If you’re a beginner real estate investor, there’s one important concept you need to grasp in order to be successful long-term. Most people who get into real estate investing have one goal in mind: cash flow.
Of course, that is the ultimate goal, the end goal. But if you’re just starting out, you need to adjust your approach. Don’t get ahead of yourself. You can certainly have cash flow, just not immediately. There are a couple steps before you get there.
This idea is based off Gary Keller’s book, The Millionaire Real Estate Investor. If you haven’t read it yet, I highly recommend it. It’s all about gaining wealth through real estate. That’s why you’re here, right? I love this book so much that I highlighted it in my list of 5 must-read books for real estate investors.
In the book, Keller discusses the three stages of real estate investing. This concept is paramount. I find that many new investors look at this process in reverse, and quickly become discouraged. You have to understand these stages in order to meet your end goal.
The stages are as follows:
So if you’re a new investor, you should be in the first stage, where your efforts are put into buying. You shouldn’t necessarily be concerned with making money. I know that sounds counterintuitive to your main goal, but please bear with me. This stage is all about purchasing properties in order to increase your net worth. Many new investors aren’t purchasing properties free and clear; so don’t be concerned if you have loan payments.
Of course, you don’t want to be in the hole either. You need to make sure your expenses are covered. Here’s how to determine if your debt on an investment makes sense.
The second stage of real estate investing is when you own your properties outright. At this stage, you’ve paid back your lender, whether that’s a traditional bank loan or a private money partner.
The last stage, the stage you’ve been waiting for, is CASH FLOW! Gary Keller says, “Buy a million, own a million, cash flow a million.” Although I admire him, I actually think one million is an arbitrary number, and that you can achieve financial freedom in a more attainable way. I recommend finding your unique Freedom Number to see what works for you.
Once you get to the cash flow stage, you can easily rinse and repeat. Most smart investors buy until they die! Why’s that? The tax implications of owning real estate are enormous.
I hope this post has encouraged you to move toward financial freedom, and to be patient in the process. What are your thoughts on the three stages of real estate investing? Come leave a comment on our newest YouTube video. We love hearing from you!