Making A Fortune While Broke
Monday, November 13, 2006
A recent Forbes Magazine article stated that 97 out of every
100 self-made millionaires made their fortunes through real
estate investing. Believe it or not, you, too, can take control
of your financial life by creating wealth through the
acquisition of real estate assets. You may be thinking that all
of this sounds too good to be true; well, wait - it gets even
better!
Not only is real estate one of the only investments in the
world that you can acquire using the power of leverage, but the
income and gains produced by real estate receive some of the
greatest tax breaks available. Unlike stocks and other
investments, real estate profits can be tax deferred or better
yet, even tax free! The government allows you to roll-over each
windfall into your next real estate investment.
Does the idea of using someone else's money to buy something
for yourself seem impractical? It shouldn't; it happens all the
time. You've probably even done it before. Have you ever taken
out a loan to buy a car? By doing this, you tapped into other
people's money (the bank's) to buy the car. How much better
would it be if you also had someone else making the payments
for you? By investing in real estate, you do just that. Instead
of using other people's money to accrue additional expenses, you
use other people's money (the bank's) to buy the property, and
you use other people's money (your tenants) to make the payment
by renting the property out for more than it costs you to own
it. The income produced by the property that is left over after
all expenses are paid for is the property's cash flow. And
simply put, that is the power of leverage.
Too many people are under the impression that they need to save
up a large down payment before the bank will lend them the money
to buy a property. This is not true. There are a number of ways
that you can obtain financing without bringing in a down
payment. The easiest way to start acquiring real estate is to
buy your first property and then use its equity to buy more
properties. Equity is the difference between what an asset is
worth and what you owe on it. If you own a property that is
worth $100,000 and you have a mortgage on the property for
$80,000, your equity is $20,000. Using the equity in one
property to buy another is exercising the power of leverage.
Leverage helps expedite the wealth process. Using leverage
maximizes your purchase ability. It is the most efficient way
to acquire properties, build positive cash flow, and take
advantage of appreciation.
Appreciation is the amount that an asset goes up in value over
a period of time. If you took your $20,000 equity and used it
as a down payment to buy one more property, you would benefit
from the cash flow of two properties instead of one. You would
also earn the appreciation of two properties instead of one.
Real estate on average has realized between 3 and 8 percent
appreciation per year. By using one property to buy another,
you are using leverage, but not to its fullest. How much faster
could your wealth grow if instead of using your $20,000 to
purchase one more property, you use it to purchase four
properties by putting only $5,000 down on each? Your wealth
would increase by the appreciation and cash flow of four more
properties instead of only one.
Real estate can also build wealth in any economic climate. If
the real estate market is up, quick turnaround investments
(flips) can produce large, immediate gains. If the market is
down, there are more opportunities to acquire assets at a lower
cost due to foreclosures, motivated sellers and seller
financing. When interest rates are low you can buy more assets
for your buck. When interest rates are higher, more people are
prompted to rent apartments, which translates into higher
rental prices. The increased demand turns your real estate
asset into a cash flow cow.
Like you, when we were learning about real estate for the first
time we were asking ourselves, "So, what's the catch? I mean why
isn't everyone doing this? And why aren't the people I know that
are doing this getting rich?" It is because of their fear, their
lack of knowledge, and their inability to develop a real estate
investment plan that actually fits their investment profile.
The reality is that with real estate you can be successful in
many different ways, shapes and forms. The best success in real
estate will come to you by matching strategy with your strengths
and desired outcome. From there, you can hit to ground running
towards the success you so deserve.
About The Author: Paul Pratt teaches easy and simple steps to
achieve unprecedented real estate success, making every
situation profitable. His successes include a college drop-out,
MBA graduate, waiter, and a stay-at-home mom. Live your dream at
http://www.myreiteam.com/link.html?promotion=trez
posted by Dennis Cheesman @ 5:54 AM,
