Have you ever thought about where to invest your money and create your 1st million?
Being in the Silicon Valley, a lot of my peers often talk about ways they can get rich through the stock market. Seeing and hearing about all of the buzz in the Silicon Valley makes it seem that tech stocks are the way to go.
Over the past decade, we've heard so much about the CEO's of Apple, Google, and Facebook creating massive amounts of wealth.
With all of that being said, I wouldn't say that stock investments are the top wealth creators.
If you look around the world, you'll realize that real estate and businesses have created millionaires for decades.
For real estate investing, there is no need to understand sophisticated financial calculations, options, P/E ratios, or investment mechanics.
Using Maximum Leverage to Create Your Real Estate Wealth
In the early 2000's, I was looking for a 3 bedroom home for my family in the San Jose area. At the time, I was living in a home that I eventually listed for $400,000. It was over 40 years old and the foundation was cracking. In my mind, I was thinking that I needed to get rid of the home before investing more in repairs or even rebuilding the whole house.
After driving an hour out, I found tons of new homes in a city called Tracy. For $390,000, I was able to buy an 8 bedroom home with a 3 car garage. It was the largest home that I've ever owned, but it was an hour away from where I worked at the time.
To make a long story short, I couldn't handle the commute and I ended up selling the place in a couple of years...for over $600,000!
Now, why do I call this maximum leverage?
Well, I didn't spend $390,000 to earn the difference.
In the 2 years that I had the home, the major expenses were the mortgage payments and property tax. To acquire the home, I put in 20% as a down payment.
20 percent of $390,000 is $78,000.
In the 2 years that I owned the home, around $112,000 came out of my pocket including the down payment, mortgage, and property taxes.
However, the difference between $600,000 and $390,000 is $210,000.
Even if you subtract the fees associated to that sale, it would still be very tough to find another investment with the amount of ease (process and anxiety) compared to investing in real estate.
If you're interested in learning more, here's my quick guide to investing in real estate!