Real Estate Advice

More than likely, you want to get involved in real estate investing in order to become financially successful. That is almost always the reason that one goes to get their real estate license: financial freedom. If that’s your goal, you’ve got to master your own finances; this is an important skill if you want to do real estate investing. If you do it right, real estate is one of the best ways to become financially free.

What’s the best way to manage your finances?

There are many different thoughts on managing finances. So, how do you achieve real financial success in real estate? Just about all financial gurus are going to tell you to set a budget. They’ll tell you to plan your spending. That’s what a budget is. How much is going to go toward your car, to the house, to food? The idea is that you stick with the plan; any money you don’t spend, you save. Then, they’ll tell you to invest your money, set up an IRA, then invest in mutual funds. This advice has been around for turns of centuries; why? Because it makes sense, and it is effective. You should have a budget when you’re running a business. Another thing they’ll tell you is to never use a credit card; always pay by cash or debit so that you aren’t tempted to max out a credit card.

Spend less than you earn

Unfortunately these days, you need to have credit cards. They’re also great because there’s so much identity theft these days. If you have a credit card and someone steals it, the bank will reimburse you. If you use cash and someone steals your wallet, that money is gone. Also, with many of the budgeting apps, you’ve got to enter in your credit card informations. Apps such as Mint are highly useful. They put all of your spending in a pie chart with specific categories. Saving money is extremely important, and living below your means is wonderful advice; advice that you should follow.

Investing in mutual funds

There are many pros and cons to investing in mutual funds. As well as having no credit card debt; everyone’s goal is to be free of debt. By the time you have enough cash so that your investments build up, you’ve got the money to retire. This is called “the slow way to wealth.” The idea is to purchase assets (rather than liabilities), start a business, invest your money, and also make mistakes. All of this is great advice.

So how do millionaires handle their money? It’s interesting to see what their own habits are, where and how they spend their money, and what they don’t spend it on. The overall point is to invest smart, spend less than you make, and to save money.

People who make ten million dollars or more; called “deca-millionaires,” tend to follow this advice:

▪ being sure to budget
▪ spending less than they earn
▪ saving their money
▪ having some sort of debt
▪ avoided investing in mutual funds
▪ Began businesses
▪ Buy assets while using debt wisely
▪ Made mistakes, but learned how to be successful at it

When it comes to business, you want to be aggressive. But personally, you need to be frugal. What does being aggressive in business regarding money mean? It means that:

▪ The more money you save, the more money can go into businesses, can go into assets, can go into investing and can go into making mistakes on some of those things.
▪ That creates an education for you, you spent the money you learned what you’re not supposed to do, but that makes you smarter and shows you opportunities that other people wouldn’t see.
▪ So often too many people are too scared to spend any money on assets, starting businesses, investing, and what ends up happening is they stay in the safe zone, which, there’s safety in this, but the problem is they never make the big returns.

Renting is better than owning

Another aspect of this dichotomy is renting. While you don’t need to have a luxury car, or the largest house on the block, owning is usually worse than renting. It is actually almost always wiser to rent your house rather than rent. Isn’t that a shock? Owning your own home is actually a liablity. So many things go wrong in a house. Things have to be fixed, you’ve got to pay taxes, mortgage, insurance mortgage. People tend to think, “I’m spending $1,500 a month in rent, that’s practically a mortgage. It seems I’d be investing that money somewhere if I owned the place.” It makes sense to think this way. However, you’d be wrong. The expenses of owning far exceed that of renting. If something breaks, you call the landlord and they pay for it. You don’t pay taxes. You don’t pay flood insurance. Get it?

Some examples

Just about nobody wants to rent. Interestingly enough, there’s a man named Chuck Finney who was a billionaire in the duty-free business. People assumed he owned his own home, but he didn’t. He rented! He knew renting was cheaper than owning. Can you believe that?

Sam Walton, the guy that started Wal-Mart. He drives a pick-up truck! This is what being frugal means. You don’t need to drive a BMW or a Mercedes. His outlook was that “The pickup does the job. It gets me from Point A to Point B, which is all I need.”

If you spend less than you earn, that excess capital represents the building blocks you can use to form whatever life you want. It all starts with saving money. You have to have capital. If you don’t have any, raise it from someone else who does (just be sure to follow all the securities regulations and that the terms are favorable to you and fair to them).

If you are armed with a pile of capital, you can look around and find a way to serve society in a way that gives them the products and services they desire, and you the return you demand on your efforts and savings. Maybe you’ll end up selling blow dryers, perhaps you’ll own cattle, or you might even end up launching technology; it comes down to your own skills, talents, and passions.

In order to be frugal (personally) but smart and aggressive regarding business, you’re going to have to take on some debt. This is not always a bad thing; if you’re taking on debt to buy real estate, well that real estate is actually an asset. You just need to make sure that:

▪ The cash flow is positive
▪ You have more equity than debt. Yet, realize that using debt wisely can make a pretty big difference

What is good debt? What is bad debt?

Good debt can make you extremely productive financially. It is wise to own things outright. For example, boats, or cars. You must have debt on appreciating assets, not depreciating ones.

Mortgages and taxes

Let’s say you own your house, rather than rent (tsk, tsk). If you own the house, you can deduct the mortgage from your taxes. Therefore, some people leave a small portion of a mortgage on their house. If you are going to own a house, you should own it outright with no mortgage. The cost of living is real high right now. It may be possible that the job you have doesn’t bring in enough money to live below your means. The whole point is to do what you can to live below your means so that you can save money.

What’s the issue with owning your own business?

So the general idea is that you need to start a business; you’ve got to have your own business to be uber successful. The billionaires out there own businesses. Of course, they started small, they didn’t go out and start several businesses at once. While starting a business is a fantastic way to achieve financial freedom, it doesn’t happen overnight. It can take years to get a business running; even longer to be making enough money from it.

How creative real estate investing can help you

Creative real estate investing is mentioned all over this website. Why? Because it can make you a whole lot of money that you can ultimately invest. The idea is to have that business be extremely successful so that you can invest the money from it. You still live under your means, but you save all of that money so that you can put it into investments.

What should you invest in?

This article isn’t going to give you a cut and dry answer on what types of investments you should put your money into. However, you do want to invest in assets that you have total, and complete control over. Let’s take mutual funds for example. You do not have control over those funds.

Spreading out your money

You want to spread out the types of places you invest your money. For example, some in real estate, some in a mutual fund, other assets. But the story is the same, you want to invest in those assets that you control. Owning your own business is one example of that. One of the wisest things you can do is take the money you earn from your business, and put it back into your business; not other people’s. Or, invest it in real estate. Having credit cards can be a really great thing, if you know how to use them wisely. You’ve got to have self-control with credit cards; if you can’t, cash or debt is probably the way to go. You want to have credit cards with large limits, but no balances. 

Take some chances

If you are in a position where it isn’t possible to live below your means, that’s OK but you need to start making some big chances so that you can get there. Going to a great college, getting great grades, then getting a great job with a good salary is a great idea. But it doesn’t always work that way. Going to a good college doesn’t automatically mean that you are going to be financially free later in life. The faster you can become a business owner, the faster you can make money later down the road. You’re going to pass right by those people that chose stability; a job where they’re working for somebody else. Yes, it will be tough in the beginning, but in the end, you’re going to come out on top, making much more money than they are.

Taxes

If you own your own business and structure your assets in a smart way, you can reduce your liability regarding taxes significantly. People that work for other people pay far more in taxes than those who own their own business. For example, employees, attorneys, and doctors. The higher incomes they earn (even though their salaries are knocking it out of the park), they pay more in taxes. If your income is coming from assets, your income is not taxed as high as employees. Is that fair? No. But it’s just the way it is.

Own your own business!

Perhaps you need money right now. If you do, you’re going to have to figure out how to do it. But the best way to make money is by owning your own business, and learning how to make money in that business. There are always opportunities out there to start a business. You just need to know how to capitalize on those business opportunities. Invest your assets, and own your own business. Buy assets rather than liabilities, start a business, and then invest that money.

Hopefully this article has helped you understand more about personal finance, and how to reach financial success. Instead of listening to Suze Orman for an hour (who, by the way, does give solid advice in certain respects), read about the billionaires, and how they reached their financial success.