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When we think about building lasting wealth, real estate stands out as one of the few assets that are truly tangible—it’s the “real” in real estate. If we look back through history, most millionaires and billionaires made their fortune through either real estate or networking. While social media and digital currencies may have created new opportunities, not everyone is positioned to benefit from them. But real estate? It’s simple, powerful, and achievable by leveraging small investments.
Here’s how I did it.
The Power of Leverage
I started by purchasing smaller properties and gradually scaling up. The key is using the equity from one property to finance the next. For instance, when one of my properties appreciated, I used that equity as a down payment toward a larger investment. Real estate has a natural hedge against inflation—properties usually appreciate over time, while tenants pay down the mortgage. That’s how I built my portfolio and equity.
Real estate is also a safer bet than stocks. When you invest in stocks and the market drops, you can lose 100% of your investment. With real estate, you typically only invest 20% down. Even if the market drops, you’re only losing a fraction of your investment, while the bank still covers most of the property value.
The 1.2 Rule for Positive Cash Flow
I follow a simple formula: I ensure that the rent I collect is 1.2 times the mortgage payments. This gives me a cushion and ensures a steady cash flow. Real estate is a long-term game, but it can pay off handsomely while you focus on other ventures.
Protecting Your Wealth
While building wealth is essential, protecting it is equally important. Life is unpredictable, and the two things we have no control over are disease and death. I always recommend financial protection to secure your future and the wellbeing of your family. For that, I use a product called Indexed Universal Life (IUL) insurance.
Why IUL is the Perfect Combo
An IUL policy combines life insurance with a cash value component that grows tax-free. Here’s why it’s powerful:1. Protection: In case of death, your family receives the death benefit. 2. Chronic, Critical, Terminal Coverage: If you face serious illness, the policy can cover major medical expenses. 3. Tax-free Growth: Your cash value grows annually, with the potential for around 8% returns. 4. Tax-free Loans: You can borrow against the policy without paying taxes on the withdrawal.
With a cap of 11.75% and a floor of 0%, your cash value never decreases, even if the market drops. This makes it a reliable safety net for anyone looking to secure their financial future.
My Personal Journey
At 50, I’ve successfully used the power of leverage to acquire multiple properties and create a significant real estate portfolio. At the same time, my IUL policy protects my family and provides me with tax-free income when I need it. If you’re looking to explore real estate or need protection through IUL, feel free to reach out. I’d be happy to share more about my journey and how you can apply these strategies.
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The graph above compares the growth of $100,000 invested in the S&P 500, an Indexed Universal Life (IUL) policy, and real estate over a 30-year period from 1990 to 2030.•
S&P 500: Due to its volatility and higher potential returns, the S&P 500 shows the strongest overall growth, though this comes with higher risk. •
IUL: The Indexed Universal Life policy offers stable, capped returns, protecting against market downturns but providing lower returns in high-growth years. •
Real Estate: With steady appreciation and leverage benefits, real estate grows consistently, albeit slower than the S&P 500, while still providing rental income and equity growth.
This comparison highlights the differences in risk and reward across these investment vehicles.
When discussing real estate and IUL with your clients, it’s important to highlight the differences in leverage, risk, and protection compared to the stock market:
1. Real Estate: •
Clients only need to invest around 20% of the property value upfront, with the rest being financed by a mortgage. This means they are controlling a much larger asset for a smaller initial investment, which magnifies their returns through appreciation. • Leverage is key here. If the property value increases by 5%, that 5% applies to the entire property value, not just the down payment. This allows for substantial equity growth. • Rental income further boosts returns by paying down the mortgage, effectively growing the investment even if property values stagnate.
2. IUL (Indexed Universal Life Insurance):
• With an IUL, clients are not just getting investment growth but also life insurance protection. This dual benefit means their money is growing tax-free with no risk of loss (due to the 0% floor), while also securing protection against death, disease, and chronic conditions. • Unlike the stock market, where there is 100% risk exposure, IUL policies guarantee that in down markets, clients won’t lose any money. Over time, their investment grows steadily, typically around 7-8%, with no fear of market crashes affecting their capital.
3. Stock Market:
• While the stock market offers the potential for high returns (e.g., the S&P 500 averaging 7-8%), it requires 100% exposure to risk. If the market drops by 30%, your portfolio suffers a significant loss. • There’s no built-in protection or insurance like with an IUL, meaning market volatility can greatly affect long-term financial plans.
By focusing on real estate leverage and the risk-free growth of IUL, clients can see how these strategies offer security, stability, and potential for growth without the high risk of investing solely in the stock market.