5 easy pieces

If you can play five easy pieces on the piano, you are well on your way to becoming a pianist. If you can follow the five easy steps I suggest, you’re on your way to real estate wealth.

1. Decide it’s okay to be rich.

It sounds simple enough, but you’d be surprised how many people feel deeply that they shouldn’t strive to be rich. Not a worthy goal. After all, the Bible says, “It is harder for a camel to go through the eye of a needle than to be rich and go to heaven.” I hear comments like; “the rich are all idiots”, “the rich have more problems”; “I’m busy, I don’t have time to get rich”; “I’ve never really tried.”

Some people will try hard not to get rich by shooting themselves in the foot. Perhaps they subconsciously feel that they don’t deserve to be rich.

Is it okay to be rich? Perhaps, it depends on how you define wealth, how you treat other people, and what you do with your wealth.

What is the positive side of wealth? It can be fun and rewarding with more control over your time and life. You can help other people, create jobs and opportunities, and you can improve someone else’s life, yours too.

two. Deciding on a figure

First, let’s define wealth as financial independence. How much money do you need to be able to spend your time how you want, live a lifestyle you feel comfortable with, have enough reliable income and enough resources to deal with emergencies? Is it $5,000 a month or $50,000 a month? It’s up to you, think about it carefully and then (very importantly) decide on a figure. Write it. Justify the figure in your mind. Add up, over and over again, the components to arrive at that figure. Get a little obsessed with that figure. Tie it up with a rope and drag it behind you wherever you go. Maybe you decide for $1,000,000 a month. That’s an exaggeration, and it probably won’t happen unless you can justify it in your mind and totally believe it. The figure must have a concrete base. You must feel that you deserve it.

3. Have a plan

We’ve all heard “Life is what happens while you’re busy making plans.” Are we in control of our lives? No. Can we have an impact on our lives? Yes! We can plan and work hard, and sometimes it works.

The captain of a ship does not say to his crew “let’s sail for a while and see where we end up.” The Captain has a destination and a detailed plan on how to get there. The Captain knows how to handle problems, emergencies, or even a change of destination. They usually reach his destination. I recently heard a quote that says that 80% of people who write down their goals and review them regularly, achieve them. Those are very good odds.

You must also have a plan and be prepared to make adjustments.

A wealth plan is tied to your life plan. For example, when he is young, he may want to invest in his education and stop investing in real estate until he is firmly established in his career. After establishing and having some discretionary income, that’s the time to start investing. Maybe you need some tax deductions. Single family homes are a great place to start. They don’t give you a lot of income, but they do appreciate in value faster than most other real estate investments. No income, but you are accumulating wealth. And… after tax deductions for depreciation, interest, and expenses, you can break even on cash flow. Remember, there is a difference between “cash flow” and wealth. Build wealth when you’re young, get cash flow when you’re older.

Start your estate plan by creating your Balance Sheet. Add up all your assets, deduct your liabilities (how much you owe on your assets), the result is your “Net Worth”. Get good at tracking your net worth. Check it periodically. The Balance Sheet is the starting point of your estate plan. It tells you what you have to start with.

You must develop the skills to avoid consumer debt, such as high credit card balances, etc. No, you can’t buy a new car every year. Start a savings account, become a “Scrooge” about money. Get control of your income and bills. You have to develop an attitude about money. “You have to handle it.” You need a savings reserve to start the investment process. Money is a tool, not a teacher.

Speaking of debt, try to limit yourself to asset debt only. Not consumer debt. It’s okay to owe money on an asset that is paying its way and also increasing in value. In fact, that is one of the most important concepts to understand.

Four. get luck

How are you lucky? Luck is what we call it when preparation and opportunity meet. You must be prepared and ready to act when the opportunity presents itself, and trust me, you will, guaranteed! Will you recognize it? Will you be ready to act?

How do you prepare? Learn all you can about real estate. Hang out with investors. Read. Attend seminars, take courses. Buy a financial calculator, learn how to use it. Get passionate. Become a “tree hugger” about real estate. Develop a network of relationships with people who have similar interests and who are generally positive and trusting. Try to find a mentor. Ask questions.

This is a good time to mention that there are many “snake oil” schemes associated with real estate. Be cautious. I have seen and heard of most of them. They are usually trash and only attract greedy people who don’t want to work to earn their wealth, just to take advantage of someone else.

5. Courage

It takes a certain amount of internal power (guts) to act on an opportunity. The unknown is risky. You don’t want to be silly, but if you’re prepared and have done your homework, make a bold move.

Some basic rules I follow:

1. Don’t be afraid of debt (if it is genuine wealth asset debt).

2. Never, ever, do something because you don’t know how. Try it, make a mistake, find out, learn it.

3. Work as hard as you can. Get ready to earn success. You don’t have to cheat someone to gain wealth. Be prepared to create value by knowing what to do.

4. Never give up. Persistence and determination is better than “a lot of brains”.

5. Develop relationships. You will never create wealth on your own, you must have the help and support of your family, friends and the people you know. You must like them, they must trust you.

6. Know the speech understanding the meaning of the following terms. Get to know them, but don’t advertise that you know them.

net worth

Capitalization rate

cash against cash

NOT ME

take advantage of

Amortization

Gross rental multiplier (no value)

Depreciation

Appreciation

Get ready to “get lucky” by learning a few basics:

1. Time value of money.

2. The difference between cash flow and wealth.

3. Understand mortgages and debt.

4. Understand how our tax system works and how it can reward investment.

5. Learn to recognize properties where you can create value by making changes.

6. Understand foreclosures.

7. Learn to operate a financial calculator.

8. Build a team… Banker, appraiser, broker, etc.

9. Network with people with similar interests.

10. Be interesting yourself.

11. Never sell (there are some exceptions).

Now, let’s say you’ve decided that it’s okay to be rich, and you know how much money you need to be able to spend your time the way you want to. Financially independent! The figure, you decide, is $10,000 a month. A modest amount, but if you don’t have any consumer debt, and it’s pure cash flow, it gives you a lot of freedom, financial freedom. Maybe $10,000 a month is what you’d like for your retirement income. YOU MUST make a specific decision. It is important to always keep the goal in mind. Then get ready. The opportunity will knock. Be prepared.

I know this process works. I hope you can make the decision and good luck.

New chapter in my book, The Washington Landlord Guide. Zaran K Sayre