Rich Dad Education Elite Creative Finance Course & Rich Dad Education Elite Land Development Course
March 9, 2013
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The students from the classes that we teach, the Rich Dad Education Elite Creative Finance Course and the Rich Dad Education Elite Land Development Course as well as the students that we mentor always want to know what direction they should focus their investing. Many of the students take multiple Rich Dad Education Elite training courses some of which include:
- Short Sales
- Land Development, which encompasses rezoning, platting, and entitling,
- Commercial Real Estate Investments, which encompasses Apartment complexes, office space , warehouse space, mixed use properties, and retail properties,
- Mobile Homes
As you can see investing in real estate can be daunting. Most people make the mistake of investing by emotion or focus on a strategy that they think they would like to do. What we hear is “we want to do commercial because the profit is larger,” or “we want to do mobile homes because they are cash cows”, or “We want to do land development because it is different,”, or “We want to do foreclosures and short sales because there are so many available.”
Strategies are important but if someone were going to give you $50,000 to invest, it would be more important to focus on how much you are going to make on the money, not which strategy you were going to use. So I would suggest you find out for yourself fundamentally what the project makes from Cash Flow and Appreciation.
A simple way to find out what the cash flow is would be to use the one percent rule. For example a $200,000 fair market value property producing $2,000 in income should produce cash flow. Your gross monthly rent, less all monthly expenses, multiplied by 12 equals the cash flow for the year. After you have determined the annual cash flow, then you can use Zillow to find out what the appreciation for the zip code has been over the last 12 months. For example a $200,000 FMV property in a market that is appreciating 3% per year would make $6,000 from appreciation. The cash flow, plus the appreciation for the year, divided by what you invested for down payment, closing costs, carrying costs, and repairs is the percent of what your money makes on that investment for the year. Then you have to decide if that is an adequate amount of money for your return. This is how you make a financial decision to invest not an emotional decision. Erik and I cover these numbers in detail when we mentor.
Richard Maryanski and Erik Maryanski
Rich Dad Education Elite Trainers and Mentors