THE FORMULA FOR WEALTH

When I played basketball as a kid, I followed players like John Stockton, Magic Johnson and Isiah Thomas to study their moves and habits so I could try to incorporate them into my game.  I improved by watching the best and listening to them.  The same goes for building wealth.  Andrew Carnegie, founder of US steel and third richest man in world history, preached real estate as the ultimate equalizer for the everyday investor, with the capacity of creating wealth for ordinary people more than any other investment vehicle.

Everyone wants to invest in real estate because we all have experienced someone from our social circle that that has benefited in some capacity by owning income producing properties.  I guarantee that someone you know, whether it be a neighbor, co-worker, friend, acquaintance or family member, has shared stories about their real estate investments making their lifestyles enhanced, richer or even wealthy.

My uncle Marcelino was a resourceful man who bought a sizeable piece of land in Sylmar, CA and built a house to live in.  He later built two more houses on that plot and rented them out.  He was married with children, using the extra income from those rentals, in combination with his JOB income, to ENHANCE his lifestyle.  Marci was always taking vacations and I remember tagging along on a few great ones.  This ENHANCED lifestyle was created by the income he received from those 2 extra houses he built with his own two hands.

I have a few friends that are RICH through real estate.  A close friend has flipped over 100 homes and owns over 40 income producing units that he manages himself.  Real estate is his daily routine and works hard chasing his next deal, making sure his properties are maintained and tenants pay on time.  He has a RICH life with a big house, nice car and the ability to take luxurious vacations.  He owes his RICH lifestyle to real estate activities and earns his keep every day.

I have a mentor who is WEALTHY through real estate.  He has all of his money tied up in thousands of apartments, receiving millions of dollars of passive income to fuel his hassle free lifestyle.  He has no job or involvement in asset managing the apartments so he gets to do what he wants, when he wants and with whom he wants.  He is the master of his own universe because he has leveraged money to buy the most valuable of all life’s currencies: TIME!

The rich have high paying jobs that require time to make them money.  The wealthy have high paying assets that produce money to buy them time.  Wealthy people understand the simplest of truths and do everything to hedge against it: Money comes and goes but time is the life currency that you can never regain after “spending” it.!  The real estate investor’s ultimate goal should be to say “I can do what I want, when I want and with whom I want”.  This is the true definition of wealth and TIME is the denominator.

The one thing my uncle, friend and mentor have in common is that they all started with nothing.  Each chose how much education, action and time they invested to reach their own acceptable financial goals......and this simple truth about real estate is what Andrew Carnegie understood: it is the only investment vehicle available on every corner of the planet that people will always NEED for shelter, business or farming, and who’s ownership is loaded with so many profit centers allowing everyday people to decide whether they want income producing real estate to ENHANCE, ENRICH or make their lives WEALTHY.

Like a mechanical watch, everyone knows its importance of keeping time so we can maintain order in our lives.  But most don’t understand the perfectly crafted gears, force and wheels working in the background to create that ticking sound that lets us know it is working.  Real estate is the same.  We all know real estate investments are important to build wealth and receiving cash flow like clockwork lets us know it is working.  However, there are more profit centers and profit enhancers working in the background that stocks & bonds could never match.

1. Cash Flow- Profit Center #1. Residents pay monthly rent covering all expenses and the difference provides profit to the owners.  Stocks & bonds pay a sort of cash flow called dividends with typically lower yields versus real estate cash flow.
2. Amortization- Profit Center #2.  Rental income pays down the debt, which increases owner equity.  Can you do that with stocks & bonds?
3. Tax Advantages- Profit Center #3.  Depreciation is a tax write-off that shelters cash flow, enabling more profit for owners that are not available in stocks and bonds.
4. Appreciation- Profit Center #4.  While never guaranteed, rents and property values can increase over time so that while you are collecting cash flow, the value of your property is simultaneously growing.
5. Inflation Hedge- Profit Center #5.  Because of the great demand for shelter, rents typically increase at a rate that paces or exceeds inflation.  Bond yields are fixed while stock dividend increases are slower to chase inflation.
6. Leverage- Profit Enhancer #1.  You can use the banks money to buy real estate, allowing for the purchase of $10M property with only $2.5M.  Can you do that with stocks & bonds?
7. Stability- Profit Enhancer #2.  Although all investments can go up and down depending on the economy and various factors, cash-flowing properties are generally less subject to daily ups and downs.  Many people dump their money into stocks & bonds and hope it turns out well, while Real estate is less volatile and has historically outperformed the stock & bond market.
8. Control- Profit Enhancer #3.  Real Estate gives owners more control over income and expenses.  Stock & bond investors have no control over operations that affect profit.  Investing should not be gambling so control is important.

Today, Andrew Carnegie would be proud we have proof real estate is hands down the best investment.  Recently, researchers released the most comprehensive study ever conducted, comparing the rate of returns from 1870 through 2015 between the major investment classes: stocks, bonds, treasury bills and real estate.  Would you like to know what they found?  Please contact me and I will email you the facts in this ground breaking new study.

We now know WHY real estate is the only investment vehicle that can help anyone to ENHANCE, ENRICH and CREATE TIME ABUNDANCE in their lives and HOW it works relative to stocks and bonds.

A heads up for my next article, where I discuss different kinds of real estate investments and which is My Favorite.

Live above the line,

Stevan Garcia