Have you always known that real estate was a proven path to riches? You’ve always known that more millionaires have made their money in real estate than in any other area throughout all of recorded history. And you’ve also always known that you wanted to get started in real estate. But if you are like most people, the pitfalls of traditional real estate have stopped you cold. These pitfalls have robbed you and your family of wealth and security. They have tied you into a life of economic slavery. But no longer! Now you are going to learn how you can enjoy all the benefits of owning real estate with none of the risks or hassles that usually come along. That’s right! You are about to learn how you can enjoy multiple streams of monthly cash-flow, quick-cash opportunities, and long-term wealth building.
So let’s start from the beginning. What does it mean to buy an investment property the traditional way?
You find a property, pay a substantial down payment, and finance the balance from some mortgage lender. Of course to buy a property the traditional way, you need three things: a large down payment, strong credit, and a healthy monthly income.
Let’s take a moment to look closer at these three areas in turn.
1) Large Down Payment:
When you are buying an investment property the traditional way, most lenders are going to require you to put between 20-30 percent down before they will finance your new property. Also, investment interest rates are generally HIGHER than interest rates for properties you plan to live in. This of course will eat into your monthly cash-flow.
2) Strong Credit:
Without an established credit history, you can forget about getting a loan on an investment property.
3) Healthy Monthly Income:
The third and final requirement of buying a property the traditional way is for you to have a steady source of monthly income. Of course in the world of mortgage lenders this means that you have been with your employer for several years and earn enough to pay off the monthly payments in the event you can’t find a renter for your property. If you’re self-employed things just got a lot tougher on you. If you don’t have at least two years of tax returns and bank statements to support your application, you won’t be getting that investment loan…
And let’s say you have all three of these requirements. What do you do now? If you are investing the traditional way, you find a renter for your property and manage it for the next thirty years until you own it free and clear. Of course along the way you deal with the showings, rent collection, maintenance, renter evictions, and all the other rental property joys.
Still, in the long run, you will end up building a great deal of long-term equity in your property, both from paying down the loan over the 30 years and also from the appreciation of the property over time. If you did nothing more than buy 5-10 properties and then manage them for the next thirty years, you would become a millionaire. It is a sure road to wealth.
We need to face the reality of traditional investing because it brings with it four major pitfalls.
The Four Pitfalls of Traditional Real Estate Investing
Pitfall #1: Need for a large down payment.
Remember that requirement to buy an investment property the traditional way? 20-30% down!!! Of course as soon as you put a large down payment into a deal, you fall prey to the second pitfall of traditional real estate.
Pitfall #2: High risk.
The more money you have in a deal, the greater your risk is in that transaction. Obviously if you have $30,000 into a property, you can’t just walk away from the deal if things don’t go well. You are tied to that deal. In investing, the best course of action is to keep your up-front investment as low as possible. If you are able to keep your up-front investment to zero, then your effective risk is as close to zero as possible. Your goal as an investor is to put as little of your money into any one property as possible.
Pitfall #3: Negative cash-flow.
On average properties have appreciated in value over 6.5% per year in the U.S. over the last 50 years. While property values have shot up, rental rates just have not kept pace. This means that for most investors in the first five to ten years of owning a rental property, they are going to have to deal with negative cash-flow.
For homes in the lower income areas, investors can rent them out and create positive cash-flows, but then they have to deal with the management headaches associated with investing in these types of homes. In the past when you wanted to invest in the middle and upper income homes you thought you had little choice but to feed the property money each month in the early years in order to enjoy the big payoff in the end. But now it doesn’t have to be that way.
Pitfall #4: The landlord trap.
For every investor who acquires a large number of properties, there is a point at which that investor falls prey to the “landlord trap.” At this point the investor is so busy maintaining and managing what he already has that he doesn’t have the time to go out and buy more properties.
Depending on how well an investor is at managing his portfolio, he might hit this barrier at 20 units, or he may make it all the way to 50 units. Still, at some point, he will hit it and fall into the landlord trap.
‘The Pen’ Vs. ‘the Hammer’
As an investor you make your money by buying and selling properties. When you use your pen to write up and sign agreements you are making vast sums of wealth. But when you fall prey to the landlord trap and put down your pen… and pick up a hammer or a paintbrush, your income plummets.
Even when you don’t do the fix-up and management work yourself, but rather you call and hire someone else to do it, you still have to spend your precious time to oversee the process and make sure what you are paying for is getting done well. Because of this, your income still takes a big hit.
There you have the four pitfalls of traditional real estate investing. With all these obstacles, it is no wonder that so many people get stuck not knowing how to get started investing in real estate. They know it’s a good thing. They have seen many people make their fortunes investing in properties. But, in the past, these obstacles have made it tough for them to get started.
With all these obstacles to investing in real estate, is it any wonder that you’ve had trouble getting started in the past? But that is all in the past! I’ve laid out the complete overview in my free ebook, How to Create Multiple Streams of Income, so you can see the true wealthy and smart way to invest in real estate.
Peter Conti (Mentor Financial Group, LLC) went from auto-mechanic to real estate millionaire in 3 ½ years. For a limited time, you can access Peter’s best-selling ebook, ‘How to Create Multiple Streams of Income’ and get $429.56 worth of free investor tools. Go quickly to this page and download the free material- www.mentorfinancialgroup.com/mfg/freeresources.php
Mentor Financial Group
