Tom’s strategy, which he would recommend to all investors, but especially to those that are just starting out, is that every time you perform a fix-and-flip, take the $20,000 to $30,000 profit and go out to the fringe areas of the town that you live in (where it starts to transition from suburban to rural). Then, try to find a little house where the numbers make sense and use your flip profits to purchase the property free-and-clear so that you never have to worry about having a mortgage company involved. Tom says that if he could go back and do it all over again, he’d stay away from the $300,000-$400,000 properties all together and instead, focus 100% of his energies on this business model.
Tom has lived through and survived two real estate crashes, but unfortunately, his friends, the ones that focused solely on the $300,000 properties, are no longer in the game. Because once the market crashed, these $300,000 properties dropped in value significantly, sometimes as low as $50,000, and were taken back by the banks! On the other hand, if you are purchasing a property for less than $50,000, chances are that it is not going to devalue any less than that. And if you are purchasing them free-and-clear, even if they do drop in value, you don’t have a bank knocking on your door demanding their money or the property, so you have the ability to ride out the storm.
Another benefit of purchasing these inexpensive properties free-and-clear is that if you plan on keeping them from your entire life, once you purchase 10 to 20, you will never have to worry about money again! This is the main reason why Tom recommends this strategy. If you own 10 properties free-and-clear that are renting for $700 to $1000 per month, you’ve created a foundation for yourself and for your family. Therefore, if something were to happen to you, you will have enough passive income coming in to cover the entirety of your family’s expenses!
Once you have this foundation set up, you are essentially no longer on the treadmill of life and you no longer have to worry about how you are going to pay the bills next month. With this type of freedom, you can decide whether or not you want to simply retire and enjoy life, or if you want to move into risker investments. But the best part is that you have the choice to do whatever you want!
How would your lifestyle change if you were able to build a large enough financial foundation that you never had to worry about how you were going to pay the bill again?
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.