It’s true, most of my material is directed towards investing in real estate with no money or credit, but I’ve been asked multiple times, Matt, what should I do if I have money and good credit? How should I invest?
My teachings aren’t only directed at people with no money; they’re for everyone. Rather, what I’m trying to impress upon you is the value of using your brain to be a creative thinker rather than a conventional one.
Here’s the thing, the more of your own money you use, the lower your returns get, and I got used to infinite returns. So, while I’m not opposed to using my own money, I just don’t do it unless I have to.
For those of you with an abundance of money and credit, I’ll tell you what I’d do, and then I’ll follow it up with why you should first learn to invest with none of your own money.
I would hold more and flip less. Flipping is really only useful if you need to generate large sums of cash. It’s stressful and no one is going to achieve financial freedom from flipping houses – it’s another job, a means to an end. If you don’t have to flip properties to create cash before being able to buy for cash flow, why do it?
So, I’d skip that part and invest for cash flow using as much of my credit as possible, taking full advantage of today’s long-term low interest loans. I would look for investments with a 33% cash on cash return because that means after 3 years I’ve made my money back. That’s not a rule or anything, that’s just my own deal standard.
Then, I would take the cash flow from my investments and commit that to paying down the debt of my highest grossing properties, one at a time. I would refinance every chance I got so I could purchase more property, keeping my internal rate of return between 20% and 30%.
I would still, however, use as little of my own money as possible. It is my adamant belief that everyone should force themselves to invest in real estate with no money, and here’s why:
By forcing yourself to be creative, you will develop skills that you otherwise would not – and that includes NOT getting into bad deals because you have the ability to bail yourself out.
The skills you develop will pay you, and will give you an unfair advantage in the long term.
Scenario: Oliver Twist
There are five skills that, if you develop them, will make you an unstoppable force in the real estate world.
1. Generating FREE leads. Sure you can pay the big bucks for a gargantuan marketing campaign, but in all honesty, the best leads are the free leads. When you don’t have a huge marketing budget, you get really good at generating leads. My best deals have all come from free leads.
2. People skills. If you have terrible people skills, you’ll be a terrible real estate investor. When you are forced to do a deal with no money, your people skills improve at space shuttle speed. If they don’t, you starve.
3. Negotiating skills. Again, if you have to buy low enough to create a profit, chances are you’re going to need to negotiate. When you don’t have a deluxe padded bank account at your back, you have to get creative. Your negotiation skills will also keep you from getting into bad deals.
4. The ability to raise capital. Robert Kiyosaki has said, “The number one skill of an investor in today’s economy is their ability to raise capital.” If you don’t have money, you’re going to have to get it from somewhere. If you do have money, you will run out and again… have to get more from somewhere.
Which leads me to the all-important, mother of reasons why:
5. Your ability to structure a deal. If you want longevity in this business and the power to actualize real wealth, you have to know how to creatively structure deals. Concepts like subject to, seller financing, or optioning don’t even enter the consciousness of investors who never had to get creative.
When you develop and incorporate these skills into your investing returns of 10%, 15%, 25% that you can create with money could easily turn into infinite returns.
Infinite returns are not a theory or myth; they’re real. If you structure a deal where you don’t invest a dime but it cash flows $200 a month, your return on investment is infinite. You can’t calculate it.
People who have money never experience that. And I will tell you right now, in this game, you will outperform someone with money who doesn’t have these skills every time.
So, if you do have money, I challenge you to conduct your investing without it. Make it a game. Pretend you don’t have any and see what happens. I think you’ll be shocked at the outcome.
It might be a struggle in the beginning, as all new learning endeavors are. But, sweet child o mine, the power you’ll acquire will set you up for the long run in ways you cannot even begin to imagine.
Just being here gives you a head start. Don’t stop now. Round all the bases, take it all the way home. You’ll be glad you did.
If you haven’t done so yet, download my free real estate investing course How to Do Deals : No Money Required.