Do Better Than the Filthy Rich to Make a Fortune in Real Estate

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Last week I talked about replicating private-equity buyout funds to make a pile of money over time.

Successful private-equity managers find undervalued portfolios to generate the huge returns their investors expect using very similar principles I use to find candidates for the Heatseekers portfolio.

Finding good companies with sound balance sheets at bargain prices and then just letting time do its job is the real secret to life-changing wealth.

We can expand this private-equity equation to more than just operating businesses.

Indeed, that is precisely what the most successful private-equity funds have done consistently to generate the high annual returns that help them attract and keep investors.

Much of the study and effort that went into developing the investing strategy I use in Heatseekers and Max Wealth was the result of studying what rich people did to get rich in the first place.

One of my most significant discoveries was that it was the private-equity folks with their focus on value and time that consistently made piles of money and got filthy rich.

There are a lot more investors on the Forbes 400 list using something similar to a Max Wealth approach than there are short-term traders.

There’s no gimmick to how the top investors keep getting huge returns over and over again, just one completely overlooked method.

Make Your Fortune in Real Estate Using the Same Strategy Every Time

One of the very best ways to get rich that those of us with a private-equity mindset have learned is to buy real estate at bargain prices and own it for a long time.

Sooner or later someone is going to offer to pay us a lot more than its worth, and we can sell out for several times what we paid.

Until then we will collect cash that can be invested in other bargain-priced opportunities.

Noted capitalist and philanthropist Andrew Carnegie once said that “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”

It’s been 100 years since Carnegie has been around.

It was true then, and it is even more valid now.

The good news is that we don’t have to scrape the seven-figure sum that usually is the minimum to invest with the big private-equity funds.

We can use Real Estate Investment Trusts to do exactly what the big funds do with their investor’s capital.

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We can buy real estate at bargain prices that are soundly financed (in real estate some leverage is good. Too much leverage not so much).

We then sit back, collect cash and wait for prices to rise to the point it just makes sense to sell.

Rinse and repeat until we’re too rich to care.

What The Filthy Rich Do to Repeat High-Return REITS

What I love about the REIT marketplace is that there are always some hot sectors and some bargains regardless of market conditions.

Right now, multi-family is hot and so is industrial property. It is hard to get money to work in those areas on favorable terms.

At the same time retail space, even high-end, is bargain priced. So is timber, farmland, and hotels.

We can buy income-producing real estate for less than its worth, and as long as we pay close attention to balance-sheet strength, it is almost impossible not to make money if we are patient.

Office property in the top-tier cities like New York, San Francisco, and Seattle is ridiculously pricey at the moment.

Offices in smaller cities like Orlando, Nashville, Tampa, and Charlotte are nowhere near as richly valued, and bargains can be found by those willing to actually read the financial reports to identify where the REIT’s properties are actually located.

There is almost always an opportunity to sell bargain properties after a few years at lofty prices and then reinvest.

I laugh out loud when I see the suggested allocations from Wall Street that suggest 5 or 10% or your portfolio should be in real estate.

The part of my portfolio that is not in small-bank-buyout candidates is heavily in real estate.

The right amount of real estate to own is however much you can find at the type of bargain prices that almost guarantees long-term profits.

REITs have outperformed stocks for decades, but everyone thinks you should own more stocks than REITs.

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As my Grandma used to say, “That’s a load of crap.”

If you can find lots of cheap REITs, buy those.

If REITs are pricey and you can see a lot of buyout stocks, then own mostly buyouts.

Buy where the profit opportunities are, not where some guy on Wall Street thinks you should.

If you want to make money on Wall Street, quit chasing hot stocks and tips.

Quit tossing your money at longshots like a drunk at the racetrack.

Quit playing craps with Little Janie’s college fund.

Buy financially sound companies and assets at rock-bottom valuations, and become an expert at “sit on your butt” investing.

That’s how rich people got rich in the first place.

To the Max,

Tim Melvin

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