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How the Rich Get Richer During Economic Downturns

Growing money

We’ve all heard about how “the rich get richer.” Smarter people than any of us have marveled about how the rich seem to get richer even during times of recession. 

 

How is that possible? When the rest of the economy is contracting, how do wealthy people keep expanding, seemingly in defiance of gravity? 

 

The best way to explain it is that the rich understand, better than most of us, that money is inherently an illusion. It can either expand or contract, relatively at will, depending on what kind of illusionist you are — what magic tricks you do. This is especially true in economic hard times.

 

So if money is an illusion, and what matters is what tricks you do with it … what rich-person money tricks can we all copy so we can protect and grow our wealth during economic downturns?

1. Invest In Appreciating Assets

Middle-class people tend to use money to buy toys. Cars, watches, clothing, gadgets … what Robert Kiyosaki referred to as “doo-dads.” But when you’ve bought every toy … what else is there to buy?

 

Rich people exercise “retail therapy” by buying appreciating assets like gold or real estate. They enjoy buying it the way a shopaholic enjoys checking out at Nordstrom. 

 

And they aren’t looking for a 3-6 month profit. They take the long view — something they will allow to appreciate for 3-5 years minimum before they sell. They enjoy owning it. The longer they own it, the longer they have made the illusion of money into the reality of a hard asset.

2. Use Leverage

Leverage is a fancy way of saying “Let’s buy this with other peoples’ money instead of our own.” When it’s a credit card at the shopping mall, this is a dangerous way to get into a financial hole. When it’s using debt to accumulate appreciation assets, it can be extraordinarily powerful.

 

The best-known example of leverage is using a mortgage to buy real estate. Let’s say I have $100,000 cash, and I find a house for $100,000 in a market that appreciates 3% per year. If I use all of my cash to buy that house free-and-clear, by the end of the first year it will be worth $103,000. My net worth went up $3,000.

 

Now let’s say I use leverage. Instead of using all my cash for one house, I divide it into four and make down payments on four houses. At the end of that first year, my net worth had increased $12,000, not $3,000. Yes, the mortgage payment eats into that a little, but not nearly enough to erode the benefit. 

 

Wealthy people have access to incredible leverage due to their net worth and connections … but the home or investment mortgage is special because it’s within reach of most people with reasonable financial fitness.

3. Income-Generating Assets

The rich are always giving themselves raises — but not like Congress gives itself raises. Rich people increase their income by choosing assets to buy that generate income. Cash-flowing businesses, promissory notes, and — most relevant to us — rental real estate.

 

Here’s the secret — the amount of cash flow doesn’t matter as much to them. Consider the recent interest-rate hikes. In a higher-interest-rate environment, cash flows are going to be smaller. 

 

But for the rich, even small positive cash flow is worth having … if it’s an appreciating asset. As long as the asset pays for itself, why not? Appreciation will eventually pay off. Meanwhile, every small amount of cash flow is contributing to financial freedom — enough passive income to cover all personal expenses without having to work.  

 

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MartelTurnkey investments are three-for-three — appreciating, income-generating, and leveraged. If you want to prosper in the next recession like the rich do, reach out to us and let’s make your next asset acquisition easy.

Check out Eric Martel’s youtube channel for more insights

 

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How to Invest in Real Estate Without Seeing The Property

Google Streetview

Many people find it shocking that 99.9% of our clients never actually see the rental houses we sell them. 

We get it. When you put it like that, it does make us sound a little like snake oil vendors with a bridge in Brooklyn we’d like to sell you.

But that’s a mischaracterization. What we do is make it easy for busy professionals to invest in booming markets — even if they live far away.

So how do you confirm a rental property exists without ever seeing it? Actually, it’s simple. Here are some ways to do it. 

Google Maps

With Google Maps, you can zoom in on any property in the United States and gather a wealth of information. First things first — you can see that there is actually a building there. 

 

But you can go further by using the Google Maps area-calculation tool to measure the area of the lot, as well as the enclosed area of the structure. This can go a long way towards validating the reported square footage of the building — unless you have been told that an addition was built. More on that later.

Google Street View

The genius of Google Street View is that it can drop you right into faraway neighborhoods, so you can look at the property on your computer screen.

 

The downside is that the Street View photography may be out of date, especially if the home was recently renovated. But you can at least confirm that there was a house there at the time of photography, as well as snoop around the neighborhood to get a sense of it.

Zillow

Zillow has listings of nearly every home in America — for sale or not for sale. Again, the pictures and details might not reflect recent renovations, but you can at least use it to corroborate certain aspects of the listing.

Property Tax Assessment

Property tax assessments are a matter of public record. You can usually look them up online. The assessment will include basic details about the property, as well as the county appraiser’s most recent assessment of its value — both land and improvements. 

Building Permits

If the property has been renovated and/or had an addition built, there should be permits. Ask the seller or reach out to the city construction authority to validate those permits. If possible, you can request proof that the work was completed, as well as the contractor’s final pictures.

Insurance Quote

Your insurance agent will do some basic research on the property to provide you a quote. If the property doesn’t exist, it is likely to come up here.

Customer Testimonials & References

In these days of customer satisfaction indexes and ratings, if the seller is a company, chances are they have an online reputation.  Do a little research and see what you can find and don’t be shy to ask for references. 

Boots on the Ground

Even if you are not local, you can always recruit or hire people who are local to do some snooping and take some pictures. Good prospects include local realtors, bird dogs, handymen, or people you hire on platforms like Craigslist or Upwork. 

Be judicious about the trustworthiness of your third-party boots on the ground, but at the very least they have little to gain by duping you.

Due Diligence

The due diligence process offers multiple opportunities for verification — even from afar. Many professionals involved in the sale transaction will visit the property during the due diligence — professionals whose job and reputation are at stake if they deal falsely. 

If you plan to take out a mortgage loan for the purchase, an appraiser will visit the property and assess its value, including any improvements, additions, or renovations. You may choose to hire a home inspector to walk the property for the physical due diligence. Finally, trying to sell a non-existent house will raise many red flags in the title work.

 

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The truth is, you have many ways to buy real estate with confidence, even if you never see it with your own eyes. MartelTurnkey is here to help every step of the way. Want to build your real estate empire the easy way? Call us today!

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How to Do “Due Diligence” on a Rental Property, in 3 Easy Steps

Due Diligence MTK

“Do your due diligence!” If you have heard it once, you have heard it a million times — often from someone who has never done “due diligence” in their lives.

 

It sounds good, but no one ever stops to think about how unhelpful that platitude is. Okay … I should do my due diligence. Granted. But what does that mean?

 

Honestly, there is no need to be cryptic. When it comes to real estate, “due diligence” means three things … and none of them are rocket science. In many cases you will have professional help.

 

Here are the three critical stages of due diligence.

1. Financial Due Diligence

Financial due diligence is the process of “crunching the numbers” on your investment. This is how you determine whether or not it is a “good investment.”

 

Here’s how to do it …

Market Analysis

Analyze the current conditions of the local real estate market and determine whether or not you are getting the property at a good price. A real estate agent may be able to help, or you can do it yourself using online tools like Redfin or Zillow.

Cash Flow Analysis

Determine the gross potential rent the property can produce (based on prevailing market rents for similar properties) and subtract the total expenses. We break down the major expenses a landlord should account for in this article.

 

Check online to see what market rents are for similar properties. Look at utility bills and maintenance contracts. Examine any current leases and property tax bills. Try to corroborate everything with documentation.

 

If you are conservative in your estimates and come out with a positive number, you have a reasonable chance that your rental will produce positive cash flow, not negative cash flow.

Tax Savings Analysis

Figure out how much you will be able to save on your taxes every year as a result of owning this property. If you have a CPA or tax prep specialist, they may be able to help. Details to look at include which expenses in the cash flow analysis can be deducted, and how much depreciation you can take. We  explain depreciation in this article.

Appreciation Analysis

Decide how many years you expect to hold the property. Three years? Five years? Ten years? It’s up to you. You can always change it later; this is just for the purposes of due diligence.

 

Determine how much you expect your property to appreciate in value each year. Also, set a number for how much you expect your rent and expenses to increase each year, and project those numbers for however many years you decide to hold the investment.

 

Now take the total appreciation, cash flow, and tax savings over the time horizon you identified and add it all together. Throw in the mortgage principal paydown you expect over that period while you’re at it. How much bigger is that number than your down payment, closing costs, and initial repair budget? Use that number to determine your total projected return on the investment.

2. Physical Due Diligence

Physical due diligence means inspecting the property itself to determine its condition. Our lenders do not require a professional property inspection but you are able to coordinate one if you choose to do so.

 

Issues relayed in the inspection may affect the calculations that go into financial due diligence, including your budget for future repairs and maintenance.

 

3. Legal Due Diligence

Legal due diligence determines whether the property can legally be transferred to you. Determinations from legal due diligence include verifying that the seller is the legal owner and has the right to sell you the property. Legal due diligence also reveals whether the property is subject to any easements, liens, covenants, or other encumbrances that might affect the sale or the value of the property.

 

Legal due diligence is actually the easiest part — the title company handles this for you, during escrow.

 

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As you can see, there’s no great mystery to due diligence. It has defined stages, and you can rely on professional help at most of those stages, especially if you are new to the landlord game.  MartelTurnkey makes it even easier. With our portfolio of available turnkey rentals, we have done much of the due diligence for you. Contact us today — we’re happy to show our work and explain everything to you until you are ready to buy with confidence, satisfied that you have “done your due diligence.”