Here’s a question from one of our Wealth Formula Podcast listeners that seemed appropriate for the entrepreneurial theme of the week.
“I’m a beginner investor from California that needs your advice. I seek your help because I genuinely admire your lifestyle.
I want to create generational wealth for my family that would allow me to take my 2 daughters (..with 1 more on the way) to school every day, take my kids & wife to places they can’t tag in instagram and ride my mountain bike anytime I like.”
My goal is to quit my job in the next 4 to 5 years through real estate investing. The problem is I’m kinda all over the place and can’t focus my attention. We have $20k in reserves but don’t know where to invest it. We also have another $20k in a Solo 401k trust that need to be invested.
Where should I get started? How can I invest in multi family or apartment buildings with my limited capital as a non accredited investor?
Any ideas and advice would be very much appreciated Dr Buck. Thank you.”
First of all, thank you for those of you who are reaching out and trying to figure out how to take action. The good news for you is that you are better off than 99 percent of the world that seem content with the status quo and inertia.
Now here’s the bad news. If this email sounds like you, there is no easy fix to your problem. Let’s take a step back and look at your situation in the context of everything I preach.
The mathematical principles of wealth creation are what I call velocity, leverage, and mass.
Velocity is simply how quickly you turn over your investments and re-invest. If you invest $1000 into something and at the end of the year you end up with $100 in returns, that’s a 10 percent yield.
Now you don’t want to spend that hard earned profit on baseball tickets. You want to reinvest your profits as quickly as possible. Because as soon as you invest it, you are no longer investing $1000 and getting $100 back but now you are investing $1100 and getting back $110.
The quicker you turn that over and over, the quicker you grow your wealth. This is what Wall Street folks call “the magic of compounding interest.”
The problem with their magic is that it’s actually voodoo—they ignore the massive equity market correction every 10 years in their proformas (I think we are due for one actually!)
Now, the next mathematical wealth building principle is leverage—using other people’s money (OPM). I won’t belabor this concept as I have talked about it several times in recent widgets but suffice it to say that using other people’s money (ie. The bank), will increase your yield substantially.
Finally, the third mathematical principle for wealth building is what I call “mass”. Fundamentally, this is the simplest concept to understand. However, it is also the one people seem to forget the most. Mass is how much money you actually invest.
So let me tell you something that is probably pretty obvious on the surface. In order to make your money grow into generational wealth, you have to have some money to invest and then actually invest it!
If you have $20K in savings, investing that money into cash flowing real estate alone is not going to get you where you want to be in 5 years. It would take a miracle for that to happen (or at least the right cryptocurrency).
The only way to generate the money to fuel your investing machine is by either having a high paid job or by becoming an entrepreneur. Every other way of coming up with money to invest, like winning the lottery, is not something on which you should bank your future.
Nothing I am saying here is brain surgery (used to do it so I know). But the problem is that there are many real estate shows out there that make it seem like real estate investing is the quick ticket to wealth. In reality, for those of us with money, real estate is best used as an investment vehicle that kicks off double digit returns and significantly shortens are path to financial freedom.
BUT…you can’t do that unless you have a source of income to fuel your investments.
You can make QUICK profits in real estate but it’s not by being an investor. Flippers and wholesalers can make plenty of money, but they are not investing—they are in the business of flipping or wholesaling which is operating a business, not investing.
If that’s what you want to do, you better be good at it and you better be committed to it because, like any business, you could lose your shirt otherwise. Real estate “investing” is different and requires capital.
With all the get rich real estate gurus out there telling you otherwise, it is hard to sometimes keep this perspective. Let me close this widget by telling you about a conversation I once had with Robert Kiyosaki—the guy who inspired an entire generation of real estate investors.
Robert told me that everyone thinks of him as a real estate guy—a guy who goes out and puts together deals, etc. But in reality, he is just a real estate investor. His educational company, Rich Dad, and his books are his businesses that produce lots of income. His businesses provide him the income to then invest in real estate syndications that, then, become generational wealth.
Hopefully that puts things in perspective. Bottom line is–focus on what is going to make you some money right now, first. DON’T GET DISTRACTED AND SEDUCED BY THE GURUS. If you don’t start making money, you won’t have anything to invest.