Most investment strategies touted by gurus involve first buying a course to learn their strategy to get rich in real estate. While subject-to deals, wholesaling, syndicating, BRRRRing, Airbnb arbitrage, and fix and flipping, when done correctly, have undoubtedly been ways to make money, they all involve an element of risk or hard work to find deals.
There’s another way. This blueprint is for the risk-averse, those working full-time, interested in the tried-and-true investing methods, and satisfied with growing their portfolio and wealth over time.
Start With Saving
Buying a home in cash is a surefire way to beat high interest rates. While this is not practical in some areas, there are many places in the U.S. where you can still purchase a home for around $100,000 and not be in a crime-ridden neighborhood. Whether you have to liquidate a 401(k), house hack your residence, or severely limit your expenses, saving up enough money to circumvent high rates to make a cash purchase is essential.
For simplicity’s sake, I will not factor in appreciation, depreciation, rental increases, or any other metrics in this blueprint. Many Americans use their primary residence as a springboard for future investments. If your primary residence is paid off, you have achieved your first step toward financial freedom.
If you intend to rent out your first property, don’t buy another primary residence that is too expensive. It’s also worth considering either living in or renting out an accessory dwelling unit (ADU) on your property, a tiny house, or house hacking (if you have a livable basement or an apartment above a garage that you can live in) while you build your portfolio.
Bank Your Cash Flow
Renting out a cash-bought first home will give you the peace of mind of pocketing all your cash flow. Assume the cash flow after all expenses amount to $1,000/month. In two years, you would have amassed $24,000. If your home is in an area that you can market to short/mid-term renters (i.e., picturesque wilderness biking or hiking trails), you can substantially increase your monthly cash flow.
If you manage to convert your investment into a successful short-term rental property and can generate $2,000/month cash flow, you’ve just condensed your investment timeline. In four years, you will have enough money to buy another house for cash.
Now, you’ll have two houses generating $2,000 in monthly cash flow. So that’s $4,000 monthly (extend the timeline if you are not doing short-/mid-term rentals). In approximately two more years, you can purchase another property for cash and generate $6,000 per month, and so on. By year eight, you could make $10,000 monthly with no debt simply by plowing all your profits into purchasing new investments.
The Most Profitable Vacation Homes Are Not the Most Expensive
Skeptics might say, “A cheap short-term rental can’t generate $2,000 a month,” or that short-term renting is overblown, overhyped, and over. While some cities have made it almost impossible to rent short-term, mid-term renting is still very doable everywhere.
AirDNA’s stats show that short-term renting is still on an upward trajectory and that the most profitable vacation homes are not the most expensive.
Final Thoughts
While numbers of purchase and rental prices may vary along with income and repairs, the blueprint for financial freedom, with relatively little risk, holds because it does not involve taking any loans. By buying homes for cash, compounding the cash flow, and subsequently shortening the time between purchasing investments, you can turbocharge your buying a few years after you start.
It’s not a get-rich-quick scheme or one that involves leverage. It requires discipline, patience, and a long-term perspective.
This strategy initially requires saving or liquidating an asset and consists of living sensibly, working full-time, and putting any profits back into your investments. However, start this strategy early. With a full-time job, you can reap huge rewards by accruing debt-free, appreciating cash-flowing real estate, including tax benefits, without the usual stress of building a portfolio.
Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
