How Much Can You Really Make Investing In Real Estate?

How much can you really make investing in Real Estate? According to some "the sky is the limit." According to others, "its just a matter of time until the bubble bursts, and you take a bath in your losses." It's really dependent on your strategy.

First, we do not plan for market appreciation in any of our deals. It is more of a bonus if it appreciates over the few years we own the property.

We ask two main questions when analyzing a deal. If the answer is NO to either question, we continue our search.

1. The Flip - Is the cost of the property plus the rehabilitation cost cheap enough to warrant a profit worth investing in?
2. The Passive Income - Will the property produce at least $200 per month in positive cash flow from rental income?

What should you expect using this strategy?

A Huge Return on Your Investment

You have a few options when it comes to investing your money:

1. You can invest it in the stock market, and have no control on the success of the companies you invest in. This is pure speculation no matter what anyone tells you.
2. You can invest in mutual funds or index funds, and if everything goes to plan, you can enjoy a return of 12% without doing much work. Listen, 12% is pretty good over a 30 years. Anything less than 30 years and you don't really get the explosion compound interest can provide.
3. You can invest in real estate, and enjoy a 30% return on your investments and maintain control. You can also benefit from the magic of passive monthly income from your renters.

Retire Early (like in your 30s)

Retirement happens when your savings or passive income exceed your monthly bills and expenses.

How much are your monthly bills?

Maybe they're $5,000 per month, maybe $3,000 per month, maybe $20,000. I don't know what your personal standard of living is, or what part of the world you live in.

My goal is $5,000 per month.

I shoot for $300 per month per house in positive cash flow. So I would need to own 17 rental homes to clear $5,000 per month in passive income.

Maybe you hate debt and want to buy real estate with cash. The rent value I find to be the "sweet spot" for my strategy would give me $1,000 per month per house in positive cash flow. So I would only need 5 properties to retire.

Use debt or don't use Debt. You can achieve this in less than 10 years. But you have to have a great game plan, and stick to it.

At the end of the day, when you analyze your deals you want to look at one number. The Annual Return on Investment (ROI). This is the return on investment you property has each year.

Once we predict the Annual ROI, we can compare it to other real estate investments or even other investment vehicles like stocks or index funds. I have stopped comparing the annual ROI to the stock market, because it's not a fair fight. Real Estate will always win, and you don't have to speculate (gamble) on how a company is going to perform. You control the company.

My latest deal ("The Springfield Deal") earned me about 30% annual ROI. Those that are familiar with ROI in the stock market know this is a huge number. Those in the real estate investing world would call that a below average number. Just ask all the flippers out there.

So the main point of this article is to show you the POWER of ROI. In the next section we will use the term "interest rate" instead of annual ROI. For the sake of this article, those two terms are synonymous.

Without further ado, Let me introduce you to something known as Compound Interest.

Compound Interest

Yeah its true, compound interest is extremely powerful. There are two major variables when looking at the power of compound interest, time and interest rate.

Time

Given enough time, compound interest will multiple into an explosion of money. Usually this is more than 30 years. That is way too long for what I value in life. This is the most widely practiced retirement strategy. The strategy is to work for 30 or 40 years, save as much as you can, invest it in the stock market, hope the stock market stays the course, and if all goes to plan, you can retire. Then you sit back, relax, and hope you don't die before you run out of your savings. This is a harsh way of looking at it, but it's true.

Interest Rate (Annual ROI)

Increasing the interest rate of your investment will have a similar effect as increasing the amount of time. I could explain it to you with words, but Ill let the chart do the explaining.

Jay is using the power of time.

Chris is using the power of time and interest rate.

The difference is astounding.

After 40 years, Chris has made almost $10 million more than Jay, but they contributed the exact same amount of money.

THAT IS THE POWER OF INTEREST RATE!

Chris could have stopped saving and investing 10 years before jay and still retired with the same money as Jay.

The best and most predictable way to earn high interest rates (annual ROI) is by investing in real estate. Real estate is available to everyone to invest in. Those that work hard and use common sense, will be able to take advantage of the time and interest rate that are so powerful in compound interest.

How to get started

How can you get started in real estate and what should your expectations be:

Lets say you start out with no money. You need about $25k to get started. Use whatever strategy you want to get to $25k. Save $3,000 per year. That is $250 per month, $8.21 per day, and invest it in an S&P 500 index fund for the next 5 years.

Then take that money and invest it in real estate.

I took the liberty of drafting up this little table for you to show your friends when they say....why are you investing in real estate....the stock market is way easier.

By the time Chris is 39 he will be a millionaire, and poor Jay will still have $750k to go.

Interest Rate is a powerful thing.

My guess is that you can save more than $3,000 a year, and get started way earlier than age 25. If you are strapped to the gills, then YOU NEED A BUDGET. If after you budget you are still living paycheck to paycheck, then wholesale some properties or drive for Uber.

There really is NO EXCUSE for getting started in real estate. You just decide that you are going to do it, and set forth down the yellow brick road. If you need some motivation, go buy the book "Start" by Jon Acuff. It will kick you in the pants.

Excuse & Fear Log

As I have been writing this article, I have been documenting the excuses and fears that kept me from starting. I will elaborate on these excuses and fears in future articles. This is my attempt to hold your hand through the process. I too needed this type of hand holding when I was getting started.

• I cant save $25k
• I dont have time to invest in real estate
• There are no more deals that can make you 30% annual ROI
• The only houses that are good deals are in bad areas
• I wont be able to find a tenant.
• The tenant is going to trash my house.

A Call to Action

Every article will have a call to action. If you are taking this seriously and are really interested in changing your life, then you need to take action. Stop making excuses and JUST DO IT.

1. Go to YNAB and download the 30 day free trial of their budget software. Link it to all of your devices and computers. Sit down with your significant other, and budget the next month. You will find money hidden in places you never imagined. I promise it will feel like you got a raise.
2. Sign-up for our newsletter and get the 9 step strategy for the Delayed Flip. Its FREE. Print it out, and wallpaper your house with it.
3. Purchase our Calculator and start playing with it. Go to Zillow to find a couple of practice properties. This is the best way to learn the math behind the strategy. Yes we charge for the calculator. Listen, there is years of experience and time built into this calculator and its 5 bucks. I guarantee you wont feel like you wasted your money. It would take you hours upon days to make this same calculator. What is your time worth? I hope more than $5 per day.

References:

ROI photo by: Simon

Einstein photo by: Peter