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If you want to
get super rich, get involved in real estate — but I'm not talking about just
any real estate.
It's a liability to me, not an asset. Not only does a house leave you less
mobile, it ties up your money so you can't use it for real assets.
Your initial challenge is getting a down payment. Once you do, it's easier
to get a loan on a multi-family unit than any other piece of real estate.
Multi-family is the easiest way to get rich once you're in the game. I
can go online today and find a 49-unit property priced at $35,000 per
unit with an 8% cap (the return on investment based on the income a
property is projected to create) for $1,750,000.
If you pay cash for this deal at $1,750,000, you would make $140,000
free cashflow per year after expenses. With $450,000 down and
financing $1,300,000, the debt payment would be $78,000 per year.
This would make you $62,000 cash flow per year. This cannot be done
with a home.
I had a guy call in on my show, The Cardone Zone, and tell me he owned
$100,000 equity in a three-bedroom house with a family of five. I quickly
searched online to find a property for this caller and came across a
$179,000, 20-unit building with a 15% cap rate. He would pay $48,000
per year on the mortgage and the return would be $22,000 per year. He's
paying for the house he currently lives in, but the multi-family building
produces income over the mortgage.
For the vast majority of people, college never leads to riches, nor does a
home. If your goal is to build up $300,000 of equity over 30 years, then
buying a home is a way to park your money the same way you would in a
savings account or under a mattress. If you want to leverage your money
and grow wealth, buying a home is not the way to go.
If you go into multi-family the right way, over the next decade it could be
the best investment of your lifetime — and I put my money where my
mouth is. I currently own almost 4,000 apartments and will soon have
over 5,000. They are not building enough multi-family apartment
buildings to keep up with demand. On average, 770,000 new rental
households have emerged each year since 2004, according to a 2015
article in The New York Times.
Real-estate investing can give you the ability to use debt — a $400,000
purchase can be purchased for 25% of the price, allowing you to leverage
$100,000 to control 4X the value in property. Income-producing real
estate investments can also provide excellent appreciation in value.
Properties usually increase in value when the net operating income of the
property improves through rent increases and effective management of
the property. There are also tax benefits and hedges on inflation.