NUTS & BOLTS
BUY & HOLD STRATEGY
• One rental might not provide much income, but 10 or 20 certainly could change everything. • Depreciation on just one house may not reduce your tax burden much, but on 10 or 20, it will. • Early on in a mortgage, you barely pay any principal off, but your equity accelerates the longer you hold the property. • Appreciation on just one house might not make you rich, but it certainly will dramatically affect your options and your lifestyle over time. • Leverage allows you to buy more with less, the returns on those investments do not appear overnight. In other words, real estate is a get-rich-slow strategy. You feel as if you’re slogging through the mud, barely making any progress. Especially in the early going, you’re often cash poor.
But then, slowly but surely, you start to accelerate. Suddenly, one day you realize, “I’ve made it!” It just takes a while to get there. Those who find themselves unable to forgo the quick payoff are going to be in for a rough go of it with real estate investing. Indeed, they’ll be in for a rough go of it with most of life. But particularly with real estate, waiting for that second marshmallow is critical.
MOLDING YOUR PERSONAL MOTIVATIONAL PROCESS
WhyWaiting for the “SecondMarshmallow” is So Important for Real Estate Investors BUY-AND-HOLD INVESTORS CAN LEARN A LOT FROM A 1960s PSYCHOLOGY EXPERIMENT.
Waiting for results is an art. The key to successful waiting is in adjusting how you are motivated. Most of us are motivated by results, and that’s fine. However, the process needs to be a reward in and of itself. Redefine your concept of “rewards” to succeed in business, real estate, and in achieving many other life goals. •
Andrew Syrios is a real estate investor and blogger with Stewardship Properties. Learn more at
StewardshipProperties.com or email Andrew@stewardshipproperties.net.
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by Andrew Syrios
ack in the late 1960s and early 1970s, psychologist Wal- ter Mischel and his team conducted a series of famous experiments at Stanford University called the “marshmallow experiments.” This series of studies put young kids in a room with a tasty marshmallow staring them right in the face. They were told that if they could hold out for 15 minutes they would get two. If they conceded to their sweet-tooth and ate the first marshmallow before 15 minutes were up, however, they had to settle for just the one. Most of the kids failed the test of will, but a few held out. Later, the researchers looked back at how the kids had done in life and found that the kids who had “waited for the second marshmallow” had done far better on a whole range of different metrics. Here’s how author James Clear described the results: “The children who were willing to delay gratification and waited to receive the second marshmallow ended up having higher SAT scores, lower levels of substance abuse, lower likeli- hood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.” There just doesn’t exist a more important skill to inculcate in yourself than the ability to defer gratification. This goes for all of life (think about losing weight, for example) but it is particu- larly important for real estate investing.
Real estate investing strategy, particularly of the buy-and- hold variety, is so powerful for five main reasons that can be summed up in the acronym IDEAL:
Positive cash flow from rentals
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D DEPRECIATION The tax advantage of depreciation counting as a “loss” on your tax returns to offset actual income E EQUITY BUILDUP With a standard loan, every month you pay off part of the loan’s principal A APPRECIATION Real estate goes up nationwide, on average, about four percent a year L LEVERAGE
You can finance 75-80 percent of most purchases, thereby stretching your investment capital even farther
Passive Real Estate Investing | www.PassiveRealEstateInvesting.com
Notice each of the concepts in the IDEAL acronym takes time to really become advantageous:
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