Getting from “beginner investor” to “financially independent” will take time and effort. Still, I will start a multi-part series today to show you how to do it steadily and predictably. We get a lot of questions like, “How do I get started?” and “How can I get started with a small budget?” on our website. You’re way ahead of the curve if you’re even considering this inquiry. We’ve all been there at one time or another.
This is a warning:… I’m about to reveal something that “gurus” throughout the country charge thousands of dollars for at weekend seminars, but I’m giving it away for free right here. Because there are no real mysteries, the exposed ” secrets ” will look really elementary. There is no practical reason to complicate the procedures utilized here, as they have been used for millennia. Let’s explore how quickly someone could become financially independent using these techniques without risking everything.
Remember that everyone’s financial situation and aspirations are unique. For this series, we will assume that you have access to at least $15,000 in liquid capital (or home equity) to get started, that your income equals your costs, and that your credit is good enough to get financing. Have you taken note?…. Notice the following footnote.
The first step is to find a way to increase your wealth while maintaining your existing standard of living. I can’t put it any more simply than this…If you want to alter your present financial trajectory, you must invest time and resources into expanding existing sources of revenue and earning power. We’ll use real estate investing as an example of one viable strategy among many.
Here’s the terrible news for newcomers. When you invest in HARMS WAY, you stand to gain. You do everything you can to lessen your exposure, but the fact remains that successful investors generate returns through calculated risks. As they gain experience, savvy investors discover strategies for generating extraordinary returns on investment by taking risks universally mocked by their loved ones. They know the dangers involved yet judge them as acceptable given the potential benefits.
Leverage is one of the main attractions of real estate investing since it allows investors to buy more expensive properties with as little as ten to twenty percent of their cash. If you put 10% down and the value of the property rises by 20%, you will have made a 200% return (ignoring costs, taxes, and other considerations for the sake of argument). Of course, the inverse is also true… If the property’s value declines by 20%, you will lose the initial investment and need to come up with an additional 10% to cover the shortfall. Ouch!
Here is what I would recommend to a beginner:
1) Try to find an opportunity with a return of at least 150% in two years;
2) Be emotionally and monetarily ready for the possibility that the investment will fail;
Third, you must be able to provide compelling evidence that you will not incur a financial loss. Even if profits are lower than anticipated, you should avoid making a loss for now.
4) Have patience. You shouldn’t let this one result make or break you, but it is essential to your overall strategy.
Each investor must make their own decision. However, our Mastermind group is releasing a land project that appears to fit these criteria (see companion article Land Investing). The asking price is $150,000, and the down payment is $10,000 plus $3,500 for closing charges. Land payments could be made for two years when growth is anticipated, provided the borrower has excellent credit.
Let’s say you’ve done the math, considered the past, considered why you think more and more people will want this property, etc., and concluded that the value of this property would increase by an average of 20% per year over the next two years. More importantly, you figure that barring a complete market collapse, you should be able to break even after two years.
If your prediction of growth plans is actual, you might make around $43,000 (before taxes). Say you earned 15% on your long-term capital gains, bringing your total “market’s money” haul to $36,000. The blow won’t be as hard to absorb if you lose some of that money in the next investment. Adding to the initial investment yields roughly $55,000 in working capital for phase two.
Knowing how much money you’ll make from the investment is impossible. I attempt to set a mental bar for what is realistic before investing. I often receive a pleasant shock and end up with significantly more than anticipated. I’ve had lower-paying jobs before. The objective is to minimize your risk exposure while having high confidence that market conditions will work in your favor.
Let’s have a look at what you had to do to get to this point:
The first criterion was a willingness to risk financial loss.
2) You needed to learn enough to weigh the pros and cons of the situation;
3) Needed to be in a position to seize the chance or to discover it on their own;
Fourth, I immediately had to take action.
Regarding the educational front, I have some thoughts. As a former professor, I have seen highly bright people invest tens of thousands of dollars and thousands of hours into their education so that they might “earn a living.” On the other hand, I know plenty of bright people who want to invest to be a primary source of income but refuse to invest in their education.
This seems like a surefire way to get into trouble. By the time we finish this series, it should be clear that many people can quickly generate more money than their regular employment with just a few basic procedures implemented over time. Furthermore, many people will risk tens of thousands of dollars without understanding the risks involved. If you’ve decided to invest your money for long-term growth, I hope this doesn’t describe you.
If you’re not quite there yet, I have some advice. Get a copy of “Automatic Wealth” by Michael Masterson and read it first. This is a fantastic book for anyone looking to quickly improve their financial situation without leaving their current job. The next book I’d pick is Van Tharp’s latest, “Safe Paths to Financial Freedom,” because it sounds exactly like what I need to read. Van’s unique approach to thinking leads him to round off a lot. You probably won’t agree with everything in these books, but you will find some exciting ideas. Return to this article after establishing financial stability and seeing positive cash flow.
Chris Anderson has been cited by numerous publications, including The New York Times and USA Today, as a foremost expert in preconstruction real estate investing. Visit his Investing Mastermind Group at http://www.GetPreconstructionDeals.com/mastermind.html for free access to high-quality investment opportunities, or sign up for his free newsletter at http://www.GetPreconstructionDeals.com/newsletter/.