You Need To Be Rich To Succeed In Real Estate: Myth or Reality?

14 Replies

Before you answer the question in the forum post title, read the following lines and maybe you’ll change your mind.

When I was a kid, I was always taught to go to school, get a Bachelor’s degree and a job in a large firm. This way, I could get a stable life with great benefits and, maybe after working 10 years for the same employer, get 4 weeks of vacation PER YEAR. Sounds familiar? Ever read the book “Rich Dad, Poor Dad” by Robert Kiyosaki? If you haven’t, buy it now, trust me! It changed my life forever.

Once you realize that school will not dictate if you succeed in life or not, and that 4 weeks of vacation per year is simply ridiculous, then you will start looking for solutions. You will change your speech from “I cannot afford the life I’ve always dreamed of” to “HOW can I afford my dream life”? For me, the “HOW” was real estate investing.

What is most people’s reaction when they hear that someone wants to invest in real estate? “Well, you cannot invest in real estate, you don’t have any money. Real estate is for rich people. You need money to make money”. Sounds familiar? This is the single best excuse that people use to not get out of their comfort zone. It’s so easy to say that you cannot do it because of external factors. You know what? You control your own destiny. Mark my words, your internal world controls your destiny and will lead you to success, not the external elements. Stop being AFRAID of success, stop finding excuses, just do it (as a famous brand would say).

Having read all of this, how much money do you think I needed to close my first real estate deal and buy a 2009 triplex? Guessed right, none! NO, nobody in my family is considered rich. In fact, I come from a middle-class family that does NOT have money to spare for investing projects. NO, nobody in my family ever had their own business and showed me everything. I had to do it alone, no excuse, remember? If you were able to learn maths, physics and so on at school, why wouldn’t you be able to learn about the stock market, real estate or any other industry that you are passionate about?

Since nobody in my family could support me, financially speaking, or was comfortable enough to support my project, I approached other people around me like friends and friends’ parents. After noticing how motivated I was and how much I had learned about real estate, two people in my girlfriend’s family jumped in my project with me. The three of us together, we were able to buy our first triplex with no money down by putting the cash down on one of my partners’ line of credit. Even 100% financed, the triplex was supporting itself financially. This was 3 years ago and it was my first real estate transaction. I was 23 years old at the time and all three partners own equal shares. With the increase in value of the property, increased rent and some landscaping work, my part of the property is now worth $30 000 in net value. Better than nothing right!?

In other words, I didn’t have the money nor did my family, so I found other people around me who could make it possible! Now, some of you will say it is still considered family since it was coming from my girlfriend’s side. To that I will respond with my second ever real estate deal!

A little bit less under a year after we bought the triplex, I wanted to make money quickly so I decided I wanted to flip a single-family home. Once again, I did not have the financial means to buy a house and pay for renovations. Looking for solutions, I discussed my project with my best friend. Then, he outlined the details of our project to one of his family members who agreed to take part in it. We agreed to be equal partners, and his family member would finance the deal as well as renovations for a 3% interest rate to be paid from the net profits once the house was sold. In exchange, me and my friend had to put the necessary efforts to find the deal and to renovate the house, which we did. Not a bad deal right? We netted $22 000 total before taxes. Thus, my part of the profit was about $7000 and I had put the equivalent of 8 days of work into the deal. That equates to an hourly wage of $875 per hour. Afterwards, I took all of this $7000, and invested it in real estate courses, books, networking events and more so it could bring me even closer to my goal of being financially free before the age of 30.

Having read all of this, the affirmation “you need to be rich to succeed in real estate” is a MYTH!

So, what are you waiting for? We all have people in our surroundings that are financially able to support our projects. If you don’t, make new friends and meet new people at networking events. Believe in yourself, believe in your project and don’t be afraid to talk about it OUT LOUD. Not just in your head. Stop listening to negative people and surround yourself of positive, high-energy individuals. That did it for me. I hope I can help you get out of your comfort zone and make it happen.

What IS your question? This seems like a blog post, not a forum post. You may not be aware, but there is a blog area in BP. (Not trying to be sarcastic here. Some folks are genuinely unaware of this.)

That said, do you have a question? You sound like a pretty articulate guy. It would be great to chat RE investing with you. You actually seem like you'd have a lot more answers than questions.

I'm off to check out your website.....

@Tom Mole Thanks for the feedback. You are right, I was not trying to ask a question, but rather to share my thoughts with other investors. I did not know there was a blog section on BP! I will for sure check it out. Perhaps, I should move my post there. Thanks for the nice words!

@Billy Maloney I've been working on this project of becoming a millionaire in net assets within the next 3 years. I have a bit more than 2 years and a half to accomplish this objective. I have been working mainly on house flips lately, I am buying three single-family houses this month. The last project I sold brought in around 100k in net profits. For the moment, flips allow me to build up cash to eventually buy a 24+ apartment building and increase my net asset value. 

Provide more details on this flip transaction where you improved price so significantly.

What sort of property? Did you use a realtor on the buy or sell? What things did you do to increase the value? Who managed the property while it was being rehabbed/ubgraded? Who managed the work?

Thank you.

@JR T. Of course! It was a single-family house and it was a foreclosure. We made an offer on it the day it got listed on MLS. We bought it through our real estate broker at the time. Now, I don't ever purchase with a real estate broker, but I always sell with a broker. I have my reasons, but this could be another forum post in itself ;)!

Asking price was $170 000, got it for $155 000. Put a few thousand dollars in it including brand new interior paint, complete cleaning of the house, home staging and so on. Sold within 6 months at a price of $198 500. Take out the commission fees, purchase and holding costs, etc. Our net profit was $22 000 after all of that. It was my first flip, so it is a pretty decent return. Can't wait to discuss my most recent one though! We just made 100k net profits on a house flip + land subdividing. I've come a long way! Hope this helps understand the deal better. 

@JR T. Sorry, I forgot to answer the last part of the question. In this case, we did the work ourselves since the house did not need a lot of renovations. Thus, we managed it from top to bottom. Three years later, I now have a team that does all of the renovation work for me. 

Very nice post @Guillaume D. I'm glad you have this millionaire objective for yourself. Does Canada have similar tax rules where you get charged more for a flip versus a 1031-like exchange? Have you considered doing that so you don't give some of your net worth back in the form of taxes?

Originally posted by @Michael Le :

Very nice post @Guillaume D. I'm glad you have this millionaire objective for yourself. Does Canada have similar tax rules where you get charged more for a flip versus a 1031-like exchange? Have you considered doing that so you don't give some of your net worth back in the form of taxes?

 Michael:

Canada does not have an equivalent tax shelter to the 1031 exchange found in the U.S.A.  Here you have a choice between tax on income (i.e. a flip where the property is considered inventory) or capital gains tax (on an asset purchased for the purpose of generating passive income ... i.e. buy and hold).

@Michael Le In my case, every flip I have ever completed was purchased and sold through a corporation. Thus, it is considered a business revenue. 100% of the profits are taxed at a 19% rate here in Quebec, Canada. However, it does not get taxed at the source, but rather at the end of my fiscal year so I can re-invest that money and make more money out of it before I pay taxes.

Thanks @Roy N. for the details as well!

@Michael Le Oh yes, I forgot to mention. My house flips do not contribute directly to my net asset value. However, my flips will allow me to be a full-time real estate investor as of February 2016 and will ave built a decent enough amount of cash to invest in apartment buildings. My next objective is to buy a 24+ apartment building within the next 5 to 6 months.

@Stephen Darker These were my first two real estate deals. I did not even own a personal house at the time, I was still a tenant. Three years later, I am working on my 11th transaction now. If I could do it, you can do it as well!

@Guillaume D.

That's a very solid deal. Thank you for providing the details. It's very useful for everyone to understand what it takes for the numbers to make sense. I'm sure you had to pass on a lot of deals to get to that one. Keep up the nice work.

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