You're about to discover the perfect formula for building wealth with real estate. It has been around for centuries and even children are exposed to it thanks to the classic board game Monopoly. It all starts with extra cash that can be used for investment. That money is used to purchase high return on investment (ROI) real estate. Then as more money comes in, more high ROI real estate is purchased until a snowball effect occurs and eventually significant wealth is achieved. In the following video, you'll learn how extra cash is created, what qualifies as high ROI real estate and how to make this building wealth formula work for your particular situation. Here is the perfect formula for building wealth with real estate:
The Perfect Formula for Building Wealth with Real Estate
What the cash is put into, and what that is going to equal is going to be your wealth. First you have to look at this in terms of a snowball. If you had a small amount of cash and turn it into real estate with a high return on investment, it turns into more cash. You can take that cash and buy even more real estate, which makes something even bigger.
You can continue this cycle of earning more and more with your deals, and purchasing more and more real estate. The ideas is that positive feedback loops. The actual snowball is your actual wealth.
To explain this concept better, I will enlist in help from the classic board game "Monopoly." This board game was invented in 1903 by Elizabeth Magie, and was originally called, "The Landlord's Game". It wasn't called Monopoly until 1935 when Charles Darrow brought it to Parker Brothers and made a couple of adjustments to the original game.
The Way The Game Works:
In Monopoly, each player is given a set amount of money and has the opportunity to earn more money each time they pass go or land on certain squares. The goal of the game is to buy different properties on the board and then hopefully, over time those properties will pay you more money which brings in more money and allows you to eventually beat all of your competition by owning the most real estate and bankrupting your competitors. You are starting off with cash and buying high ROI real estate.
This is not of a game of mere chance, it is actually a game of strategy. You have to know which properties have the highest ROI. I will share a little secret, the railroads and utilities have a very high ROI, as well as certain properties like the orange and red, because the cost versus the earnings is pretty strong.The most expensive properties on the board have the lowest ROI, because if someone goes to jail they skip that whole zone. From a mathematical standpoint your oranges and your reds are the absolute best. So now I have given you a big secret you can use to beat your family and friends.
- Rich Dad Poor Dad Formula
If you're a Robert Kiyosaki "Rich Dad Poor Dad" book fan, you might remember him mentioning at least once in his book and in numerous trainings ,that his original dad, Richard Kimmey had a formula of four green houses and one red hotel. The way it works in Monopoly is that if you get four houses on a property you can then trade up to put in a red hotel. But that is not the full formula that Richard Kimmey used, instead he purchased 4 green houses and one red hotel to build his wealth. Now this might prove to be a good idea or a bad idea depending on whether it is the highest return on investment or not for each specific situation.
- High ROI
The key is that your cash is being converted into hard assets which have a high ROI in comparison to others. This will help you slowly but surely build a whole lot of wealth. You might be telling me right now, "Phil, this is a game and this game starts off with fifteen hundred dollars and I just graduated from school and didn't start off with a bunch of money in my bank account." I understand this and frankly neither did I. I understand. Neither did I. Unfortunately cash is critical to making this formula work. I have other videos on how to buy real estate without cash or credit, but typically those kinds of deal structures are used for short term money, which leads me into how I practiced this formula when I got started homeless.
I did it by creating large amounts of cash by flipping houses. I have a bunch of videos on this topic and I still to this day to house flips. I also mentor and train my apprentices and split the profits with them. I create big chunks of cash by flipping houses and then take my earnings and purchase high ROI real estate. You don't have to be a full time real estate investor for this formula to work either. Richard Kimmy started a series of army surplus stores right after World War Two and used his earnings to purchase real estate. He then sold all of that real estate and built a hotel in Hilo, Hawaii. This was a gamble because nobody thought anyone would want to stay there, as oppused to going to Honolulu. Well, he dropped the prices so low, that it ended up so successful, that he was able to create a huge hotel chain in Hawaii.
The main place to generate cash is by owning a business. It doesn't even have to be real estate, it just has to be a productive business. Business does not always produce long term wealth, because what is hot today, is gone tomorrow, but it does generate cash quickly. Building a business could be a great way to get this whole wealth formula moving. The cash you earn from your business can be thrown into the wealth building formula.
If you have a great profession that generate great income you can take the cash and throw it into a high ROI real estate deal. I could recount countless stories of attorneys, doctors, corporate middle managers, and great sales people that do just that. Or real estate agents that use their earnings to generate cash for real estate investing and are making millions of dollars a year. The important thing is to have a cash machine that is your passing go and collecting two hundred dollars.
High ROI real estate is the next part of this building wealth formula. In Monopoly, the Boardwalk property has the lowest ROI, even though it is the most expensive, and the railroads have a very high ROI, even though they are much cheaper. The most glamorous real estate does not always produce the highest return on investment.
I have a wonderful video called, "How to Turn a Little Into a Lot". There's a part one and a part two. It's one of my favorite videos I've ever shot and If you haven't seen it please watch it. It talks about the difference between traditional and creative real estate and my belief that the highest ROI real estate deals are typically structured creatively.
- CASH FLOW ROI
Sometimes you can pull off an amazing ROI deal traditionally, but it almost never happens. If you master generating cash then you master how to locate and structure high ROI real estate deals and this is how you hit the wealth formula. There are many different ways to pull this off, but the key is you've got to get into deals with as low of a down payment as possible but as much of an upside, as much of a cash flow. That's what I want to point out here. When I talk about ROI I'm talking about cash flow. If you put ten thousand dollars in how long does it take to get that ten thousand dollars back?
If you put ten thousand dollars into a deal and only receive $100 a month in positive cash flow, that is only $1,200 a year or 12%, which is not very good. twelve percent. I always shoot for a minimum of 25% cash on cash return. I've put together a video called How to Increase Your Net Worth With Real Estate, where I talk about the fact that real estate itself is the ideal investment.
- You also have something called depreciation, which is basically a phantom expense. It does not come out of your bank account but it is an expense on the tax return that reduces the income, which means it reduces your tax bill, even though you still have the income in your bank account.
- If you buy the property right you have instant equity, which is building wealth from the moment you purchase.
- This one is more difficult to determine because we do not know what is going to happen. If the market isn't in a complete recession you could have huge appreciation as the market comes back up, but if you buy it at the top of the market you might not get any appreciation.
- Creative investing is when you can get the best leverage because you can potentially acquire property without having to get a bank loan.
How to Build Wealth
Real estate itself is the ideal investment in my opinion and if you go with the high ROI version you're that much better off which puts you in that positive feedback loop in your favor over and over again.
I created all of my extra cash by flipping houses and then I turn that into the high ROI real estate and that's what built my wealth. That's what we teach others. That's what we do in our apprentice program. We teach them how to not only create extra cash from flipping houses but how to find the best ROI real estate. Some of the people that join our program they just need cash right now and lots of it. Some people have the cash but they really want to do this right. Either way that's where we fit in. That's how we help.
Applying the Formula
When you apply this formula you are going to produce extraordinary results over time but obviously it presupposes some big major items.
- You have to generate that extra cash
- You need to know how to identify and take down the high ROI real estate deals, but once you get there you've achieved that wealth.
That right there ladies and gentlemen is the perfect formula for building wealth with real estate. People have been doing it for literally centuries and you can do it too. If you have anymore questions or want to add any comments to this blog.