What’s the Best Way to Get Started in Real Estate?

When I got started in real estate, I had no idea what I was doing (and no one to show me the ropes). So I did what a lot of people do… I bought rentals.

It was a terrible idea – how could I make two mortgage payments every month when I could barely afford the one I already had? But that’s what everybody – Agents, Mortgage brokers, Guru’s – told me was the best way to get started in real estate.

They said if I had enough cash flow I’d be financially free. What they didn’t tell me was rentals don’t necessarily come with cash flow.

I had to learn that the hard way.

I bought 14 units in my first three months, and that’s when the long, painful lesson began. Most people would think 14 units would be more than enough cash flow to live off of, especially for a young, single guy.

It wasn’t. Here’s why:

Rentals fundamentally do not cash flow.

It’s true. Conventional wisdom says if your rents are greater than your mortgages, then there will be money left over each month, positive cashflow, for you to spend.

That might be true in the long run, the veeeery long run, but that’s not real life. In real life, especially if you have enough rentals to ever make enough to live, something goes wrong every month and eats it all up. Somebody moves out, somebody skips out on the rent and you have to evict them, something breaks and you have to pay to fix it, or spend the time to fix it yourself, etc.

Every month, something breaks, even if it is just normal wear and tear. And remember this- even if you set aside a little bit of the rent each month to “save up” for emergencies like the “guru’s” teach, well… that’s not how it works in real life.

The way it really works is, when that roof goes, or termites get the house, or whatever, you have to pay for those repairs, or pay for that eviction, or move-in-move out expense out of pocket. Then maybe over the next several years that “emergency fund” will pay you back what you’ve already lost.

Think about how much maintenance you do on your own house. Now multiply that by 14 units, or 20 units, or 50 units, and you can see why I say rentals don’t cashflow.

And if you hire a management company, you still have to manage the managers, and pay them, too, which lowers your alleged positive cash flow even more.

After a few years, if you’re lucky, and if you can afford to pay for repairs and maintenance and advertising and vacancies out of pocket all that time, you might get a tiny trickle of cash flow.

After a few years. If you are lucky.

Besides, if you’re going to have to build a business to make Real Estate work for you, why build a pain the butt, full of hassles and low income business like rentals?

So what’s the answer? It’s simple- the secret to success in real estate is in the Equity, NOT the cash flow.

To get to the most profit in a property, you have to tap into equity, which means either sell the property or refinance it (and if you refinance it, your still on that roller coaster).

Spend your time a real business that flips houses every month, and the cash flow from that business can very quickly replace your job, provide a better lifestyle for yourself and your family, and do it safely and quickly, while building your Net Worth and yes, cash flow at the same time.

And instead of spending your life dealing with tenants, toilets, contractors and management companies, you can devote your time to high profit, low time and hassles transactions, and to doing whatever you want with the rest of your life.

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