It may come as a surprise to you that developing a strong money mindset is the foundation of wealth building and the key to unlocking your financial freedom. Read this post to find out more!
If you’re familiar with my message, you’ll know I’m passionate about helping people find their Freedom Number. It’s a formula I’ve created to help others achieve financial freedom. But financial freedom is about more than a number. True freedom is having the ability to live the lifestyle you want.
It’s about taking a look at what kind of lifestyle you’d like to have. We only get one short life; we might as well make the most of it. We tend to plan simple aspects of out lives, but we don’t take the time to take a hard look at how we really want to live.
The first step is to be clear about your purpose. Once you identify your purpose, you’ll be excited to pursue it with passion. You’ll embrace life with more enthusiasm.
Secondly, you have to be honest with yourself. Be completely truthful about what it is that you desire. This can be hard for many people; too often we undercut our goals. Don’t sell yourself short.
The third step is to believe that the lifestyle that you imagine is possible. If you can see the vision that you hold, it will happen. I can tell you from experience, shifting your perspective makes all the difference.
Then, you have to set your goals. You have to map out exactly what you plan to achieve, and how you’re going to put the plan in action. You have to sit down, build spreadsheets, and think through the numbers. It isn’t enough to just plant the seed; you have to water it consistently.
One question I hear all the time from potential investors is, “when will I make back my money from an investment property?” Simply put, this is the wrong mindset! This mindset will limit you in your efforts to earn a passive income.
If you’ve ever read Rich Dad Poor Dad, you’ll know that wondering about when you’ll make your money back isn’t a productive mode of thinking. When you become a real estate investor, you need to think of your investment as a stream of cash, not a pile of cash.
Let’s say you have $40,000 sitting in a bank account. Maybe, if you’re lucky, you might be earning 1% interest. But if you take those funds to purchase a rental property, that changes your circumstances drastically.
When you purchase a $40,000 home, not only are you increasing your net worth, but also you have consistent cash flow coming in from renters on a monthly basis. For our properties, we typically bring in $700 every month on a single-family home.
This investment isn’t some stock you’re going to sell back for profit. It doesn't really matter when you'll make your money back. I can assure you that you will, but that's not the point.
The point is, it’s no longer just a pile of cash sitting in an account. Now, it’s a cash-flowing asset. It’s producing a stream of cash for you every single month. Streams of cash are what will bring you financial freedom!
So you're ready to become a real estate investor, and you're picturing it now: a cute little bungalow nestled into a picturesque neighborhood. You've started brainstorming paint colors, and picking out shrubbery. I'm going to have to stop you right there. This is the WRONG approach.
It doesn't matter what the house looks like. It doesn't matter what the paint colors are. It doesn't matter what the hardware on the kitchen cabinets looks like. None of that is important. Why? It doesn't bring you closer to financial freedom, period.
Here's a little secret that only effective real estate investors understand: don't fall in love with real estate, fall in love with ROI. It doesn’t matter what the house looks like. All rental homes are simply four walls and a roof.
Houses in the best rental markets in the US rent, regardless of if they're cute or not! Our goal is to create a safe, solid, and comfortable home for our tenants. We aren't shooting for something that's Pinterest-worthy.
Real estate investing is a business, and as a business owner, you'll have to look out for your bottom line. ROI is the most important metric. Keep your focus on the numbers, and you'll be well on your way to financial freedom!
Want to learn more about purchasing high ROI rental properties in the best rental markets? We're ready to help you reach your goals! Click here to book a free call with our team.
The ability to decide whether or not a real estate deal is profitable is crucial to your success as a real estate investor. If your investment breaks even (or worse, loses money) then you're not moving closer to your goal of financial freedom. There are a few different methods you can use to evaluate whether or not a deal makes sense financially.
One commonly used method is the 1% Rule. The 1% Rule helps investors determine if a rental property will produce cash flow. Basically, when you purchase a piece of real estate, it should cash flow up to 1% of the purchase price every single month.
To use round numbers, let’s say you purchased a real estate investment for $100k. Following the 1% Rule, that property would need to produce $1000 in rental income every month. This is a simple tactic used to ensure that your expenses will be covered.
Personally, my main focus is cash flow, so 1% isn't as sturdy as I'd like. That's why I use an incredibly conservative ROI formula. ROI is a formula used to evaluate the performance of an investment. ROI is the way you can measure how much profit a property is accumulating. Typically, ROI is calculated by dividing the net profit of investment by the amount of money invested.
But I like to take it one step further. I always subtract 40% of my annual rental income to account for vacancies, repairs, or expenses that could occur throughout the year. You might think that sounds like too large of a portion, but it gives me peace of mind. I don’t have to worry if something goes wrong at my properties. If a furnace goes out, I want to know that the money is there to replace it. Expenses are inevitable, so I like to prepared.
Regardless of what method you choose to evaluate your real estate deal, make sure your focus remains on the end goal: financial freedom.
For most investors, the plan is to create a scalable, passive-income machine through real estate. But this requires realizing you simply can’t do it all yourself. It can be difficult to relinquish control, but it’s necessary for a successful business to outsource.
Deciding when to relinquish control of certain responsibilities in your business can be an emotional decision. For many of us, we care so deeply about our businesses, and are heavily invested in the inner workings. However, you cannot, and should not do it all. Scaling up often means stepping away.
Here's an example: for years, Natali acted as the bookkeeper for our personal real estate business. There were many responsibilities that she covered in that role—payroll, spreadsheets, banking duties. As our portfolio grew, this duty became overwhelming for her.
It came to the point that we had to take the responsibility off of her plate, and trust a professional. You might hesitate because you don’t want to spend a few hundred dollars per year on a bookkeeper, but it’s so worth it! A trained professional can actually save you money, as well as eliminate the headaches.
The same goes for taxes. As Tom Wheelwright mentioned on the podcast, if you are paying taxes as a real estate investor, you’re doing it wrong! We believe that outsourcing your taxes is crucial. You might think you’re saving money by doing it yourself, but a proper accountant can save you 10s of 1000s of dollars on your taxes.
You have to know when to let go, and relinquish control to the professionals. It can be hard to know exactly when the right time is, but if you’re beginning to feel overwhelm, that’s usually a sign. When you hire someone who is accountable and focused, it will make your business run much more smoothly, and alleviate much of your stress. After all, buy and hold real estate is supposed to be all about passive income!
In case you missed it, check out last week's blog post on becoming a hands-off investor!
When I mention that I purchase properties in the $40-50k range, sometimes people respond, “You’re so lucky! Homes in my area are over $200k!” But the thing is, I don’t invest in my home state of New Jersey.
The price to acquire rental properties in New Jersey is sky high! The property taxes are astronomical, and it takes a lot of time and money to rehab an even remotely affordable home.
Additionally, these properties aren’t worthwhile because return on investment is low. This is not the way to build wealth. You can't be a successful and profitable real estate investor without a certain ROI.
Properties in my area are simply bad investments. The cost to acquire is too high, and the taxes are outrageous. In my research, I’ve found that the ROI in New Jersey isn’t lucrative. If I want to build legacy wealth, I have to acquire properties with a high ROI.
Therefore, I always purchase my properties outside of New Jersey, and in my experience, it’s perfectly safe. If you're intimidated by purchasing properties so far from home, be sure to listen to this podcast episode where I discussed the safety of purchasing across state lines.
If you want to start building a passive income, you have to go where you’ll earn the highest return on investment. Unless you just happen to live in one of the best rental markets, you'll probably have to leave your comfort zone, and look for properties in different markets.
In my experience, the best way to build a profitable and robust portfolio is to invest in the best rental markets in the US where ROI is high, and risk is low. Check out our 7-step guide to purchasing rental properties out of state!