Sorry Donald Trump, this post isn’t for you. It’s widely unknown that you can start real estate investing without a ton of money and without getting into debt. Heck, you can even get started with as little as $100. I’ll show you how.
But first, let’s understand why real estate investing is important. An important metaphor will put you in the right mindset before you jump in, which will help shape your success. Allow me the time to explain how these things will contribute to your success, and soon you’ll see why.
When I was a kid, I naturally found the concept of investing to be fascinating. Let’s be clear, I never knew the term, or understood what it meant in the slightest. However, I gravitated towards a game called Monopoly. I found it deeply fascinating. I could play it for days on end without getting bored, if only I could find someone with the patience to play along.
Of course, I found Monopoly fascinating because I understood it. Like fitting pieces in a puzzle, the strategy behind Monopoly quickly became clear to me. I quickly and intuitively learned best and worst practices, and was able to anticipate future scenarios based on my experiences to be able to adapt on the fly.
For example, I understood that owning the coveted Boardwalk property was essentially meaningless unless you also owned Park Place to complete the monopoly.
Even at such a young age, I was unknowingly learning essential concepts to investing such as overvalued and undervalued. It didn’t take long for me to understand that holding the “orange” and “purple” properties would be the key to my success. They were extremely undervalued by most average players, and they were relatively cheap when you wanted to add houses and hotels.
The price to reward ratio on this row of properties was substantial.
Looking back with 20-20 hindsight, I see that I quickly understood and mastered this game. In fact, if you go to Google and look up the best Monopoly strategy, you’ll see that owning a monopoly of the “orange” properties is the highest mathematical probability of you eventually winning the game.
Yet I learned this before Google, because it just made sense. This valuable skill carries on to the world of investing, and I feel it’s a big reason why I’ve been successful and now find success teaching others with this blog.
Real Estate Investing: Income
There was one other thing about Monopoly that hooked me since my first taste of victory. I LOVED the idea of getting paid a passive income.
If you’ve ever played a full game of Monopoly, you’ll realize that the players who quickly grab as many properties as they can usually end up winning. The reason behind this is that when opponents land on your properties, they have to pay the owner of the property “rent” as a consequence.
Therefore, the players with the most properties stand the greatest chance of winning. They have time on their side, as it’s only a matter of time as rent payments continue to come in. As these payments come in, smart players reinvest their excess cash into “upgrading” the properties with houses and hotels, which raises the rent each time players re-land on them.
I don’t know what it was that was so gratifying about receiving the rent checks from players. Like a true capitalist, I fell in love with this feeling. You could argue I’ve never fallen out. But that’s for a different time.
Anyway, it took just a couple games of winning for me to understand how to play this game. It’s not won in the beginning, but at the end. With the right plotting, buying, and trading, I could usually position myself to be the first or second person with a “monopoly”. After that, the power of compounding takes care of the rest naturally.
Looking back, I can see why some people can get really turned off by this idea. For starters, once you are behind it is almost impossible to come back. Similar to how those stuck in the poverty cycle feel, the Monopoly system is just designed to reward the owners only. This is why so many people give up on investing.
So with this post, I’m going to solve your pain twofold.
Number 1, I’m going to show you how you can start real estate investing today, with little money and absolutely no debt obligation on your part.
Number 2, I’m going to give you some hope if you’ve given up on the idea of investing. Maybe you feel like the losers of Monopoly, but with your life. Maybe you have friends or family who feel this way. Send them this link. They need to hear it. It may just change their life for the better.
The Importance of Cash
Let’s look again at the Monopoly metaphor, because it helps us understand the world of real estate investing even further. Earlier in the post, I shared with you how I was able to uncover the best strategy for winning Monopoly. And really it applies to investing as well.
However, both investors and Monopoly players get too eager and fall into the same trap. In Monopoly, yes you must absolutely buy as many properties as you can, especially in the beginning. It really is a land grab race.
BUT, you have to do this while still keeping enough cash in your hands. If you don’t, then one bad dice roll can leave you with a larger obligation than you are able to pay, which will lead you to having to mortgage one of your properties. (Again, monopoly term. This simply means you sell out of the property at a very low price compared to its value)
Investing, and especially real estate investing, is exactly the same way. Ask most real estate investors, and they are focused on cash flow. They don’t mind the debt, especially if other people are paying for it… i.e. renters. During optimal conditions, this type of strategy is fine. But leave it up to just one bad “dice roll”– recession, lay off, natural disaster, you name it– and suddenly cash flow doesn’t matter as much. It’s those type of worst case scenarios that wipe out real estate investors and leave them bankrupt and broken.
Take the story of Dave Ramsey, for example. He once was a reckless real estate investor, and he paid the price dearly. Back when he was in his mid 20′s, Dave had an impressive portfolio of properties totaling over a million dollars. However, his total debt liability on these properties was also over a million dollars.
Dave was a smart guy, and according to traditional real estate wisdom, was doing all the right things. They’ll always tell you to use other people’s money, and leverage yourself up as long as you have a healthy spread. He knew all the tricks, and he had the market knowledge. But he was foolishly planning for happy sails, and didn’t consider the worst case scenario.
One day, it all collapsed for Dave. He went bankrupt, lost his portfolio, and almost lost his marriage and family. All because he was all too eager to get into debt.
Nowadays, he coaches people on getting out of debt. He once again has a multi-million dollar real estate portfolio, but this one is built on a solid foundation. With plenty of cash reserves and no debt in sight, Dave Ramsey can just sit back and collect rent checks for the rest of his life, just like a Monopoly master would.
Hope for Economic Losers
Maybe now you understand the importance of debt free real estate investing, but still feel like you can’t win. After all, you never were the “winner” in Monopoly. Maybe you’re “losing” right now. Surely there’s no hope in this “rich get richer, poor get poorer” society, right?
WRONG. You do have hope. Economics doesn’t work like Monopoly in this regard: we aren’t all racing for #1.
In the game of monopoly, there’s a fixed amount of properties. As the game plays out, there can only be one winner because of this single fact. However, we live in a world of INFINITE resources.
Yes, material things such as land and oil are finite. BUT, the internet has unlocked a whole new kind of money, and it’s the money of ideas. Never before could somebody with a simple idea and a few dollars for an internet connection create something greater than himself. Yet I’ve done just that in 17 short months, and many others have done it before me! [click to continue…]