If you’ve ever wondered about how to actually build wealth through real estate investing, this one is for you. On today’s show, we’re going to dive into the main mechanisms that can help you build your net worth, accumulate cash flow, and live financially free.
We’re going to cover the ultimate formula you need to build your roadmap to financial freedom, the one principle you need to know in order to be successful long-term, and the powerful four streams of income that real estate investing can provide. By the end of this episode, you’re going to have a solid foundation of knowledge on how to unleash the power of real estate investing. You might want to take notes for this one – let’s get into it!
More About This Show
The first step to changing your life through real estate investing is setting a goal. There are a number of ways to go about this but let me tell you how I did it. I created a formula, that’s now known as The Freedom Number. I share the exact formula for free inside the Freedom Cheat Sheet. You can download it for free at morrisinvest.com/freedom, but let me give you a quick, simplified breakdown of how it works. First, you calculate your basic monthly expenses. This includes your rent or mortgage payment, car payments, your Netflix bill – anything that you anticipate paying on a monthly basis. Then the formula will encourage you to pad that number to support any unexpected expenses or have extra spending money. Then you’re going to do some math, and the cheat sheet will help you determine how much cash flow you’d need to generate every month to live financially free.
Now that you know how to set a goal, there’s a crucial real estate investing rule you need to know. It’s called The Three Stages of Real Estate Investing. This is based off Gary Keller’s book, The Millionaire Real Estate Investor. The three stages of real estate are as follows: buy, own, and cash flow. I have an entire video that outlines this process, and I’ll link it for you here. But here’s the gist of it: before you get to the point where your rental properties are producing serious cash flow month after month, you’re going to have to put in some work and practice patience. Most of the time, your life isn’t going to dramatically change overnight just because you’ve purchased your first property. Real estate investing is a long-term game. So the sooner you understand that reaching your Freedom Number is a long term goal, you’re going to be able to stay focused and weather any storms that come your way.
Now we’ve covered the importance of setting a realistic goal, and talked about why unleashing the power of real estate investing is a long-term game. If this sounds like it’s something you can stick with, then I’m so excited for you because this is where the power of real estate investing really comes into play. I’m about to share the FOUR streams of income that real estate investing can provide. That’s right – four ways to make money off of one investment type. Do you see how this is all starting to snowball and come together?
The first major benefit, or income stream, is appreciation. Because of the way real estate naturally grows in value or appreciates over time, you’re gaining equity and growing your net worth month after month. So think about when you get to that final, cash flowing stage of real estate investing. Imagine you’ve reached your Freedom Number and you own multiple rental properties that all get a boost in value. That is an INCREDIBLE increase in equity and overall net worth. As a buy and hold investor, if you stick with this long-term goal, you’re guaranteed to see appreciation in value over time.
The second way to make money in real estate is through cash flow, which we talked about earlier. Once you build out your portfolio of rental properties and reach your Freedom Number, that cash flow from rent is coming into your bank account month after month.
The third stream of income from real estate investing comes from the tax benefits. There are multiple, but let’s talk about depreciation for a minute. Friend of the show and Rich Dad Advisor Tom Wheelwright calls depreciation “the magic deduction.” Now, there are many, many tax benefits available to real estate investors, but depreciation is the most notable one. How does it work? Depreciation allows you to claim depreciation, or the reduction in value of your property, on your taxes. This is a powerful tool for mitigating your overall tax burden. Depreciation simply means more money in your pocket at tax time.
Last of all – principal reduction. Here’s what this means. When you have a mortgage on a property, every month your payment pays down your principal and improves your equity position. But when you have a rental property, your tenant is making this payment for you. So every month, your net worth is naturally rising, simply because you have a tenant and you’re making your mortgage payment. So in total, that’s four ways that real estate investing makes you money every single month.
If you’re a long-time subscriber, you may have heard of some of these principles before – but when you put them all together, that’s when you can really unleash the power of real estate investing.
Episode Resources
Book a Call with Our Team
morrisinvest.com/Clayton
Download the Freedom Cheat Sheet
The Millionaire Real Estate Investor by Gary Keller
The Three Stages of Real Estate Investing
Download the free Financial Empowerment Bootcamp
Subscribe to Investing in Real Estate on iTunes
Find Your Financial Freedom Number
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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