Council Post: The Wealth Formula: Four Principles For Building Your Fortune With Real Estate

I’ve had a passion for real estate for as long as I can remember. As a kid, when I was driving around town with my parents, I always marveled at the architecture of old houses, trying to picture how life must have been back when they were being built. It was not a big surprise to them when I pursued real estate as a means to build my wealth.

When I graduated from the university in 2005, I had big dreams. Like many of my classmates, I wanted to get rich. Again, this was probably not a big surprise after spending four years eating mostly mac and cheese cooked in a microwave.

I had several personal lifestyle goals. I knew I didn’t want to wait until I was in my 60s before I could retire. I wanted to be able to travel every year and to be able to buy pizza once a week, with as many toppings as I wanted. I also set out with some revenue goals. I wanted to become a millionaire and build a real estate portfolio that would net $100,000 a year in passive income.

I spent a lot of time reading and learning about real estate investing. The main challenge I encountered was that there’s a lot of conflicting information out there — and a lot of bad advice. That’s still the case. It took a lot of trial and error over the years to get to the right formula.

The Wealth Formula

One thing I realized early is that real estate is not a perfect market, but there are usually opportunities to be had and people willing to depart from their properties under market value for a variety of reasons. My first job paid about $40,000 a year. I lived very modestly for two years with two roommates, while saving for a down payment. I bought my first investment property in 2006. It had a nice cash flow, and it was located in a neighborhood that was quickly developing. The following year, I refinanced that property to use the equity for a down payment on the next one. Over the years, I repeated that process over and over, rarely having to use any of my own money as a down payment again. I’m oversimplifying the process a bit, but what I quickly realized is that it didn’t take a huge number of properties to achieve and exceed my early goals.

There are four key lessons I learned that I believe are crucial for success:

1. Be obsessed with success: You need to be able to define what success looks like to you, and pursue it relentlessly. Be honest with yourself about your goals and objectives. Your commitment level must be at least proportional to the size of your desire. The fire in my belly always kept me focused on my vision. Mindset is everything. It’s only with the right mindset that you’ll stop making excuses that get in the way of achieving success.

2. Be persistent: I could have given up after having issues with a tenant or after one of my properties flooded. I could have given up due to the sheer amount of work was required to feel confident about getting started in real estate. No matter your path to wealth in real estate, there will be many obstacles along the way. The most persistent people will successfully bulldoze through those obstacles without blinking.

3. Be systematic: If there’s one thing I learned from my experience as an engineer and as a management consultant, it is the importance of having a repeatable system. Imagine applying Six Sigma theory to ensure your investing outcomes are measurable and repeatable. Some real estate investors might have been successful because they were lucky. Or maybe they just happened to have had really good timing. But smart investors rely on a system to ensure they can repeat their process over and over, always fine-tuning and improving it.

4. Be smart: My lifestyle didn’t change substantially during my 20s. Sure, I had built a net worth exceeding $1 million and a multimillion-dollar real estate portfolio. But as I kept reinvesting my income, I didn’t have much more money at the end of the month than I did on my $40,000-a-year salary. That was by design. At any time, I could have sold some assets, paid off my debt and enjoyed having money rolling in. However, that was not my objective, and I hadn’t yet achieved my vision.

Building wealth through real estate investing won’t make you a millionaire overnight. However, by being obsessed with success, persistent, systematic and smart, there’s no reason anyone couldn’t get rich within a few years.