Yesterday on The James Orr Show for real estate entrepreneurs James came on strong and talked about why you would even want to consider wholesaling properties.
Topics discussed on this episode of the show include:
- James started off talking about how the failure of his wireless network could easily have meant that he did not do the show on Tuesday. He goes on to draw parallels to any business and how “things come up” that will try to stop you from keeping promises you made to yourself (and often others). He referenced the book by Stephen Covey called The Eighth Habit and that between stimulus and response there is a pause where we can decide what our response is. Choosing to respond and overcome the obstacles in your business (like a down wireless network) is what ultimately will determine your success or failure (and actually already has in the past). The good news is that you can make changes now based on this new stimulus and change your response to be proactive and commit to keeping the promises that you already made to yourself (and others).
- James goes on to mention that the recording of the podcast from May 27th, 2010 is now available for download. You can find it at Subject To and Lease Option Deal Analysis Podcast or get it by subscribing to the real estate investor show on iTunes.
- James reminds everyone that there is not a Friday show this week since James will be attending a private money seminar Friday, Saturday and Sunday put on by Patrick, Trevor and Susan. The same folks that he had on to do a training webinar on private money and that authored the Private Money Blueprint course that he recommends.
- James then jumps into why you may want to consider wholesaling real estate. This discussion reminds new real estate entrepreneurs that you can wholesale real estate with little or no money. He encourages listeners to try to think of cases where you might need money and discusses how wholesaling real estate works. He also mentions that having money to wholesale or do other real estate makes life much easier and can significantly improve your effectiveness. James also talks about how wholesaling allows you to learn what a deal is and helps you find truly great buy and hold deals for your business if you decide to do that. He also goes off on a tangent about the $100 per month cash flow myth and why that’s a poor model. James also covers another reason to consider wholesaling real estate is that you can earn money as you learn the business and why it gives you an opportunity to discover your preferred niche or niches. He reminds you of Warren Buffett’s famous saying about losing money and ties in why wholesaling helps you follow that rule. Lastly, James drives home that learning to wholesale real estate is an important career skill for being able to generate cash flow on demand.
- James also takes time to share with you a real estate affirmation for the day about consistently taking responsibility for everything in your life as part of the Goals Checklist.
- James also discusses why you should commit to mastery of the things you already know you should and need to do rather than to become a dabbler and something that is always insisting on “teach me something new”. Learning is extremely important, but executing what you already know should be done takes precedence.
- The podcast ends by reminding people that they can follow James on twitter and that there is not a show on Friday.
Download this episode of The James Orr Show using the link below, register for free to attend the show live or subscribe to it as a podcast on iTunes.
I am constantly reading books on real estate investing, marketing and other similar topics that interest me. Right now I am reading Warren Buffet Wealth by Robert P. Miles. In the book, there is a section where Warren Buffet addresses compound interest. He poses a hypothetical scenario, where if Queen Isabella, instead of investing $30,000 in Christopher Columbus’ scheme of charting a new passage to Asia, had invested in anything else that provided only a 4% compound rate of return, she would have made $2 trillion by 1963. In 2003, her investments would have been worth $9.6 trillion, which, according to the author, is more than the value of all the publicly traded stocks in the same “new world” that Columbus stumbled upon some 500 years ago.
Why am I sharing this with you? Because one of the benefits of investing in real estate is the compounding effect that comes from long-term appreciation. Let me explain.
To make the discussion easier, let’s make an overly-simplified assumption. Let’s assume that all the income you receive from your rental property exactly equals all your expenses for that property. In other words, we will assume that there is never any positive or negative cash flow. For our discussion, the house always has break-even cash flow.
If you purchased a house for $100,000 where all the income from the property paid for all the expenses of the property, what happens to the value of that property over time?
History has shown that, despite short-term downward fluctuations, real estate tends to go up in value over time. In Warren Buffet’s example, he used a 4% compound rate of return. Historically, real estate has gone up between 6% to 7% per year, but let’s use Warren Buffet’s 4% growth rate for this exercise to keep our numbers conservative.
If the value of your house were growing at 4% per year, what would the house be worth when you paid it off in 30 years? It would be worth approximately $311,865. At the 30 year point, when your mortgage has been paid off, you will also have a nice monthly income from the property.
This appreciation is one of the things that attracts investors to real estate as a long term investment. If, in 30 years, when you are preparing to retire you want to have a certain amount of money, you can calculate how many houses you need to purchase this year with break-even cash flow to achieve that goal.
For example, if you wanted to end up with $2 million in net worth 30 years from now and you think real estate will be going up in value by 4% per year, then you would need to purchase approximately $642,000 worth of real estate today. If houses in your area are $100,000 that would be about 7 houses. If houses in your area are $200,000 then that’s about 4 houses.
Use your own numbers to determine how many houses you need to purchase in order to achieve your own financial goals.
Until my next post,
James
P.S. We have some great tools for our Real Estate Investor Bronze Members for determining and setting goals in the Real Estate Investor Wiki. Be sure to check that out if you are a member and if you have not yet signed up to get access to all our training materials including over a hundred real estate courses and on-going live training plus free consulting then what are you waiting for? Sign up now using this link!
