There are three major areas when it comes to real estate investing. Each of these can be seen as the corner of a triangle as shown here.
It's important to understand these three major areas and the relationship among them.
The first corner of real estate investing is called creating cash. This is where you use real estate to generate chunks of cash or regular cash flow from your income property.
Chunks of cash represent the type of profit made when assigning a contract to another investor or fixing and flipping a property for a larger profit. Depending on the price point of the properties you’re assigning or flipping, you can earn some good money in a relatively short period of time. This often makes for great supplementary income.
In fact, some investors make a living doing nothing more than using real estate to create chunks of cash. Creating cash in this manner is great, but it rarely leads to true wealth; that is, building up your net worth.
This is where the second corner comes in – accumulate wealth. True wealth creation in real estate comes from buying and holding prudent income-generating real estate.
Time and time again, you see this concept put into play by people all over the country who purchase income-producing property for the long term. This is very different than the first corner (cash creation) which has a short term horizon. Holding real estate for the long term has been historically proven to create significant wealth. This is where you should focus your long-term financial goals.
Now, you may not be in a position to invest for wealth accumulation because of a lack of funds. Short of partnering with someone, a good strategy is to use real estate to create the cash you require to invest in those longer term investments. For many people, the first corner often leads to second. That is, they generate cash with assignments and flips and then save that cash to put towards the purchase of their income property.
Once you’ve begun the build-up of your real estate portfolio, make sure you protect the wealth you’re creating. This is the third and final corner of our triangle – protect and pass.
In essence, this is a strategy to protect your assets so that a lawsuit or judgment doesn’t force you to liquidate your holdings and wipe out the fortune you’ve worked so hard to build.
In addition to asset protection, also make sure that you pass your estate on to family and loved ones without the government getting involved because that could be messy and take years going through the probate courts.