Two of the three primary reasons to be a real estate investor are quick cash and long-term wealth. The reality will set in at some point that you can make a lot of quick cash in real estate but it also will not make you wealthy. Wealth comes from investing in appreciating assets and letting your investments work for you. Real estate offers this opportunity but only if you hold some of the properties in which you invest. This usually requires capital so where is it going to come from?
One of the easiest sources of capital for your investments is from your own business. Let me give you an example to help illustrate my point.
Let’s say that you start out investing in real estate by flipping single family homes. This is both common and lucrative so it makes for a good example scenario. Your current household income is $75,000 per year. In one year, you flip five properties, with total proceeds of $100,000. That’s a pretty good start and the question naturally comes in as to what you’re going to do with that money.
Consider, as an alternative to spending this newfound revenue, an investment approach to this scenario. For example, you could take a percentage (say 75%) of the real estate proceeds (in this case, $75,000) and use it to help purchase a small apartment building. Using your instinct for good deals, you purchase a 4-unit apartment for $300,000 that, based upon the rents, is valued at $400,000. The approximate numbers are shown below:
Let’s now look at how your overall financial situation has changed. You would still have your base income (which you’ve lived on until now) plus an extra $25,000 a year to cover your business operational expenses and a few extra perks of success. Here’s where it gets good.
You also have an extra $1,000 a month in net income, an increase in net worth of $160,000, ownership in an asset that is paying for itself, and a legal tax shelter for a large percentage of the revenue your business produced the previous year. How’s that for thinking and acting like a wealthy person would?
Now, imagine doing the same sort of thing over and over for a few years in a row. Your overall income and quality of life will improve, but only as much as you want it to. You’ll be increasing your monthly income, but more so from the production of your real estate assets, which means that you aren’t having to work more to earn more. The best part is that you are accumulating valuable assets that pay for themselves and that help you build for your future. You simply have to love this business!
Can you see how reinvesting proceeds from your business back into your business can put you on the fast track to long-term success? Remember the adage ‘We buy and sell real estate to create the capital so we can buy and hold real estate’ and you will be well on your way to building your own real estate empire and creating a life of success and wealth that you may only have dreamed of until now.
