You're about to discover the perfect formula for building wealth with real estate. It has been around for centuries and even children are exposed to it thanks to the classic board game Monopoly. It all starts with extra cash that can be used for investment. That money is used to purchase high return on investment (ROI) real estate. Then as more money comes in, more high ROI real estate is purchased until a snowball effect occurs and eventually significant wealth is achieved. In the following video, you'll learn how extra cash is created, what qualifies as high ROI real estate and how to make this building wealth formula work for your particular situation. Here is the perfect formula for building wealth with real estate:
The Perfect Formula for Building Wealth with Real Estate
CASH
What the cash is put into, and what that is going to equal is going to be your wealth. First you have to look at this in terms of a snowball. If you had a small amount of cash and turn it into real estate with a high return on investment, it turns into more cash. You can take that cash and buy even more real estate, which makes something even bigger.
You can continue this cycle of earning more and more with your deals, and purchasing more and more real estate. The ideas is that positive feedback loops. The actual snowball is your actual wealth.
- Monopoly
To explain this concept better, I will enlist in help from the classic board game "Monopoly." This board game was invented in 1903 by Elizabeth Magie, and was originally called, "The Landlord's Game". It wasn't called Monopoly until 1935 when Charles Darrow brought it to Parker Brothers and made a couple of adjustments to the original game.
The Way The Game Works:
In Monopoly, each player is given a set amount of money and has the opportunity to earn more money each time they pass go or land on certain squares. The goal of the game is to buy different properties on the board and then hopefully, over time those properties will pay you more money which brings in more money and allows you to eventually beat all of your competition by owning the most real estate and bankrupting your competitors. You are starting off with cash and buying high ROI real estate.
This is not of a game of mere chance, it is actually a game of strategy. You have to know which properties have the highest ROI. I will share a little secret, the railroads and utilities have a very high ROI, as well as certain properties like the orange and red, because the cost versus the earnings is pretty strong.The most expensive properties on the board have the lowest ROI, because if someone goes to jail they skip that whole zone. From a mathematical standpoint your oranges and your reds are the absolute best. So now I have given you a big secret you can use to beat your family and friends.
- Rich Dad Poor Dad Formula
If you're a Robert Kiyosaki "Rich Dad Poor Dad" book fan, you might remember him mentioning at least once in his book and in numerous trainings ,that his original dad, Richard Kimmey had a formula of four green houses and one red hotel. The way it works in Monopoly is that if you get four houses on a property you can then trade up to put in a red hotel. But that is not the full formula that Richard Kimmey used, instead he purchased 4 green houses and one red hotel to build his wealth. Now this might prove to be a good idea or a bad idea depending on whether it is the highest return on investment or not for each specific situation.
- High ROI
The key is that your cash is being converted into hard assets which have a high ROI in comparison to others. This will help you slowly but surely build a whole lot of wealth. You might be telling me right now, "Phil, this is a game and this game starts off with fifteen hundred dollars and I just graduated from school and didn't start off with a bunch of money in my bank account." I understand this and frankly neither did I. I understand. Neither did I. Unfortunately cash is critical to making this formula work. I have other videos on how to buy real estate without cash or credit, but typically those kinds of deal structures are used for short term money, which leads me into how I practiced this formula when I got started homeless.
Flipping Houses
I did it by creating large amounts of cash by flipping houses. I have a bunch of videos on this topic and I still to this day to house flips. I also mentor and train my apprentices and split the profits with them. I create big chunks of cash by flipping houses and then take my earnings and purchase high ROI real estate. You don't have to be a full time real estate investor for this formula to work either. Richard Kimmy started a series of army surplus stores right after World War Two and used his earnings to purchase real estate. He then sold all of that real estate and built a hotel in Hilo, Hawaii. This was a gamble because nobody thought anyone would want to stay there, as oppused to going to Honolulu. Well, he dropped the prices so low, that it ended up so successful, that he was able to create a huge hotel chain in Hawaii.
Business
The main place to generate cash is by owning a business. It doesn't even have to be real estate, it just has to be a productive business. Business does not always produce long term wealth, because what is hot today, is gone tomorrow, but it does generate cash quickly. Building a business could be a great way to get this whole wealth formula moving. The cash you earn from your business can be thrown into the wealth building formula.
If you have a great profession that generate great income you can take the cash and throw it into a high ROI real estate deal. I could recount countless stories of attorneys, doctors, corporate middle managers, and great sales people that do just that. Or real estate agents that use their earnings to generate cash for real estate investing and are making millions of dollars a year. The important thing is to have a cash machine that is your passing go and collecting two hundred dollars.
High ROI
High ROI real estate is the next part of this building wealth formula. In Monopoly, the Boardwalk property has the lowest ROI, even though it is the most expensive, and the railroads have a very high ROI, even though they are much cheaper. The most glamorous real estate does not always produce the highest return on investment.
I have a wonderful video called, "How to Turn a Little Into a Lot". There's a part one and a part two. It's one of my favorite videos I've ever shot and If you haven't seen it please watch it. It talks about the difference between traditional and creative real estate and my belief that the highest ROI real estate deals are typically structured creatively.
- CASH FLOW ROI
Sometimes you can pull off an amazing ROI deal traditionally, but it almost never happens. If you master generating cash then you master how to locate and structure high ROI real estate deals and this is how you hit the wealth formula. There are many different ways to pull this off, but the key is you've got to get into deals with as low of a down payment as possible but as much of an upside, as much of a cash flow. That's what I want to point out here. When I talk about ROI I'm talking about cash flow. If you put ten thousand dollars in how long does it take to get that ten thousand dollars back?
EXAMPLE
If you put ten thousand dollars into a deal and only receive $100 a month in positive cash flow, that is only $1,200 a year or 12%, which is not very good. twelve percent. I always shoot for a minimum of 25% cash on cash return. I've put together a video called How to Increase Your Net Worth With Real Estate, where I talk about the fact that real estate itself is the ideal investment.
Depreciation
- You also have something called depreciation, which is basically a phantom expense. It does not come out of your bank account but it is an expense on the tax return that reduces the income, which means it reduces your tax bill, even though you still have the income in your bank account.
Equity
- If you buy the property right you have instant equity, which is building wealth from the moment you purchase.
Appreciation
- This one is more difficult to determine because we do not know what is going to happen. If the market isn't in a complete recession you could have huge appreciation as the market comes back up, but if you buy it at the top of the market you might not get any appreciation.
Leverage
- Creative investing is when you can get the best leverage because you can potentially acquire property without having to get a bank loan.
How to Build Wealth
Real estate itself is the ideal investment in my opinion and if you go with the high ROI version you're that much better off which puts you in that positive feedback loop in your favor over and over again.
I created all of my extra cash by flipping houses and then I turn that into the high ROI real estate and that's what built my wealth. That's what we teach others. That's what we do in our apprentice program. We teach them how to not only create extra cash from flipping houses but how to find the best ROI real estate. Some of the people that join our program they just need cash right now and lots of it. Some people have the cash but they really want to do this right. Either way that's where we fit in. That's how we help.
Applying the Formula
When you apply this formula you are going to produce extraordinary results over time but obviously it presupposes some big major items.
- You have to generate that extra cash
- You need to know how to identify and take down the high ROI real estate deals, but once you get there you've achieved that wealth.
That right there ladies and gentlemen is the perfect formula for building wealth with real estate. People have been doing it for literally centuries and you can do it too. If you have anymore questions or want to add any comments to this blog.
stanton thompson says
good…..
Dave Pedesren says
Ugh.. I already know exactly what I want to do (I can generate >40% ROI) but I need a measly 20 grand.. I have the home equity and the credit just not the income.
There’s always something in between the masses and wealth. Usually twenty grand.
..
Terry Mathews says
Hey Phil, I absolutely love your videos. I pick up a nugget every time I watch one and read your book.
babak says
I have read your “How to Invest in Real Estate” book. I appreciate you because of this free book and for all the creative ways of do deals.
Best wishes for you and your family
Lucky Conner says
Hello Phil! And good day. Your video came up during a search today. You seem honest and genuine .
gaby miceli says
You are brilliant and awesome to watch and listen to ..thank you Phil!
Corey D Lackey says
Hello this is Corey I want to partner with someone
Freedom Mentor says
Consider completing an application to our Apprentice Program.
Apprentice Program Application
JERVIN VASQUEZ says
Hi Phil
What if you do not have a business or good enough profession to start your real estate investing business especially if you want to get started right away. What do you suggest?
Freedom Mentor says
Become a creative real estate investor; you can start small and grow. To learn more, take this free video course: Creative Real Estate Investing & Flipping Houses.
Selvin Espinal says
Hello Phil, it was a great information this video thanks, i still reading your. First book is going great, so i have a question, i know someone that wanst to buy a house i want to put in practice the knowledge that i got from your book, but i dont know how to find the right seller, cause the person wants to. Do it rent to own how can i find a seller that wanst to do that?
Freedom Mentor says
Find the deal first. Get it under contract and then you can offer it to this Buyer you have. To learn more, take this free video course: Creative Real Estate Investing & Flipping Houses
Eric M. says
How do I get into one of your apprentice program?
Phil Pustejovsky says
Apply here: Apprentice Program Application
Cathy O. says
I have watched many of your videos! Thank you for presenting so clearly. Also thanks for the history lesson on Monopoly. I have a 1936 version – wooden houses/hotels etc. It’s pretty cool. I look forward to watching more of your videos in the future.
Stanley says
Hello Phil I want to start by thanking you for all the good work and financial advice and insight you so generously share with your listeners. I have been following you on YouTube for almost a year and am a fan.
I am an Indian by nationality and living away from home for the last few years. I had a question specifically regarding real estate markets outside the United States. A lot of what you share on your podcast is perfect for people living in the US.
I wanted to pick your brains on something that has been keeping me awake for the last few years and is very India market centric. Perhaps you can help or provide your insights :
The return on investment on residential properties through rentals in tier 1 cities in India is among the lowest in the world. The rental yields in Delhi are the lowest at around 2% while Mumbai fares better at 3.5%.
But if one takes into account the capital appreciation, the returns surge to over 20% compounded annually – which is among the highest globally.
Recently we have seen a lot of unsold inventory piling up in the big Indian cities but no drop in prices.
This is making most conservative investors like myself very nervous. Especially since I would like to have a passive income stream.
What is your opinion for investors like me who are in markets were the rental yields are so low?
Does it make sense to keep buying more real Estate in such a market and only rely on capital appreciation of property values?
Regards Stanley
Jonny says
Well….. Think, I’m in love with you. 🙂
You inspire me
Jimmy says
Phil my partner and I are going to invest in las vegas I have been wonder what is a good method to evaluate what a property is worth
Joey says
Very inspirational! Great summary of real estate investment!
I’ve taken Phil’s online course, but this video is again a hit. Thanks Phil for this free video!
Michael says
I’ve been doing this for a little while now. I have 4 properties (one I live in and 3 duplexes).
I really like your approach – a lot of what you say I have already learned through both experience and other bloggers I follow, HOWEVER, you by far do the best job of presenting it in terms that are easily explainable. I love the analogies and acronyms.
Here in Canada I’m not sure that creative investing is as easily done. Further, estate sales etc. tend to be overpriced in my area as there are agents that focus specifically on selling them. The market is hot here and there are many stupid buyers…ie: 5% ROI is a BUY BUY BUY. Investors have tons of cash flow and they are happy to buy anything. Finding that diamond cash flowing property can be difficult – I’ve been focusing on turning single families into duplexes to crank the cap rate up.
Additionally, there are a lot of fees associated with putting less than 20% down (extra insurance etc.). Banks also charge a ton more on interest if you don’t put the 20% down. I’m securing my properties with 5-year fixed interest rate terms on my mortgage at below 2.5%. 2-year fixed 1.84%. Hard money lenders would be double or triple that cost, which eats into the cash flow quite a bit..granted your ROI is much better when you can put less than 20% down. This is quite the trade-off.
I’m interested in chatting with you further. My in-laws have a property in Florida outside of Orlando. Perhaps when I am down next we can meet for coffee – my treat.
Michael
Phil Pustejovsky says
My apprentices are doing creative deals in Canada right now. The reason why people don’t/can’t apply creative techniques in Canada is NOT because it can’t be done; it’s because they don’t know how.
Sara says
What is the best way to start. We only $10,000?
Freedom Mentor says
Watch this video How to Turn a Little into a Lot with Real Estate
Hassan Zaza says
Great dedication and enthusiasm in all of your videos, they are all great and very informative, thank you….great job.
Walia N S says
Can y send me the vedio for flipping houses. Is foreclosed houses/ auction houses are good to start investing in real estate
Phil Pustejovsky says
Take this course Creative Real Estate Investing and Flipping Houses
Mr E says
Hi Phil,
I am very interested in real estate. I have followed it for about 17 year but have never made any deals. I have stated businesses and closed them. I have truly desired buying property flipping som and selling most for profit. I truly need someone like you but lack the revenue to obtain your services. Is there any info that you offer hungry entrepreneurs like myself.
Hannah says
Good lesson, very interesting and informative.
Betty Ndungu says
Thank you so much for all your videos !
They have such a great read.
Is it possible to start real estate business by borrowing right from scratch and if one can from whom?
Phil Pustejovsky says
Isn’t THAT the million dollar question…where to find someone to bank roll your fledgling real estate endeavors. My advice is to use all of your faculties, all of your creativity, all of your might, to find a way to start bringing in some cash so that you can bank roll yourself.
mike s. says
THANKS PHIL FOR BEING THERE
Bao Tu says
Great video! Thank you!
Alex says
Another great video Phil! You are definitely the Real Estate Rock Star on the internet!
Marc Mora says
What’s the best way to get started with a 100k to invest.
Phil Pustejovsky says
That’s answered in this awesome video How to Turn a Little into a Lot
Ruben Newson says
Hi Phil,
I’m just getting starting I watched all your videos and I’m trying to get started in realestate investing. Can you email more info about getting started with you and your team? I ‘m looking for a mentor. My goal is to flip 3 house this year part time.
Thank you!
Phil Pustejovsky says
Learn more here Freedom Mentor Apprentice Program
kawthar muhssan says
Hi hpli
My name is kokie .I am new invstor, I do assignment of contract, in San Diego, and I have some confused about (26) part of new reoltor contract, waht should I do? Because like u now I am Hollister I have to put in the buyer part , me and or assignee
Thanks
Phil Pustejovsky says
Hire an attorney who specializes in real estate and preferably works with creative real estate investors and truly understands the CAR forms.
Mary Jane Wilson says
Your awesome as a Real Estate Investor, I’m shocked on everything you have put in your Investir book works when followed step by step. God Bless you paying it forward, I am closing on my homeownership in next 10day. You were God sent in my domestic violence situation, empowering I a 68yr female to meet her goal of homeownership closing within 10days. Praise The Lord for your knowledge pay forward knowledge to all who are lost and seek your help.. AMEN
Parker poole says
Hi Phil, I’ve just started your book, and watching your videos and have already learned more about real estate than I imagined possible. My career path is to start my own real estate company and flip properties, what is the BIGGEST tip you could give to someone wanting to get on the right path of real estate. I am a college student, 19 years of age.
Phil Pustejovsky says
Get educated. This is a free course that will give you as much or more truly accurate education on the subject that you could find after scouring the internet for years: Creative Real Estate Investing and Flipping Houses Course
Al Siddiqq says
Good Stuff ! Phil
Luis E Chabla says
Just looking a
Way how to make extra cash
mitchell keys says
I’m learning a lot from your videos as of right now I’m in the process of saving more cash to start investing in rental properties.I’m feeling really confident in my future and you have been a big inspiration to me thanks Phil.
Machion says
My question is about your 25% cash on hand ratio. What formula are you using to get that? Please provide a generic example. Thanks
Phil Pustejovsky says
$10,000 invested. Getting $2,500 per year or more back in positive Cashflow plus appreciation, debt pay down, etc.
jummy fleury says
Great video Philip, My name is Jummy Fleury I live in Tampa FL, for now because my wife is a travel nurse and we are going to New York in two months for her next job assignment. I was wonder if you knew were I can get a real estate loan for doing tax deeds deals? I know that they don’t typically give loans for that, but then again I’ve heard of people getting loans for it, I just don’t know were to go.
Thank you
Phil Pustejovsky says
There are a TON of hard money lenders right now funding deals like never before. If I were you, I would track all the tax deed sales for Hillsborough County for the next few months and then search the title for each one purchased by a private investor and then you will see which ones have a loan against them from a private lender. That’s how you can figure out what lenders are funding tax deed sale deals in your area. Since tax deed sales require quiet title, that may be a big stumbling block to getting a loan for a tax deed sale deal.
Fidel Cano says
Phil, I feel you are honest about what you do and you come through believable.