What Financial Choices Do You Need To Make for the Long Term

A lot of people, and I hear this all the time, they go out and they buy a rental property and they rent it out and they think this is going to be a solution to how they're going to leave their day job. They figured they're going to buy one to 10 properties and over time I will gain enough cash flow that they'll be able to leave their day job. 

That's like the worst strategy you could ever do. It's also the biggest lie in real estate investing that you can use rental properties to replace your income. Certainly when they're leveraged the way that most people are doing them. 

You only need one bad tenant that's going to cost you $10K, $20K, or $30K worth of damage and that blows away your cash flow on that property for like three to four years.

What you want to do is you want to look at a short term cash strategy and a long term equity strategy. 

What that means is you want to go out and you want to be very active in the short term doing deals that are going to bring you in cash and putting money in your pocket so that you can go out and you can purchase rental properties that are going to grow in value and create equity over the long term. 

What I mean is part of your short term strategies is fix and flip. With fix and flips you could make money on every deal. Usually a lot of people are looking at making a $20K, $30K, $40K, or $50K on the flip. Then you take that money, you go out, you put it down on a long term investment property and you let that property appreciate slowly.

And you do the same thing with another strategy. So let's say you're doing a wholesaling deal. Same thing. Wholesaling is just getting a property and flipping it over to another investor. Somebody who's maybe interested in doing a fix and flip on it. So what you do there is you're going to get an assignment fee of anywhere from $5K to $10K or maybe $15K for each deal. 

The nice thing about wholesaling is you can do a lot of those deals. So what happens if you've got these short term cash strategies like fix and flips and wholesaling and maybe even lease options. The nice thing about a lease option is it gives you money upfront with the option payment. And as you're doing that, you're building up this equity over the long term in a rental property.

Or maybe it's in private equities or maybe it's in mortgages or you have another vehicle that you don't have to worry about generating income in the short term because you've got that income coming from these other activities. 

And then what happens is over, let's say a five, six, seven, eight, nine, 10 years when that rental property has appreciated quite a bit and where you've paid it down considerably because you keep adding cash to those properties and paying off the mortgage and advancing the payments the equity pay down or the principal paid out of the mortgage. 

Now you've got a good spread in the property and after let's say 10 years, you take all the properties that you own, that you've bought from the cash that you've made with your short term strategies, and you pay some of them off by selling off some of the properties. 

Let's say you have 10 properties. You sell five of them. You take the proceeds from those properties and you pay down the other five. Now you have five properties free and clear that you shouldn't have any problem cash flowing. Now you can look at using those properties, not only as a retirement plan, but certainly as a wealth-building plan. 

So that's how you should structure your investments, both from a short term and a long term perspective.