This is from my book:
Chapter 1. Introduction
Now, one thing I tell everyone is learn about real estate. Repeat after me: real estate provides the highest returns, the greatest values and the least risk.
-- Armstrong Williams, entrepreneur
In June and July of 2010, my 15-year old daughter became sick and was in and out of the hospital for two weeks. We later learned that she had appendicitis, but she was initially misdiagnosed by the doctors, who told us that she probably ate something bad and would recover soon.
After two weeks, her condition suddenly worsened and she was sent to the emergency room in the middle of the night. She was hospitalized for three weeks from a ruptured appendix. The rupture created a life-threatening infection of her abdomen.
Heavy antibiotics administered over two weeks failed to lower her temperature to normal. Finally, the doctors performed two procedures which successfully fought back the infection, and she gradually recovered. My wife and I stayed in the hospital with her every day for 21 days, during which my daughter lost more than 10 pounds and I lost 6 (and I had only 112 pounds to start with!).
It was during those heavy-hearted days that I realized I needed to do something for the family financially. Prior to that, as a scientist, I had focused only on my research and writing papers, and had not paid much attention to money. It dawned on me that if one of our children suddenly fell ill and became a long-term patient, my wife or I might have to quit our job to care for the patient. And if either one of us became a long-term patient ourselves, not only would the sick one be unable to work, but the other would have to compromise his/her job to take care of the spouse. Either scenario would mean a substantial reduction in income that would jeopardize the family finances.
The days with my daughter in the hospital were long, and I spent that time becoming increasingly determined to invest and secure the financial freedom for the family.
My daughter was finally discharged from the hospital and went home to recover. I called my real estate agent and told her that I would like to buy houses as rental properties, and that I planned to buy five houses.
I had read in a book that if you buy five houses as rentals and use the rent income to pay the mortgages every month, then after the mortgages are paid off, the rent income would be enough to live on. Then you would not have to work to earn a paycheck, and you have the option to quit your job. That would mean you have achieved financial freedom.
That was why I told my agent that I planned to buy five houses. My wife overheard the phone call and laughed. She thought that I was crazy to want to buy five houses. It’s not like going to the supermarket and buying five bags of groceries. Five houses? We are a regular working family with ordinary income; where would the money come from?
We bought our first rental house in 2011. Eight years later, as of writing this book at the end of 2019, we have expanded to 14 rental properties.
Our net worth has increased from $0.8 million in 2011 (primary residence + retirement accounts) to $5.5 million in 2019 (mostly cash-producing properties). This represents an annual rate of 27% in our wealth accumulation.
The net positive cash-flow (after paying for mortgages, taxes, insurance, repairs, etc.) from our rental properties reached $150,000 per year.
My wife and I enjoy our jobs and have continued to work, but this cash-flow would be enough for us to live on if we chose to retire now.
In addition, (1) with gradual increases in rent, our cash-flow will increase over time. (2) Over the years to come, the mortgages will be gradually paid off, further increasing the cash-flow. (3) The values of the properties will continue to appreciate in the long-term. The situation is a win-win-win.
The draft of this book was finished near the end of 2019. During the Covid-19 shutdown, I had time to polish this book several times. As I checked with my real estate agent and Zillow.com in June 2020, the housing prices and rents in my area have continued to go up significantly. Therefore, our wealth has further increased and our investment return numbers quoted in this book are valid and conservative.
We have achieved this under relatively ordinary circumstances. As you’ll see in the next chapters, we do not live in one of those booming, fast growing areas where real estate prices increase by 8% or 12% per year, enabling investors to “get rich quick”. Such a “booming” may not be sustainable in the long-term, nor reproducible by you in your area.
Instead, the housing prices in our area have been increasing by a modest 3-4% per year in the past eight years, which is representative of a normal market and does not deviate significantly from the long-term historic average in the United States.
In addition, I am not a handy person who can do my own repair work on the houses to save money. My three lovely and talented kids tease me for calling a handyman to fix every small thing. Therefore, the aforementioned wealth accumulation was achieved through relatively normal appreciation by someone who is not particularly handy around a house – and I believe it is attainable for you too.
If you happen to be handy and can save money on house maintenance, or live in a faster-appreciating location, you could do even better.
Theodore Roosevelt once said: “Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
Indeed, compared to many other types of investments, real estate investing with a good and safe use of leverage, as this book will describe, can produce wonderful returns at a managed and minimized risk. As the famous entrepreneur Marshal Field put it: “Buying real estate is the best, safest way to become wealthy.”
History shows that the majority of self-made millionaires made it through real estate.
According to the industrialist, business magnate, and philanthropist Andrew Carnegie: “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
It is my hope that this book will inspire, encourage, and assist you in your pursuit of financial freedom.
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