Welcome to Wealth Formula
The words “real estate investing” conjure up many different images. For some, it might make you think of Vanilla Ice’s reality show on flipping homes. For others, The idea of real estate makes you think of real estate moguls such as Donald Trump.
The reason for these very different images is because real estate is a very large industry with multiple different niches.
Going through all of the different niches is a show in and of itself and we are not going to do that today. Instead, the focus of this week’s Wealth Formula Podcast is a discussion on real estate as a business versus real estate investing. Both can be lucrative, but they have very different intents and outcomes.
Andrew Holmes, called by some, aka the “king of cash flow” in Chicago, has experience and active participation in both kinds of activities. Therefore, he is the perfect guy to discuss this distinction.
This is a great show and a must listen for anyone involved in real estate or even contemplating it. I hope you enjoy it and make sure to send me your comments.
P.S. if you haven’t done so, download my special report on little known ways of legally saving thousands of dollars in taxes at wealthformula.com.
Let’s talk, for a minute, about how a bank works. You deposit money in the bank. These days, they pay you less than 1 percent interest. Because they are a bank, they are able to lend out most of the money you deposited. This is called the fractional reserve system. It’s complicated and best addressed in detail on another episode. However, in a nutshell, this is how it works. The bank only needs to keep a tiny percentage of what you deposit and can lend out the rest. So, say you deposit $10. The bank lends out $9 and keeps your $1 in the bank. Of course you never told them to do that. You assume your money is in the bank and that you can access it anytime you want. And…in theory…you can. That is as long as everyone wants there money back at the same time.
So, when the bank lends out your money to a borrower, they charge a much higher rate than what they are paying you and they make a lot of money. Did they pay you for putting your money at risk? Hardly.
Wouldn’t it be nice if a bank told you what it was doing with your money? What if they said, we are going to take your deposits and lend them out as secured loans. Furthermore, instead of paying you a nominal negative rate on your deposit, we will let you keep the majority of the profits. That might sound more interesting right?
Well, that is pretty much what real estate debt investing is. Learn all about it on this week’s episode of Wealth Formula Podcast as we talk to Rick Von Der Sitt from Tower Real Estate Fund.
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