Summary: Curious to know how to build wealth by investing in rental properties? Learn how in this comprehensive investor guide, which is based on Chapter 2 of the best selling book Retire Rich with Rentals by Kathy Fettke.
Introduction: So You’re Looking To Get Rich with Rental Properties, Eh?
If you’re looking for a new way to build wealth and secure your financial future you’re not alone. Many Americans today have come to realize that traditional pension plans are likely a thing of the past and Social Security is, at the very best, a slim possibility.
Fortunately, this isn’t bad news for everyone. If you have managed to recoup all of their losses from the Great Recession in 2008, you’ll likely be just fine. Assuming that you’re among the 20% of Baby Boomers who were actually prepared for retirement in the first place.
If this doesn’t sound like your situation, don’t freak out. There’s still hope. Financial security can still be yours. The first step is to adjust your mindset. Continue reading to learn more.
3 Steps To Get Into the Wealth Building Mindset
Step 1: Focus on your strengths and overcome weaknesses through education.
Kathy Fettke, the Co-CEO and Co-Founder of RealWealth, is a great example of this. Today, she’s a successful real estate investor, a best-selling author of Retire Rich with Rentals (the book this course is based on), and she’s also been named one of the Top 100 Most Intriguing Entrepreneurs by Goldman Sachs (twice). But, would you believe me if I told you that 15 years ago nobody in the real estate world even knew her name? What if I also told you that, at that time, she knew nothing about the real estate world either? It’s true.
How did Kathy become one of the most successful real estate investors and entrepreneurs in the country, in 15 years?
It all started with a radio show called “The Bridge: Bridging the Gap to Your Financial Freedom.” Her co-host was a mortgage broker and real estate investor who loved to teach others the power of leverage, which was something Kathy knew she needed to learn if she wanted to build wealth for her family.
But, she also knew she had strengths to bring to the table too. It was her idea to “focus the show on human interest stories, so as not to bore [the] audience with mortgage talk.” And it worked. Over the next several months Kathy leveraged her strengths to help make the show more successful than anyone thought was possible. In the process, she gained the education she needed to jump into the real estate industry.
Step 2: Understand the difference between making money & building lasting wealth.
Anyone can get rich by investing in real estate. However, many successful real estate investors don’t care that much about getting “rich,” at least not in the traditional sense.
If not for riches, why do so many people choose real estate then? It’s because investing in real estate is the best way to build real wealth, which is more about creating freedom than it is about money. (In part two you’ll learn that it actually has a lot to do with the government.)
Step 3: Buy into the real estate cash machine sooner, rather than later.
Making a lot of money every year is great, but unless you’re planning on working forever, it probably won’t last. If you’re smart, you’ll invest a portion of your income in income-producing assets, like turn-key businesses or investment properties. If done correctly, these investments will help you grow your income safely over time, and they’ll also produce recurring monthly cash flow.
6 Tips for Building Wealth Through Rental Property
Here’s an introduction to the top 6 wealth building tactics used by rental property investors. If you want to learn more about each of these tips, grab a copy of Kathy’s book Retire Rich with Rentals.
Tip #1: Understand the power of inflation
If you think the safest place for you money is in a shoebox under your bed, think again. Why? Because of inflation.
Inflation causes the price of goods and services to rise over time. This includes food, rent, wages, real estate prices, stocks, etc. The only things that do not increase in value, as a result of inflation, are cash and bonds. In other words, cash actually holds less value over time, making it a poor choice for long-term savings.
On the flip side, there is one asset that is (almost) always guaranteed to increase in value with inflation. This asset is real estate.
Why does the cost of real estate fluctuate in response to inflation?
It’s because people always have, and always will, need real estate. As a result, real estate prices must stay aligned with average wages, taxes, and expenses so that residents can actually afford to buy homes. This is a good thing for investors: as long as you’ve invested in the right markets, at the right time, your real estate investment should increase in value along with inflation, at a rate of about 2% per year.
Tip #2: Know how to get immediate profits
It is possible to make profit from your real estate investment within the first six months, if you know how to “force” appreciation. This is the process of buying a home and making improvements that increase the property value. The profit is considered forced appreciation because it took effort, not just timing of market cycles or inflation. (Note: Not all improvements increase value.)
Tip #3: Always sell last
Once you sell a house, it’s over. You will never make any more money off of it. But a property you hold onto will continue to make you money every year, and at the same time the value of the property will appreciate. The best part: You don’t even need to sell the home to free up money for another investment. This is where the saying “Refi til you die” comes from!
According to Kathy, “the only time you should consider selling a property is if it’s not working for you.”
Tip #4: Take advantage of fixed mortgages
Often people think they can’t buy real estate until they are already rich. This is false. It is definitely easier to pay cash, but your returns are much higher if you borrow money.
Terms To Know: Fixed-rate loan
Fixed-rate loan: A loan that has a fixed rate for the life of the loan. This means that the amount of your loan payment will never change. In other words, if your current loan payment is $500 per month, it will still be $500 per month 10 years from now.
In the U.S. we’ve become so accustomed to this type of loan (ie: the 30-year fixed-rate mortgage), that we take it for granted. And we shouldn’t. Why? Think about it. If you were lending money, would you lend it to someone for 30 years for the same monthly payment KNOWING inflation will eat up its value?
Tip #5: Take advantage of loan leverage
Leverage is one of the greatest advantages used by real estate investors. Investopedia defines leverage as “the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.” This is an important concept to understand, because it can help you achieve a much higher return on your property.
Did You Know?
Banks will lend you up to 10 loans for investment properties, as long as you have good credit, a 2-year job history, low debt-to-income ratios and reserves. Assuming you are buying a rental property worth around $100,000, you’ll need to have about $20,000 for a down payment.
You’ll also need about $3,000-$5,000 for closing costs and approximately 6 months worth of mortgage payments set aside in savings to cover potential vacancies or unexpected expenses. All told, you’ll need around $30,000 in liquid funds in order to obtain an $80,000 mortgage.
With this kind of 80/20 leverage, you should be able to realize returns of 15-25% on rental property!
Note: If you’d like a referral to one of our stellar lenders who specialize in investor loans, join the network. It’s 100% free and always will be!
Tip #6: Take advantage of tax breaks
Did you know that owning rental property can give you huge tax advantages? That’s right. You can deduct almost all expenses incurred as part of your cost of doing business, and you can also deduct things like depreciation, property taxes, repairs, maintenance, and more. All this can add up to a lot of free money at the end of the year.
Why Building Wealth Through Real Estate Is a No Brainer
Investing in real estate is about more than “making money.” It is more about building real wealth, which will empower to take control of your life. Imagine if you never had to worry about whether you have enough money to retire comfortably, pay for your children’s education, or cover your expenses in case of an emergency?
If you’re willing to spend the time to get educated, you have what it takes to be successful real estate investor. This means it is currently within your power to create wealth and abundance in your life. Are you ready?
If your answer is yes, you should consider becoming a member of RealWealth. We can help you create an investment strategy and connect you with our network of top-notch real estate professionals, including turnkey property teams, 1031 exchange intermediaries and CPAs. The best part: It’s all 100% free!