How to Build a Financial Moat With Real EstatePosted by Nick Niesen on November 8th, 2010 Ages ago, people lived in elaborate and magnificent castles that were often protected by moats. A moat is a wide, deep ditch dug around a castle to prevent enemies from overtaking the castle. By surrounding the castle with water, moats served as an effective deterrent and provided the castle with the security it needed to prosper. Today, many of us live in our own plain and simple financial castles that are much more vulnerable than the castles of yesterday. Not only do our financial castles not have any sort of moat for financial security, many real estate investors do not know how to build a moat to accumulate wealth and retain it. Why do most people today not have a financial moat? Why no financial security? Why are most people so financially vulnerable? We live in a culture that has brainwashed us into thinking that we should be paid per hour of work. The real test is that if you are let go by your employer as I was in June 2002, your income definitely stops. After almost 30 years of working for ?security? for different companies, I was left out in the cold in the middle of summer. I discovered I was not secure; I only had the illusion of security. Working for a company is fine, but you must understand it will never give you security. That's how linear income works. You receive income when you work. Usually you earn just enough income to pay your bills. When your income stops, you?re on the brink of disaster. In fact, if you?re like most folks, you?re no more than two or three paydays away from a serious financial catastrophe. OK, so how do we start to build the moat that will provide us with financial security? Residual income sounds nice, doesn't it? Unfortunately, most people have trouble developing a residual income. Why? It was only after my wife asked me how many properties I had kept for ourselves at the end of 2004 that I realized that my ?buy and sell? plan was making us very good money, but it would not make us wealthy. I realized I had to keep buying and selling properties to keep making the money. So I launched a strategy that complemented our buy and sell strategy. The approach is to buy properties at substantial discounts, rehab the properties, and then rent them out. And the best part is that the tenants pay for my properties. Once the properties are paid for, I will continue to have rental income for the rest of my life. But what about tenants and toilets, you ask. Well, everything has a price and you?ll have problems with your tenants. But you have options. You can (a) develop a system to minimize your problems with tenants, (b) retain a realty management company to deal with the tenants or, (c) offer seller financing to your tenants so they become owners and they no longer call you. Like it? Share it!More by this author |