There are only three reasons to be in Real Estate. If any one tells you any differently, then they don't understand real estate investing.
The three reasons to be in real estate are Cash Now, Cash Monthly and Cash Later. Let's take a closer look at each one of them.
Cash Now. Let's face it, we need money to live and pay the bills. With out this cash we would have to go back and work for “the man”. If you're not a full time investor, this is a reason why a lot of people are afraid to quit their job and work for themselves.
Cash now is the money that you get from “Flipping” properties. Whether it be from Wholesaling, Rehabbing, Subject To, Lease Option or Pre-Foreclosures we need the cash from each of these investing models to put food on our tables and clothes on ours (and our children's) backs.
Cash Now is good. Having rehabbed over 450 properties in just a seven year period, (I use each of the above methods to acquire my properties) I'm used to those big checks coming in. But then I realized that if I didn't continue to get Cash Now through flipping properties, then I would not have any cash coming in at all. Which meant I was not as free as I thought I was.
So I changed my strategy. While those big rehab checks were coming in, I put some of money in my account so that I could live, and then I started to put the rest of the money in Apartment Houses.
Owning smaller Apartment Houses is virtually the same as investing in single family houses. If you're doing your marketing, you run across Apartment Houses all the time. If you are like most investors, you probably just ignore them and continue to search for the next single family deal.
Apartment houses will give you greater Cash Monthly. In just a short time, you can build yourself a substantial passive monthly income just from your apartment houses. That's how Robert Kyosaki does it in Rich Dad/Poor Dad.
Cash monthly will give you freedom. Freedoms to do what ever you want when you want. I'm not telling you to stop buying and flipping single family houses, that's Cash Now. I'm saying to get Cash Monthly (apartment houses), use some of your Cash Now (single family flips) and buy yourself some freedom!
Pretty soon you will be building an empire. You'll have enough Cash Monthly to be able to take a month off in the summer or what ever else your freedom desires! If you were only flipping single family houses and you took a month off in the summer, you wouldn't have any income coming in.
Do You See How Cash Monthly Will Give You Freedom?
You can get some Cash Monthly from owning single family houses long term but not as much and not as fast as owning smaller apartment houses. And it's a lot riskier to have all of your money in single family houses.
What happens if you lose your tenant in your single family house? You loose all of your income. You're going to have to dip into your own savings to pay the mortgage until you get a new tenant. That hurts!
If you loose a tenant in a three family house, you've only lost one third of your income. The other two floors will cover your mortgage until you get another tenant. That's just one of many reasons that owning small apartment houses is smarter that owning single family houses, but that's another article all together.
Now that you have Cash Now and Cash Monthly, Cash Later takes care of itself. It comes when you sell, exchange or refinance those apartment houses somewhere in the future.
You see, with apartment houses you have an appreciating asset. No only is it appreciating every month but your tenants are paying off your mortgage. So between the appreciation and the mortgage pay down, your equity just gets bigger and bigger!
You can sell your property and get a boat load of cash. If it's creating a lot of Cash Monthly, you may want to keep those checks coming in. If so then you will want refinance to get you cash out.
Not 100% of your cash, which will only get you in trouble. You should take out about 75% of your cash leaving 25% equity in the building, that way if there is a down turn in the market, your protected. Not only that, at 75%, you should still have a decent positive cash flow. Did you know that you do not pay tax on any of the money that you take out during a refinance?
Now take that money and go buy some more apartment houses and get some more Cash Monthly! In doing so, these apartment houses will start appreciating and the tenants will begin to pay down your mortgage for you. You've just increased your net worth because you have increasing equity in one or two more buildings instead of the building that you started with.
Can you see how your empire is being created? Can you see how it can be created in a short time? Holding single family houses will make you money. Holding apartment houses will make filthy stinking rich! Which do you prefer?