Becoming a successful investor doesn’t happen overnight. It takes patience, hard work, and the ability to reevaluate after any mistakes. Reflecting on over a decade of investing in real estate, I’ve come to the conclusion that five things have been most influential in my success to date. These five things will likely continue to be essential throughout my career as a real estate investor.
In less than 10 years of intentional investing, I have been able to build an eight-figure investment portfolio that generates net cash flow of over $1 million per year. This was accomplished by adhering to these five core concepts below. Hope this helps you reach your investing goals in less time than you think!
1. I started investing and never stopped
I started investing early in my life, but it’s never too late to do so. Time is on your side when you own long-term rental property. During my time as an investor, I never let analysis paralysis stop me from taking action and investing in a property I believed in. Each year I found ways to buy more real estate, which meant I had to be creative and consistent to maintain strong cash flow.
Even when I lost money on a trade or ran into big hurdles, I continued to invest in real estate. Over time, the mistakes you make will help you become a savvy investor. Start investing and keep investing to get the returns you’re looking for. Keep in mind that rental property income will accumulate over time. It’s better than taking too long to find the perfect property.
2. I was intentional with where I bought real estate
We always hear about place, place, place. But what does that mean? This means finding the right macro and micro markets that match my investment goals. Different locations are more suitable for different people and different investment strategies. The one thing that allowed me to take my portfolio to the next level and quickly generate high passive income was not limiting myself to my local market.
Instead, I determined very specific investment criteria based on the goals I had. I then invested in markets that matched those goals and offered the best returns. Yes, that means I needed to find out about other markets and build teams of professionals who have worked in these markets. It’s a time-consuming and labor-intensive process, but it’s necessary to build the right teams.
I was always looking for the next best market to invest in, which allowed me to never be complacent investing in just one place. Even though I continued to evolve in a place where I had developed an established team, I still moved to other markets for better portfolio diversification.
3. I used all available resources to help me scale my portfolio
Capital is the most limiting factor for anyone looking to grow their portfolio! It is essential that you use all the resources at your disposal. Once you run out of a down payment, you need to save up for a down payment on your next property. However, you should focus on other ways to access more capital. The most successful investors examine all available resources. It allows them to grow their portfolio aggressively, and that’s exactly what I did.
Over the years I have used many methods to acquire and own more real estate. For example, I accessed the equity in my existing investment properties through home equity lines of credit (HELOC). These funds are used for deposits and leverage. I also converted my IRA to self-directed IRA, which is a type of account that allows you to invest in real estate. Over time, I’ve partnered with other people and borrowed money from colleagues and private investors who are also interested in real estate. Other opportunities I have taken to earn capital include:
- Cashing in small stock portfolios to use as down payments on more rental properties.
- Created side hustles, only some of which focus on real estate.
- Income saved from my rental portfolio to be reinvested.
- Creation of a company active in REI, which resulted in Rent to Retirement.
- Make the most of it, responsibly of course.
Scalability is the name of the game if you want to create substantial passive income and generational wealth with your real estate portfolio. As you earn more capital to reinvest, those funds will accumulate over time. Your main goal is to create more income in a way that accelerates your goals.
4. I maximized tax benefits
Although annoying for the most part, the tax advantages you have access to as a real estate investor are essential to your future success. This is the most powerful aspect of REI as it builds up over time. Most people don’t take full advantage of tax benefits because they don’t know about them. Keep in mind that tax advantages are not available with other asset classes in the same way as they are in real estate.
I used my current portfolio to purchase more properties and always reinvested any positive cash flow. This was accomplished through the execution 1031 exchanges, using HELOCs and cash refinances into properties that have increased in equity over time. All of this is tax-deferred or tax-exempt strategies to access the equity in a property to reinvest in other properties. I further compounded the depreciation by running cost segregation studies on all the properties I own. This helps speed up the amortization by allowing me to take a massive loss on the property in the first year, which offsets the income I earn from all sources of income. This allowed me to have more capital to reinvest and immediately earn a return on capital that would otherwise have been paid in taxes.
All of the investment properties in my portfolio show a loss each year due to normal depreciation and expense write-offs. Even though these properties are cash flow positive, the tax benefits available to me allow me to substantially reduce my taxable income. These same advantages are available to any investor who owns rental property. That’s why we often refer to the cash flow we receive from rentals as “tax-free income.” income based on my current state and federal tax bracket.
Even if you are aware of some of your tax advantages, most people are unaware of all the tax write-offs and deductions available to them when investing in rental properties. It’s also common for investors to not track their expenses properly, which means they can’t take full advantage of all tax deductions. It is estimated that approximately 97% of people who own investment properties have at least one inaccuracy in their investment tax returns. This point brings me to my last point.
5. I added the right people to my team
I have made sure to surround myself with high-level professionals in all aspects of my investment career. Every person I add to my investment team is themselves a professional investor. This allows them to provide me with the best advice regarding the investment goals I am working towards. The team you build is essential to your success as a real estate investor.
The types of professionals you should work with include financial advisors, real estate accountants, and tax strategists. Keep in mind that tax strategists are different from accountants. An accountant is more defensive in nature when it comes to preparing and filing taxes for you. In comparison, tax strategists are in violation and will help you develop a strategy to optimize your portfolio.
Additionally, you will need to find lenders who offer multiple loan products, lend in multiple states, and are also investors themselves. Look for contractors, property managers, brokers and builders who are all professional investors.
It is not an easy or quick process. However, I always found the right people to work with and did whatever it took to keep them. Sometimes that means going through 10 or 20 bad contractors or property managers before you find the right person. At Rent To Retirement, we have these team building resources and will make them available to you nationwide, which can prove invaluable when trying to achieve long-term success as an investor.
During my time as an investor, I have only taken advice from people who are where I want to be. I specifically sought out mentors who have cultivated a level of success that I strive to achieve. There are a lot of people out there who aren’t shy about giving their opinion on things they don’t have experience with, which is especially common in the real estate investing industry. I never listen to these people. Instead, the professionals I’ve gotten advice from are always more successful than me. I find ways to add value to their life or business so that they share some nuggets of knowledge about how they have achieved success over time. This process alone has saved me millions of dollars!
Following these five steps consistently over time is an effective way to create financial independence and generational wealth through real estate investing. It takes time and effort, but it’s not an overly complicated process either. My biggest piece of advice would be to just start investing now and never stop investing. Continually apply all the lessons you learn to become a smarter and more successful investor. Real estate investing is a journey of a lifetime where there is always something new to learn!
This article is brought to you by Rent To Retirement
Rent To Retirement is the nation’s leading turnkey investment company offering passive income rental properties in the best markets across the United States to maximize cash flow and appreciation! Rent To Retirement is your partner in achieving financial independence and early retirement through real estate investing. Invest in the best markets today with a full team taking care of everything for you!
Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.