Perfect Formula for Building Wealth with Real Estate

Perfect Formula for Building Wealth with Real EstateYou’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

 

CASH

 

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.

 

  • Monopoly

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.

 

Flipping Houses

 

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.

 

Business

 

 

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 

 

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?

 

EXAMPLE

 

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.

 

Depreciation

  • 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.

 

Equity

  • If you buy the property right you have instant equity, which is building wealth from the moment you purchase.

 

Appreciation

  • 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.

 

Leverage

  • 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.

  1. You have to generate that extra cash
  2. 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.

Comments

  1. Fidel Cano says:

    Phil, I feel you are honest about what you do and you come through believable.

  2. jummy fleury says:

    Great video Philip, My name is Jummy Fleury I live in Tampa FL, for now because my wife is a travel nurse and we are going to New York in two months for her next job assignment. I was wonder if you knew were I can get a real estate loan for doing tax deeds deals? I know that they don’t typically give loans for that, but then again I’ve heard of people getting loans for it, I just don’t know were to go.

    Thank you

    • Phil Pustejovsky says:

      There are a TON of hard money lenders right now funding deals like never before. If I were you, I would track all the tax deed sales for Hillsborough County for the next few months and then search the title for each one purchased by a private investor and then you will see which ones have a loan against them from a private lender. That’s how you can figure out what lenders are funding tax deed sale deals in your area. Since tax deed sales require quiet title, that may be a big stumbling block to getting a loan for a tax deed sale deal.

  3. My question is about your 25% cash on hand ratio. What formula are you using to get that? Please provide a generic example. Thanks

    • Phil Pustejovsky says:

      $10,000 invested. Getting $2,500 per year or more back in positive Cashflow plus appreciation, debt pay down, etc.

  4. mitchell keys says:

    I’m learning a lot from your videos as of right now I’m in the process of saving more cash to start investing in rental properties.I’m feeling really confident in my future and you have been a big inspiration to me thanks Phil.

  5. Luis E Chabla says:

    Just looking a
    Way how to make extra cash

  6. Al Siddiqq says:

    Good Stuff ! Phil

  7. Parker poole says:

    Hi Phil, I’ve just started your book, and watching your videos and have already learned more about real estate than I imagined possible. My career path is to start my own real estate company and flip properties, what is the BIGGEST tip you could give to someone wanting to get on the right path of real estate. I am a college student, 19 years of age.

  8. kawthar muhssan says:

    Hi hpli
    My name is kokie .I am new invstor, I do assignment of contract, in San Diego, and I have some confused about (26) part of new reoltor contract, waht should I do? Because like u now I am Hollister I have to put in the buyer part , me and or assignee
    Thanks

    • Phil Pustejovsky says:

      Hire an attorney who specializes in real estate and preferably works with creative real estate investors and truly understands the CAR forms.

      • Your awesome as a Real Estate Investor, I’m shocked on everything you have put in your Investir book works when followed step by step. God Bless you paying it forward, I am closing on my homeownership in next 10day. You were God sent in my domestic violence situation, empowering I a 68yr female to meet her goal of homeownership closing within 10days. Praise The Lord for your knowledge pay forward knowledge to all who are lost and seek your help.. AMEN

  9. Ruben Newson says:

    Hi Phil,

    I’m just getting starting I watched all your videos and I’m trying to get started in realestate investing. Can you email more info about getting started with you and your team? I ‘m looking for a mentor. My goal is to flip 3 house this year part time.

    Thank you!

  10. Marc Mora says:

    What’s the best way to get started with a 100k to invest.

  11. Another great video Phil! You are definitely the Real Estate Rock Star on the internet!

  12. Great video! Thank you!

  13. THANKS PHIL FOR BEING THERE

  14. Betty Ndungu says:

    Thank you so much for all your videos !
    They have such a great read.
    Is it possible to start real estate business by borrowing right from scratch and if one can from whom?

    • Phil Pustejovsky says:

      Isn’t THAT the million dollar question…where to find someone to bank roll your fledgling real estate endeavors. My advice is to use all of your faculties, all of your creativity, all of your might, to find a way to start bringing in some cash so that you can bank roll yourself.

  15. Good lesson, very interesting and informative.

  16. Hi Phil,

    I am very interested in real estate. I have followed it for about 17 year but have never made any deals. I have stated businesses and closed them. I have truly desired buying property flipping som and selling most for profit. I truly need someone like you but lack the revenue to obtain your services. Is there any info that you offer hungry entrepreneurs like myself.

  17. Can y send me the vedio for flipping houses. Is foreclosed houses/ auction houses are good to start investing in real estate

  18. Hassan Zaza says:

    Great dedication and enthusiasm in all of your videos, they are all great and very informative, thank you….great job.

  19. I’ve been doing this for a little while now. I have 4 properties (one I live in and 3 duplexes).
    I really like your approach – a lot of what you say I have already learned through both experience and other bloggers I follow, HOWEVER, you by far do the best job of presenting it in terms that are easily explainable. I love the analogies and acronyms.

    Here in Canada I’m not sure that creative investing is as easily done. Further, estate sales etc. tend to be overpriced in my area as there are agents that focus specifically on selling them. The market is hot here and there are many stupid buyers…ie: 5% ROI is a BUY BUY BUY. Investors have tons of cash flow and they are happy to buy anything. Finding that diamond cash flowing property can be difficult – I’ve been focusing on turning single families into duplexes to crank the cap rate up.

    Additionally, there are a lot of fees associated with putting less than 20% down (extra insurance etc.). Banks also charge a ton more on interest if you don’t put the 20% down. I’m securing my properties with 5-year fixed interest rate terms on my mortgage at below 2.5%. 2-year fixed 1.84%. Hard money lenders would be double or triple that cost, which eats into the cash flow quite a bit..granted your ROI is much better when you can put less than 20% down. This is quite the trade-off.
    I’m interested in chatting with you further. My in-laws have a property in Florida outside of Orlando. Perhaps when I am down next we can meet for coffee – my treat.

    Michael

  20. Very inspirational! Great summary of real estate investment!
    I’ve taken Phil’s online course, but this video is again a hit. Thanks Phil for this free video!

  21. Phil my partner and I are going to invest in las vegas I have been wonder what is a good method to evaluate what a property is worth

  22. Well….. Think, I’m in love with you. 🙂
    You inspire me

  23. Stanley says:

    Hello Phil I want to start by thanking you for all the good work and financial advice and insight you so generously share with your listeners. I have been following you on YouTube for almost a year and am a fan.

    I am an Indian by nationality and living away from home for the last few years. I had a question specifically regarding real estate markets outside the United States. A lot of what you share on your podcast is perfect for people living in the US.

    I wanted to pick your brains on something that has been keeping me awake for the last few years and is very India market centric. Perhaps you can help or provide your insights :

    The return on investment on residential properties through rentals in tier 1 cities in India is among the lowest in the world. The rental yields in Delhi are the lowest at around 2% while Mumbai fares better at 3.5%.

    But if one takes into account the capital appreciation, the returns surge to over 20% compounded annually – which is among the highest globally.

    Recently we have seen a lot of unsold inventory piling up in the big Indian cities but no drop in prices.

    This is making most conservative investors like myself very nervous. Especially since I would like to have a passive income stream.

    What is your opinion for investors like me who are in markets were the rental yields are so low?

    Does it make sense to keep buying more real Estate in such a market and only rely on capital appreciation of property values?

    Regards Stanley

  24. Cathy O. says:

    I have watched many of your videos! Thank you for presenting so clearly. Also thanks for the history lesson on Monopoly. I have a 1936 version – wooden houses/hotels etc. It’s pretty cool. I look forward to watching more of your videos in the future.

  25. How do I get into one of your apprentice program?

  26. Selvin Espinal says:

    Hello Phil, it was a great information this video thanks, i still reading your. First book is going great, so i have a question, i know someone that wanst to buy a house i want to put in practice the knowledge that i got from your book, but i dont know how to find the right seller, cause the person wants to. Do it rent to own how can i find a seller that wanst to do that?

  27. JERVIN VASQUEZ says:

    Hi Phil

    What if you do not have a business or good enough profession to start your real estate investing business especially if you want to get started right away. What do you suggest?

  28. Corey D Lackey says:

    Hello this is Corey I want to partner with someone

  29. gaby miceli says:

    You are brilliant and awesome to watch and listen to ..thank you Phil!

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