Monday, February 18, 2008

How Real Estate Investors Can Use the Velocity of Money - PART TWO

How Real Estate Investors Can Use the Velocity of Money - PART TWO

Posted: 18 Feb 2008 07:45 AM CST

Before reading this post, read part one by clicking on this link.

Now if you really think about what happened in this example, you will see that you were making your money work extremely hard for you. You didn't let it sit idle as equity in a property. The key point for you to realize is that equity in a home is idle money. Idle money provides zero return.

If you only take one piece of advice from this blog, make it this one …

FUNNEL ALL YOUR INVESTMENTS
THROUGH YOUR REAL ESTATE

Most people are making contributions to their company 401(k) plan or some kind of IRA account. These contributions are paid, in most cases, directly out of your pocket. If your company contributes automatically to your retirement plan from your pay check, this is still directly out of your pocket. I truly believe this is a massive wealth destroyer.

Instead take these contributions and invest them into real estate. Then invest the cash flow from the real estate into your IRA or retirement plan. To be clear, I am not saying don't invest in your IRA. I am saying to insert real estate in between your direct retirement plan contribution. Buy an asset (real estate) and have that asset fund your retirement plan.

This is the advice that will get many people up in arms. I know Money Magazine tells you to maximize your 401(k) contributions. I know your parents would tell you to put everything into your 401(k). I know your company's human resource department would tell you to invest into your company 401(k). I know. I have been there. I remember all of my co-workers at the international accounting firm I worked for talking about how much they were each contributing into their 401(k)s. They thought I was crazy for investing in real estate. They thought I was a real wacko when I quit my high-paying job to invest in real estate full-time. I can still hear the jokes and snickers.

This will happen to you, too. Everyone will think you are making a big mistake. The reality is the other way around. You will be making a big mistake listening to everyone else. Please, please listen to this advice. I cannot tell you how powerful it is. I can hear you say, "Well my company matches my contributions." I don't care. Your first investing dollars go into real estate. Real estate dollars then go into your retirement plan. Don't worry about your company match is because it is insignificant compared to what will happen if you follow this advice.

I bought real estate to create cash flow. I used the cash flow to quit my job and start my own company. The profits from the first company were used to start a new company. All of this while my "laughing" co-workers are still arguing over how much they should invest into the company 401(k) plan.

Now, I have all of the real estate, company No. 1 and company No. 2. All of these can funnel my retirement, living expenses, new companies and/or additional assets. This is the velocity of money in action. The key is where your FIRST investing dollars go. If they go to a traditional retirement plan, you aren't creating velocity. You can't leverage a 401(k) plan.

Now had I followed the traditional approach, I would still be working as a public accountant. I would be investing 10 to 15 percent of my income into the company 401(k) plan working at a job that I couldn't stand. Yes, I might have more money in my 401(k) plan—yippee. I wouldn't have any assets working for me. Funding the real estate first was the best decision I have ever made in my life. I really don't care about the amount of money I have invested. I care about the assets I have working for me. Most people are focused on the size of their portfolio. As Robert Kiyosaki's book teaches, your focus should be getting your money back and reinvesting, not letting it accumulate. He writes, "In my world, the velocity and safety of my money is far more important than the amount of my money ... Only amateur investors put their money in their retirement plan and set the parking brake"

I like retirement plans. Don't get me wrong. I just want you to fund your retirement plan from house money. House money is much better than your money. Don't you agree?

There are many choices for you to invest your house money. Here are just a few:
1. Build an emergency fund for your family.
2. Invest in more real estate — houses buy houses
3. Pay off credit card debt or other loans
4. Invest into your retirement plan/IRA
5. Invest into a mutual fund/stocks or bonds
6. Start a new business
7. Buy and resell a mobile home
8. Invest into someone else's business
10. Invest into seminars/books and audio programs
11. Hire people to assist you with your investments
12. And many more …

Ok, how do you decide from all of these choices? Where do you invest your real estate profits or house money? Find out my thoughts in my next post!

TO BE CONTINUED AGAIN!!! Stay tuned for part three later this week!

Also, if you missed last weeks special Income for Life Tuesday conference call, you can listen in to the replay tomorrow! Last week, I interviewed one of our Income for Life Members in Toronto, Canada. He shared some lessons learned, plus a really funny marketing story. You don't want to miss this call. We will replay last week's call this Tuesday at 8pm. We have reserved 220 lines for this call. The call is absolutely free. You don't even need to register. Simply dial 1-212-461-8613.

Rob Minton

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