Simple thoughts, actionable steps, and success principles to accelerate your path to a wealthier life.

Building Wealth with Real Estate: Greater Returns with Less Capital

entrepreneurship goal setting personalfinance real estate real estate investing success principles wealth wealth building Jul 20, 2023

For those who follow me on social media, you are well aware that I have been investing in real estate for close to a quarter-century. That makes me feel so old, so let’s say 25 years. Kinda sounds better?

Maybe not.  But it’s hard to believe the first foreclosure I bought was back in the early 2000s. 

That experience marked the start of my journey, a path that I have remained loyal to, even now.

Fast forward to today, real estate investment has become a popular topic, almost trendy. 

Many individuals, some relatively new to the field, are starting their own real estate funds and inviting others to join.

This surge in interest inspired me to shine a light on the other side of real estate investing. 

In my book Wealth Habits, as well as other content, I often discuss the 'real estate hat trick.' 

Before I break down these benefits, let me issue a word of caution. 

When it comes to investing in other people's real estate funds, ensure that you fully understand the cash-on-cash return, payback on capital, and the Internal Rate of Return (IRR).

It is equally important to know the fund manager's experience and track record. 

Have they been through a market reset?

Were they investing during the 2008 crisis?

Are they familiar with the cyclical nature of the market?

Knowing this, and understanding who you’re investing with, can help you mitigate unnecessary financial risks.

Why are so many people eager to start real estate funds?

Well, unless they have been in the game for ten or twenty years, most are trying to enter the 'sexy world' of having massive assets under management (AUM).

And most lack the personal cash and assets to do so.  So they resort to using other marketing tactics to crowdsource their investments. 

It’s essential to understand that the main beneficiaries of these funds are usually those who started it, not those who invested in it (aka you).

Therefore, always ensure that the numbers align with your financial goals.

Now, I mentioned the Real Estate Hat Trick. Here it is. 

The Real Estate Hat Trick has five distinct benefits.

  1. Property Appreciation: According to the U.S. Bureau of Labor and Statistics, housing prices were 857% higher in 2022 compared to 1997. This increase in property values over time generates equity, driven by demand for housing.
  2. Asset Leverage: Leverage allows you to invest with less capital and possibly achieve higher returns.
  3. Tax Advantages and Savings: Real estate investment can help reduce your taxable income, thereby saving you money and preserving your wealth.
  4. Flexibility: Depending on the property and market conditions, you can adjust your investment strategy as needed.
  5. Cash Flow: Regular rental income can provide a steady stream of income.

Remember to always research the specific market you plan to invest in. 

Look at local pricing trends, demand, job market conditions, and the area's economic prospects.

Each market has unique characteristics, and understanding them can make the difference between a successful investment and a poor one.

Finally, know that there are multiple ways to find potential investments. These include bank foreclosures, pre-foreclosures, bankruptcies, and situations such as divorce or estate sales where property must be sold quickly.

Always remember, wealth-building is not a race, but a marathon. Be patient, be persistent, and be wise in your investments. For more on real estate investing and wealth building head over to my podcast Generation Wealth where we drop new episodes every Monday and Thursday!

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