4 Unexpected Real Estate Investments for the Next Crash
For years I’ve traveled the world to spread the word that financial education is essential to financial freedom.
It’s not the only way, but I became financially independent investing in real estate.
But a lot of people are hesitant to follow that path.
Regardless of where I am — the United States, Australia, South Africa, Europe, or Asia — or to whom I am speaking, rich or poor, what I hear the same thing…
- “I don’t want to fix toilets.”
- “I don’t have any money.”
- “I don’t have the time.”
- “Real estate is risky.”
- “What if I lose money?”
- “You can’t do what you do here.”
It’s my opinion these responses are simply excuses. Excuses mask a deeper, darker, hidden, unexpressed reality. Most people who use these excuses are not educated in real estate.
Most people are smart enough to invest in real estate. Investing in real estate is not that tough. Anyone who has bought a home or rented a place to live has invested in real estate. So investing in real estate is not tough.
Making money in real estate is another matter. Making money in real estate takes real education.
In the 1970s, I invested in a real estate investment class which cost $385. That three-day course has been one of the best investments I’ve ever made. I started slowly with small investments and invested another five years in gaining the experience I needed.
I don’t want to fix toilets, nor do I want to receive phone calls late at night — and I don’t.
But I do like what my investment in real estate brings me, and that is a lot of good debt and a lot of freedom.
To me, real estate represents freedom. Real estate means control over my life and my future. I’m not depending upon a retirement plan filled with stocks, bonds, and mutual funds — investments that someone else manages. I want control of my financial destiny.
Four Green Houses
At a real estate seminar in Dallas, Texas, where I was the guest speaker, I was approached by a man about 60 years of age. He had heard me say, “My rich dad taught me to be a real estate investor by playing Monopoly, and we all know the formula for great wealth found in that game: Buy four green houses and turn them into one red hotel.”
This gentleman came up to me and said, “Should I turn my houses into red hotels?”
I smiled and asked, “How many houses do you have?”
He thought for a moment and said, “A little over 700.”
“What?” was all I could say in response.
Sitting down to find out more, I learned that he was a rancher in west Texas. For the last 40 years, he would buy a few houses a year and rent them out. He went through the booms and busts of both the oil and cattle businesses. When it was a bust economy, he would buy houses from people who were in financial trouble and often rent them back to them.
As his cash flow grew, he just kept buying more houses, most under $65,000, and he never sold any. At the time of our meeting, I found out that he was averaging $200 a month per house in positive cash flow. I gasped and said, “You mean you have over $140,000 in monthly income? Over $1 million a year just from rental properties?”
“Yup,” he said. “That’s why I came to ask you if you think I should start selling some of my green houses and start buying some red hotels. It takes a lot of time buying those little green houses. So I like your idea of buying bigger buildings. Then I don’t have to buy as many.”
I shook my head and laughed and said, “The next seminar we have, I want you to be the speaker, and I’ll be the student.”
Real Estate Investing Opportunities
An investor can choose from any number of opportunities but when choosing one of these investment vehicles, the investor should be knowledgeable about the local real estate market, general economic forecasts, and tax realities.
For example, raw land might need nothing more than an improvement in grading, but it is also the most speculative investment and cannot be depreciated for tax purposes.
A sophisticated real estate investor knows how to find diamonds in the rough. The bleak remains of an urban gas station can become a trendy restaurant with the right facelift and zoning variance.
However, for investors who are still learning the tricks of the trade, it’s best to look not for possible diamonds, but solid real estate investments — those that don’t cost too much and can be easily rented or resold.
As you can see, these options are inexpensive investments perfect for first-timers. As you start to earn a return on your investment, you can use that money to buy the next one and so on. If you desire, you can graduate to apartment buildings, office buildings, retail shopping centers, warehouses, and more — the sky’s the limit when it comes to real estate investing opportunities.
- Mobile homes are an inexpensive and relatively easy way to get into real estate. Deals exist where you can buy a used mobile home for about $3,000 and receive a positive cash flow of about $200 per month. That’s a pretty healthy return on your money. In California, a mobile home is deemed a motor vehicle, which means you don’t even have to go through the whole real estate process of getting title for each mobile home — you simply go down to the Department of Motor Vehicles and pick up the title.
- Billboards are considered real estate. Better yet, they are real estate without the hassle of tenants. Ken McElroy, my Rich Dad Advisor on real estate, invested in billboards and found that they are a good investment in all markets — when the economy is good, they are used, and when the economy is bad, they are still a lower-cost option for companies who want to advertise. You can make $1,000 to $5,000 in rent per side per month.
- Vacation homes can double as investment properties. Mona, who leads my publishing team, and her husband had always wanted to own a cabin in the mountains so they could escape Arizona’s summer heat. They didn’t like the idea of taking on a mortgage for a second home, so they did some research and discovered a shortage of rental properties in the area they were looking at. Clearly, they weren’t the only ones with this plan. So they bought the house (making it an income-producing asset instead of a liability) and rent it out whenever they aren’t using it.
- Airbnb properties, also known as short-term rentals, allow travelers to find comfortable accommodations that are local, authentic, sustainable, and inclusive that aren’t hotel rooms. Airbnb listings are in people’s homes, and travelers can rent out a room or the entire property (depending on the listing), so they can feel more at home in an intimate environment. Depending on your circumstances, you can rent out a spare room or your entire house and make a daily or weekly income.
Wait for the Next Crash?
Now, you might be wondering if right now is the best time to buy. That’s because you’ve probably noticed how people are constantly worried about the next real estate bubble. It’s a frequent news headline and a topic Kim and I are often asked about.
But our response when someone asks if one is imminent almost always catches the person off guard: “We sure hope so!” Seriously, their looks of bewilderment never get old. Yeah, you heard me right. We love market crashes. Why?
Market crashes can be the best time to buy because people are so panicked and focused on selling that they’re far more likely to make you a better deal. Kim and I witnessed this first-hand in 1991, when we moved to Phoenix, Ariz., and began buying up properties left and right. Amateur investors wanted out of their financial commitments so badly, that they were actually calling us and offering to pay us to take their properties off their hands.
We happily agreed and got the last laugh: We made so much money during this period that we were able to retire by 1994.
Play it smart,
Editor, Rich Dad Poor Dad Daily