therefore buy a bunch of residential and commercial properties across the country, then this doesn’t apply to you. Keep doing your thing.

Problem is, 99.99% of people in this world are not you. And you know that it takes an awful lot of properties/doors to make good money such that you can quit your job.

Get Rich Slowly

This is the fun part and where generational wealth is built. You will get rich and ultimately attain wealth -slowly. Get the idea of getting rich quick out of your mind.

If you want to do that, start a great business or make a ton of money at your job so you can buy the properties in the first place.

You don’t need many millions of dollars of property to be wealthy. Own one or two properties and you’ll be fine.

Appreciation

We can all look at the homes our parents, uncles or even grandparents may have bought many years ago. Homes bought in DC, LA, NYC, South Florida etc…for 200-300K years ago, are now worth $1-$2MM!

This is the magic of appreciation. This is how you get rich…slowly.

Cash flow is nice, but appreciation is how wealth is built.

In summary:

Step 1: Make your money.

Steps 2&3: Use real estate (and maybe the stock market) to help keep your money, and multiply it as well…slowly.

You’ll look back in 10-20 years and realize you have $1,000,000 in equity just by owing property.

Let us know if you need a great realtor or lender.