richest manmultifamily

Applying “The Richest Man in Babylon” to Apartment Investing

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richest man in babylon& the laws of money

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The Richest Man in Babylon, written by George S. Clason, has been one of the most influential and inspiring books for Jake and I. The author describes in simple terms how to amass your wealth, but does so by tying lessons in with stories about the richest city the world has ever known. The primary character is Arkad, the richest man in Babylon, who was commissioned by the king to teach his citizens how to acquire riches. Arkad outlines his 7 cures for an empty purse and, in turn, Mr. Clason introduces the 5 Laws of Gold.

We often hear in the media that a small percentage of the population controls the vast majority of the wealth. This is how the city of Babylon was in ancient times, and the king noticed that the wealth needed to be divided up between more than just a few citizens. This phenomenon can be attributed to Pareto’s law, which states that 20% of any activity is responsible for 80% of the results, and 80% of any activity is responsible for 20% of the results. Most businesses, including our own, have stumbled upon this law. Approximately 20% of my customer base is accountable for 80% of my revenue, and conversely, 80% of my customer base is only responsible for 20% of my revenue. Business owners need to learn how to focus on the profitable 20% and begin to eliminate the unprofitable 80%. Adhere to the following laws that Arkad taught the citizens of Babylon to become one of the 20% in our economy.

We've written this e-book for anyone who is looking to create and expand their wealth. Most of us concentrate our efforts on earning money, but fall short of what to do once we have amassed a sizable sum. By following these laws, you'll be able to invest your money and grow your estate. Below, we've outlined the 5 laws of gold and the 7 cures to a lean purse and how they relate to real estate. These laws can all be applied to running your real estate empire and to creating your own personal wealth.

Unfortunately, these laws are not taught in any school and many students leave college ill-equipped to deal with saving and investing. Students are being trained as employees, and their mentality becomes one of earning and spending rather than saving and investing. Thankfully, with a bit of determination and willpower, these laws are simple to follow and can help anyone accumulate wealth.

law 1This law is the cornerstone of any financial plan. You have to become accustomed to saving at least 10% of your earnings. If this sum is not achievable, than begin with a mere 5% and then work your way up to 10%. It's vital that you begin saving, no matter how much you start with. Open an account at your bank and call it your “Financial Freedom Account” or “Surplus Account.” Once the account begins to accumulate money, it will inspire and motivate you to continue to add to its growth. If you

procrastinate and never start, the law of attraction will not be activated, which simply states that like attracts like, and positive action will bring about positive results The more money you save, inevitably, the more money that will flow to you.

In this first law, this money that is being saved is to be utilized only for investing and growing your wealth. The law teaches us how to live within our means and conditions us to budget our finances. The downfall of most businesses and households is that they fail to plan (failing to plan is planning to fail). Once you begin to invest in real estate, it would be ideal if you could save the entire amount of return the investment yields. You would be compounding the savings and be well on your way to exploding your wealth. Unfortunately, life and expenses get in the way. My goal is to save at least 20% of the net cash flow from my investment and deposit it into my financial freedom account.

Typically, real estate investments are financed through a financial institution for the majority of the sale price. Buyers are usually responsible for coming up with a down payment that typically falls between 10-25% of the purchase price. There's no better time than now to access your financial freedom account and start having your gold “laboreth diligently.” You never know when an opportunity will present itself, so having money set aside for the investment gives you the option to pursue it or forgo it. We have experienced a strange occurrence when actively pursuing an investment and

having access to capital. The law of attraction kicks in and deals will start to appear. Having money saved will bestow the confidence to pursue these opportunities.

Gold cometh gladly and increasing quantity to any man who will put not less than one-tenth of his earnings to create an estate for his future and that of his family.

10%

law 2 Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.

earnings

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10-25%

This law is often overlooked or ignored by most investors. Many are so eager to commence with their investing that they don't properly educate themselves before getting started. We believe that every investor should seek out a mentor in whatever form of investing they are going to partake in and learn the ins-and-outs of the process. We strongly advise signing up with a business coach who has experience in the investment area you choose. It's important to discover whether you like this type of investment before you devote too much to it. Months and possibly years of time and

aggravation can be saved if you find out early that it's not for you, not to mention it's unwise to pursue an investment that you don't fully understand. You'll increase your chances of success tremendously if you become an expert in the field in which you pursue. This law also pertains to building a terrific team around you. You're the heart and soul that drives the engine, and your team is there to advise and help you preserve your assets. It's impossible for an investor to be an expert in every area of his business, so employing team members with specific skill sets is vital to your success. Brokers know how to find deals, accountants are proficient with financial data, and property managers are responsible with managing the property and the tenants. If your team members are not wise, then it’s time for a change.

In real estate, investors create syndications that raise capital to acquire properties. If you invest your money with one of these syndications, check their track record and be certain that their objectives align with yours. Numerous investors get caught in Ponzi schemes because they're only chasing a return and know nothing about the investment. Again, we don’t recommend investing in any business that you don’t understand.

law 3 Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.

law 4 Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.

the following “cures” can help you.

Arkad begins by telling his audience to save one coin out of every ten that is earned. This is wise financial advice, and saving money will give you the momentum and satisfaction to continue to save and invest. You will learn how to delay instant gratification and begin to budget your saving and spending, two key components in any real estate investment. Jake and I budget $200 per month per unit for capital expenditures. It's a great feeling to know that there is money in the account when a roof has to be replaced or something else needs to be fixed.

I fell prey to this law early on in my investing career. In fact, my career was almost over before it even began. I was lured into investing in mobile home parks down in Florida and was approached by a close friend who told me he had a few other properties with this individual. Mobile homes are a cash cow, but like any other investment, they have certain traits. For instance, it's a bit more difficult to secure bank financing, which is why many parks are sold with owner financing. Also, if the landlord owns the individual trailers, then

the park will be more management intensive and more costly to run. However, the extra cash flow usually compensates the owner for the additional headaches.

I made the mistake of not doing my due diligence on the investment and trusted my friend without seeing the property in person. I should have jumped on a plane, visited the parks, and spoke to a couple of tenants. If I had, I would have saved myself a great deal of money and even more aggravation. I have nobody to blame but myself, and I swore to never repeat that mistake again. I tell all new investors that performing due diligence is the most crucial step when acquiring property.

I turned this event in my life into a terrific learning experience and decided to continue investing in real estate once the Florida fiasco was over. I took ownership of my mistake and began coaching with a professional to learn everything I could about investing in multi-family properties. This mistake has turned into a blessing for me and I use it to remind myself of all the “schemers and tricksters” out there.

So how do you continue improving your chances of financial and real estate success?

law 5Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.

first cure Start thy purse to fattening.

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We often hear in the media that a small percentage of the population controls the vast majority of the wealth. This is how the city of Babylon was in ancient times, and the king noticed that the wealth needed to be divided up between more than just a few citizens. This phenomenon can be attributed to Pareto’s law, which states that 20% of any activity is responsible for 80% of the results, and 80% of any activity is responsible for 20% of the results. Most businesses, including our own, have stumbled upon this law. Approximately 20% of my customer base is accountable for 80% of my revenue, and conversely, 80% of my customer base is only responsible for 20% of my revenue. Business owners need to learn how to focus on the profitable 20% and begin to eliminate the unprofitable 80%. Adhere to the following laws that Arkad taught the citizens of Babylon to become one of the 20% in our economy.

Easy to say but much harder to do. It's vital in multi-family investing to control spending, especially when rehabbing an apartment. For example, it wouldn't be financially feasible to install granite countertops in a C property. The expenditure is unwarranted, and Formica countertops would have served the identical purpose for a fraction of the cost.

This principle also carries over to our personal lives. It's of no relevance how much a person earns, but how much is kept form those earnings. When a person gets a raise, he mysteriously seems to buy a car or a bigger house. If he doesn't learn the first principle, he will always be broke. A budget will allow you to control and monitor spending while highlighting any weaknesses in your income statement. A budget will also give you the discipline to save 10% of your earnings.

Now that saving 10% is part of your routine, the next task is to put your savings to work. Your wealth will never explode unless you learn to invest savings and allow it to multiply. Real estate is one of the best investments for multiplying your treasure. Cash flow provides for living expenses, and the increased value and equity build-up will lead to wealth creation.

Before you invest in anything, whether it be stocks, bonds, or real estate, it's vital that you seek out a mentor and begin to learn as much as possible about that investment. This will help you to guard against losing your capital. In the book, Arkad explained how he lost his first investment by lending money to a brick maker who was supposed to purchase jewels, only to be sold bits of glass. Real estate is an excellent way to guard your treasures because you are in control of the investment. There is no CEO running a company, and no worries about third quarter profits coming in below expectations. It’s only you and your partner controlling the property and all the major decisions.

second cure Control thy expenditures.

third cure Make thy gold multiply.

cont...

fourth cure Guard thy treasures from loss.

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Some investors start out by buying smaller units and occupying one of the apartments while collecting rent on the other units. This is an excellent strategy to create wealth and lower expenses. Your tenants are paying the mortgage and expenses while you are living rent free.

When I was growing up, my mom purchased a duplex with her brother. The duplex had an additional 2 units in the basement that my mom and uncle rented out. We lived next door to each other for 15 years, and the rental income paid the mortgage and taxes on the property. This allowed my family to save money and invest the proceeds into additional real estate. The only drawback to this scenario was that we always had a tenant living below us. We sacri-ficed privacy for the ability to save money and purchase a larger home in the future. That’s exactly what my mom did, and we were able to build our dream home 15 years later. It would have been nearly impossible to build our home if we didn’t have that rental income coming in every month to help pay the bills.

fifth cure Make of thy dwelling a profitableinvestment.

There are various ways to guard your real estate investments. All investors have to purchase insurance on the property in case of damage, and many will make sure to include business interruption insurance, additional umbrella liability, and other coverages that your insurance agent will recommend. We sign operating agreements amongst the partners to detail our relationship and how the partnership is to function, and we also set up an LLC to protect us from any liability that may occur on the property. The LLC, but not the partners, would be held liable.

fourth cure cont.

sixth cure Insure a future income. Many in our society are counting on Social Security for their retire-ment needs. There is no other vehicle in my opinion that provides for retirement better than real estate. If you've held property for years, you can either sell the property or continue to hold it for cash flow, but if you decide to sell, then you can take back a mortgage and receive monthly payments. Several investments offer future monthly payments, but real estate combines the tax advantages with these payments. If selling is not part of your DNA, then continue to hold the property and hire a management company to run the property.

Refinancing a property is another strategy for insuring a future income. If a property has been owned for many years, the buildup in equity has increased over those years and the owner has the option to pull out some of that equity. The beauty of this option is that the money refinanced from the property is tax-free. Most owners who are advanced in age usually have fewer write-offs and tend to incur a larger tax bill. By refinancing, the owner will incur no added tax liability and will keep all of his money.

sixth cure cont.

seventh cure Increase the ability to earn.Never stop learning your craft. There are countless property types in real estate, such as self storage, office, multifamily, single-family, and medical. There are just as many strategies including rent-to-own, master lease, buy-and-hold, buy-and-flip, and wholesaling. Investors should always continue to educate themselves due to the ever-changing market. One strategy may be working but the next market cycle renders the strategy obsolete. Our main focus is apart-ments, but we'll still familiarize ourselves with all the other strate-gies as well.

Join us at JakeAndGino.com and we'll help you on your journey to becoming a successful real estate investor.