Diversify Your Way to the Easy Life

With all the “bubble” talk, it seems the world has become fixated on the short-term aspects of real estate. Potential home buyers and investors are starting to sit on the sidelines, ready to ride out the storm that they fear is about to hit. I see two problems with that approach.

1. By sitting on the sidelines, you’re taking the stance that all real estate is overpriced and is going to depreciate soon. But though a handful of markets are outrageously priced, most are not. In fact, some are actually undervalued. So while I agree that this may not be the best time to buy in Miami or Los Angeles, I firmly believe there are plenty of attractive markets out there.

2. Failing to always include real estate in your investments – including right now – completely ignores two of its most powerful financial incentives: positive cash flow and long-term appreciation.

In Early to Rise, we focus on buying property at deep discounts to market prices. And that’s the key to profiting in any kind of real estate market – bubble or no bubble. The only question is: What’s your strategy? Do you go for immediate profits? For regular, ongoing profits? Or for maximum long-term profits?

I say, why not go for all three?

To ensure that you’re realizing the full potential of your investment dollars, it basically comes down to three reasons to be in real estate: Cash Now, Cash Monthly, and Cash Later. And each of these goals should be playing a role in a properly diversified real estate portfolio.

Cash Now

Let’s first take a look at the most tantalizing reason to be in real estate: large chunks of immediate cash. Quick chunks of cash come from “flipping” properties, and there are several ways to do it.

You can “wholesale” – a technique that doesn’t require cash or credit. Instead, you put a distressed property under contract, and, before closing on it, you quickly sell it under market value (but leaving yourself a $5,000 – $30,000 paycheck, depending on the deal) to another investor. That investor then takes on the financial burden (and reward) of rehabbing and selling it for full retail price.

You can also take on your own rehabbing projects. This requires a good deal more time, effort, and money – and involves more risk. However, done well, you see the lion’s share of the profits.

Having rehabbed over 450 properties in just seven years,I got used to those big checks coming in. But unless you put that money to good use, you aren’t truly maximizing your real estate returns. Because the moment you stop wholesaling or rehabbing, the checks stop coming. Cash Monthly

I didn’t like the idea of the money drying up, so I changed my strategy. While those big rehab checks were coming in, I used some of the money for living expenses … and I started to put the rest of it into buying small apartment houses.

As a real estate investor (even in the beginning), you’ll run across apartment houses for sale all the time. If you are like most investors – especially when you’re starting out – you’ll probably just ignore them and continue to search for the next single-family deal, because that’s a market you’re more familiar with. But owning smaller apartment houses is very much like investing in single-family houses.

You can get some Cash Monthly from owning single-family houses long-term … but not as much and not as fast as you can by 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 the tenant in your single-family house? You lose all of your income. You’re going to have to dip into your savings to pay the mortgage until you get a new tenant. And that hurts!

But if you lose a tenant in a three-family house, you’ve only lost one-third of your income. The other two apartments will cover your mortgage until you get another tenant.

I’m not telling you to stop buying and flipping single-family houses. That’s Cash Now. I’m saying that you can use some of your Cash Now from single-family flips to buy up some small apartment houses. And in a short time, you’ll have yourself a substantial, passive monthly income.

Pretty soon, you will be building an empire – and that passive monthly income will give you the freedom to do whatever you want whenever you want. Think about it this way: 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. But with enough Cash Monthly, you’ll be able to take a month off in the summer … take a two-week ski vacation in the winter … or whatever else your heart desires. Cash Later Takes Care of Itself

Once you have Cash Now and Cash Monthly, Cash Later takes care of itself. It comes when you sell, exchange, or refinance those apartment houses.

You see, with an apartment house bought at the right price, you have a long-term appreciating asset. In a sense, the property appreciates immediately when you buy it under market value to begin with. Markets also tend to appreciate over the long term. At the same time, 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 the property and get a boatload of cash. But if it’s creating a lot of Cash Monthly, you’re probably going to want to keep those checks coming in. If that’s the case, you can refinance to get your cash out.

My recommendation is to take out about 75 percent of your cash, leaving 25 percent equity in the building. That way, if there is a downturn in the market, you’re protected – and 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. Those 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 just 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 you filthy stinking rich! Which do you prefer?


one thing I tell everyone is learn about real estate. Repeat after me: Real estate provides the highest returns, the greatest values, and the least risk.”- Armstrong Williams

[Ed. Note: David Lindahl, also known as the “Apartment King” successfully invests in single-family properties, apartment complexes, and condo conversions. Learn more about his techniques for creating passive income and building equity.]