Starting off with no money will not hinder your wealth in the long run. I remember my first mentor telling me it is much better to have no money and no credit when starting, this will force you to do make creative deals that generate positive cash-flow every time. I was apprehensive of this statement when I heard it at first. Because you have no money you will try to squeeze every penny out of each deal – resulting in a very high profit for you on every deal! I have never done a bad deal when I have negotiated great terms with zero down and low monthly payments to my seller…
I have however, in my later years, when I’ve had money, done my fair share of bad deals by signing my name to a mortgage or buying homes out right with cash.
Use your mind instead of your wallet!!
Anyways back to the question: It is so important to align yourself with someone who is where you want to be. Starting out with no money, bad credit and in a topsy-turvy market is just how many of tomorrow millionaires are starting off today, and how many of us started out in real estate.
I would start by investing in mobile homes located in mobile home parks, after 10-15 mobiles generating between $3,500 -$7,000 a month passive profit, I would move onto buying great creative deals with block homes or mobile homes that were attached to land, and while building towards my long term goal of every property free and clear of a mortgage (either seller held or bank) and marketing every which way I could I would wholesale the properties that where wholesale-able in order to build up more bank reserve to invest in more properties or pay off said mortgages/liens.
Buying and holding has always been the way to wealth. From biblical times to the current economy; families will always need a place to sleep and a roof over their heads.
Long story short – Bust your Ass for the next 3 years, building your own business! – Not working for someone else. And you and your family will never have to worry about money or work another day in your lives!
Happy investing!
- John Fedro
Jon Klaus Reply
over 2 years ago
John, thanks for another informative and motivational post. Your plan is logical and achievable by the ambitious and disciplined.
I have a question for you; why do you want to own your portfolio free and clear if leverage allows you to borrow at 10% and less, while your investments earn over 20%?
John Reply
over 2 years ago
Thanks you Jon! :D
I'm not sure I have a great answer for that one. I think it is personally because while learning this business my mentors always pushed it into my head "free and clear" was always where you should end up!
Anyone in this business needs realize the extreme benefit of "Good" debt and proper leverage!
You are absolutely right! Thank you for making me think differently.
Whats the saying, "Use what you have, to get what you need, to get what you want!"?
-John
Shae Bynes Reply
over 2 years ago
Hey John, great post. I think its admirable to own your portfolio free and clear and focus on debt free living in the long term. I subscribe to that completely (but we're focused on single family homes).
You can simply focus on being the lender instead of the borrower :-)
Jon Klaus Reply
over 2 years ago
John, I personally am torn on the debt vs. free and clear issue. I ask the question, not because I am for leverage, but because I want to understand your philosophy. REI allows leverage like no other investment I know. It has been used to build worth faster than anything on this side of tech (and lose just as fast). Even "conservative" banking is based on borrowing for x and investing (lending) for a return of x+y.
That said, the security and peace fo mind of "owing no man anything" has a powerful attraction. I wonder how much of that attraction is psychological and emotional vs. a best business practice.
Shae Bynes Reply
over 2 years ago
Hey Jon K, I know exactly what you mean....I think that the attraction is psychological and it some cases spiritual depending on beliefs -- both of which can easily trump "best business practices".
For me personally, I'd rather own 5 properties free & clear than own 15 financed ones -- there are so many ways to get tax deductions other than paying mortgage interest :-)
Good discussion! Thanks!
John Fedro Reply
over 2 years ago
Great points for both!
Jon, now you have me re-evaluating my plans. lol (seriously)
I suppose, from person to person, it comes down to a mix of personality, comfortability and perhaps ambition with certain goals. Would that be a good way to sum it up?
Ryan Johnson Reply
about 2 years ago
Love the blog so far!
I really liked the "Starting off with no money will not hinder your wealth in the long run." line. A truth the covers so much :).
Don Rotanz Reply
about 2 years ago
Good question:
5 free and clear rentals or 15 rentals with mortgages?
my $.02,
In 15 years from now, you will have a much higher net worth with the 15 than with the 5. I think if I were 55 years old, I would take the 5 F&C over the 15 w/mortgages. Younger than 50, take the 15 as long as you can manage them.
Shae Bynes Reply
about 2 years ago
I definitely agree Don...net worth will be higher for sure. I think it just goes back to how John summed it up which is that it comes down to an individual's specific goals. For example, there are other ways of building passive income streams that can be pursued (although I truly real estate investing is one of the best!).
Great blog, John!