If you read my first book, Investing Now, the second chapter is titled “Cash for Today or Wealth for Tomorrow.”
If you had to answer that question, what would your answer be? BOTH, is what I would guess most would say! The question is fundamental to your real estate investing model. Many people start off wholesaling and flipping houses retail and never make the transition from transactional income streams into long-term wealth building and residual income streams.
When I first left corporate America, I had to immediately replace my income from my JOB, so I began wholesaling, and that allowed me to leave the corporate life. I quickly built a big buyers list that allowed me to wholesale in volume.
Nothing wrong with that. But wholesaling is a very “active” hands-on investing model that requires a lot of work.
This picture is a visual reminder of the difference between transactional income and residual income and wealth building, so I wanted to share this story.
I was driving through Church Hill in Richmond with my daughter Melisa, and she said, “Dad! I can’t believe those big dogs are on the porch roof of that house.” I pulled over to take a look and realized she was right. There were two big dogs on the roof.
I explained to her that I used to own that house–for exactly one day. You see, I sold it wholesale to a good friend of mine named Ramon.
Who got the better deal? Well, I am sure I received an assignment fee for selling it wholesale to my friend. Let’s say it was $5,000, though I don’t remember the exact number.
What did Ramon get when he bought this house?
He got some instant equity because I’m sure I sold it at 70% of the After Repair Value (ARV). From memory, this house had an ARV of about $180,000. Assuming I sold it at 70% of the ARV, he likely picked up about $54,000 of equity on this house. Plus, this house is located in a high revitalization area, and the value has likely increased over the past year or so.
2. Long-Term Cash Flow
For the past four years Ramon has been renting this house out and receiving positive rental cash flow. I would guess he has been earning about $250 per month for the past 4 years on this house. Cash flow comes in every single month as tenants make their rent payment.
3. Tax Benefits
Ramon has been enjoying the benefits of depreciating this asset on his taxes each year.
So Who Got the Best Deal?
So who got the best deal? I got the one-time assignment fee for wholesaling this house, and Ramon received long-term cash flow every month, equity, and ALL the tax benefits associated with owning real estate.
The need for good wholesalers is surging right now. That’s good news for everyone who needs to create income for today.
Wholesaling is a great foundation for new investors who need to learn and understand the real estate investing business. You learn how to buy houses directly from sellers, evaluate the value of the property, estimate repair costs, put together contracts, and go through the settlement process–all without ever needing to use your own money.
And wholesaling is simply the most low-risk way to get started in real estate.
However, DO NOT lose sight of the long-term game plan to collect real estate assets, rent them out, and receive positive monthly cash flow. Wholesaling is good income for today, but the strategies of buy and hold will create your WEALTH for tomorrow!
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What’s your game plan? Leave me your thoughts and comments.