If I could show you a way to compound your real estate investing results by investing a little extra effort over time, would you be interested? I know it sounds too good to be true but lend me your mind for a short while and I’ll explain exactly what I mean.
For the past couple of weeks I have been reading Darren Hardy’s fantastic book “The Compound Effect”. Darren is a protege of the late Jim Rohn whose teachings have had a great influence on me. (I like to think of Jim as a great mentor I never got to meet). In the last chapter of the book called Acceleration, the author talks about a simple but powerful concept that I find fascinating:
Real growth and acceleration in results happens when you apply a little extra effort after you have done the best you can do.
Let that sink in for a minute and reflect on it – It’s true and relevant in all areas of life. But it’s especially powerful in long term real estate investing. Let us consider a couple of common scenarios where a little extra effort can compound your results.
Saving a little extra
Imagine you are Jackie – through hard work and determination you have managed to climb the career ladder and now you earn a great salary. You could switch cars every other year or spend it all on the latest tech toys. But you don’t. Instead you’ve chosen a path of living below your means and are able to save $3,000 per month after all expenses. With that savings capacity, you will be able to save just over 100k in three years and would acquire 3 investment properties in that time frame for an total portfolio value of $510,000. After applying our Blueprint, in 15 years time after your acquisitions you would have a paid off portfolio worth approximately $800,000 producing $40,000 a year in pre-tax income. Not too shabby.
But now let’s look at the effect of doing a little extra. Suppose you manage to save just an additional 10% on a monthly basis. Cut out Starbucks, eat out one less time per week, what have you. Over 10 years you will manage to accumulate $35,000 to make a fourth purchase increasing the portfolio value to $680,000. It might take you a couple of extra years to pay off this last asset but at that time you will own a free and clear portfolio worth just over $1M producing 52,000 a year in pre-tax income.
Therefore, saving an extra 10% on a monthly basis increased the value of your portfolio and your income by 28% and 30% respectively!
Investing a little extra
Now suppose you’re John – you’ve just completed the acquisition phase of your Blueprint strategy. Five properties, $170k a piece cash flowing $3,000 per year (to keep illustration simple). In keeping with the plan you apply the positive cashflow from all assets to one mortgage at a time and you pay them all off in 17 years. Excellent outcome by any standard.
But now imagine that you decide to invest a little extra to make everything go faster. Like Jackie above, you cut out some non-necessities and manage to scrape together $250 per month that you apply to the mortgages on top of the positive cashflow. Because of that little extra investment of $250 per month, your properties are now paid off in 13 years. That’s 4 years earlier!
What could you do in 4 years if your portfolio allowed you the financial independence to do whatever you wanted?
I guess there are two greater lessons in all of this: 1) There’s incredible power in doing a little extra after you’ve done “your best” and 2) The future cost of today’s little expenditures is incredibly high so act accordingly.
Last week I didn’t publish an article because I visited the Dallas Fort Worth area to explore market conditions, investment opportunities and the possibility of expanding into that market. Thanks also to the invaluable assistance of some long term Investing Architect readers it was a very productive trip and I can’t wait to share my findings with you in next weeks article.