“Ninety percent of all millionaires become so through owning real estate.” -Andrew Carnegie
We spent last week talking about building financial security and ultimately financial independence. The key here is that we need to have a system in place. As we discussed, chasing piecemeal investments is likely to keep us stuck on the treadmill.
When we talk about financial independence, we’re talking about a situation where our investments throw off enough cash flow to replace our active income. This isn’t something a 401k can do for us. So when we left off on Thursday, I suggested that rental real estate was the best vehicle to get there.
Simply put, real estate is a tried and true asset class. It’s largely timeless. The above quote from Andrew Carnegie over one hundred years ago highlights that.
I was thinking about this more over the weekend…
The early hints of summer are upon us up here in the mountains of Virginia. Green has gradually engulfed the cliffs that rise majestically above the meandering Jackson River below.
It’s a hidden gem up here. I have to think the old transcendentalist writers like Ralph Waldo Emerson and Henry David Thoreau would have done just as well here as they did in New England. The serenity and natural beauty lends itself to introspection.
That’s why I was thinking about the timeless nature of real estate over the weekend… and I stumbled upon Carnegie’s quote above.
The only thing I know about Carnegie is what I’ve read in Napoleon Hill’s Think and Grow Rich. One day I want to spend more time researching his life. I know there are differing opinions on his work and his character.
But when it comes to real estate, I think Carnegie is spot on here. Getting into rental real estate is likely the fastest way for people of average means to become millionaires.
I can say from first-hand experience that it’s not very difficult to create an extra $3,000 – $5,000 in passive income every month with real estate. Anyone with a steady salary can do this in three or four years if they are focused. That is, if they have the right system in place. That’s critical.
And ultimately I think it’s possible for most people to create an extra $10,000 per month in passive income in six to ten years. That of course depends on their current situation and level of commitment. But it’s 100% doable.
And even if I’m being too generous here… even if it took eleven or twelve years to build $10,000 a month in passive income – who would complain about that?
The traditional model tells us to pour our savings into stocks and funds for 35 or 40 years and hope we reach a mythical retirement number. Compared that that approach, real estate is much faster. And much more secure.
The key to investing in real estate is to focus on cash flow.
Cash flow is simply what’s left over after we use a property’s rent to pay all its expenses. And the beautiful thing about this is that we know what our cash flow will be for any property we’re analyzing before we buy it.
If we stop to think about it – that dynamic is amazing.
With real estate, there’s no guessing what our return on investment (ROI) will be. That’s because the ROI for any property depends upon its monthly rent, purchase price, insurance costs, property taxes, management fees, and homeowners association dues (if any). And we know each of these numbers up front.
So when we run the numbers and find that a property wouldn’t produce adequate cash flow for us, we don’t buy it. Simple. Imagine if investing in the stock market were like this.
As we know, a stock’s ROI depends largely on capital appreciation. That means for us to get a return, the stock has to go up.
So if investing in the stock market were like investing in real estate, we would be able to know if a stock was going to go up, and by how much, ahead of time. And if the stock wasn’t going to go up, we wouldn’t buy it.
Of course, that’s not how it works. Nobody truly knows if a stock will go up. So we can never know what our rate of return in the stock market will be.
This is a big reason why I consider rental real estate to be more secure than an equity portfolio. But it’s just one reason. We’ll spend the week talking about the others…
-Joe Withrow
P.S. Rental real estate is a core focus of our new investment membership The Phoenician League. It starts with our robust financial training program. It conveys all the ins, outs, dos, and don’ts of real estate.
Then we get members plugged into a nationwide real estate network and an online property portal. This makes sourcing ideal real estate investments almost as easy as buying stocks online.
And to top it off, we connect members with all the financial professionals they need to make building cash flow with real estate turn-key and tax-advantaged.
In other words, we’re a one-stop shop. And we’ll be opening our doors to new members for just the third time very soon.
If you would like to learn more about what we’re doing, please join our membership’s wait list right here: The Phoenician League Waiting List