What Tom Hanks & The Terminator Can Teach Us About Property Investing
Who knew? Tom Hanks – one of my favourite actors is also a property investor; and a serious one at that. He and his wife Rita Wilson were reported to have recently sold two of their residential investment properties in LA for a total of A$23.5m. He obviously knows a thing or two about property investing because his combined purchase price was only A$13.1m. He had owned one property for 16 years and the other for 10 years.
Hanks isn’t the only movie star who invests in real estate. The Terminator, Arnold Schwarzenegger, is on the record saying “I made my first million in real estate, not in movies.” His first property, a 6-plex he bought for $27,000, was later sold for a profit of $169,000 that he rolled over into another apartment building.
Here are four observations, together with some discussion starter questions to reflect upon:
1. Real estate is a wealth creation, and wealth preservation, vehicle.
Hanks earns his money in movies but invests it in real estate. Another way of saying this is that Hanks makes his money from trading his time and skill, and he preserves his capital by investing it in real estate. All going well, not only will the value of his real estate be maintained, it will also appreciate.
Questions for further thought…
How do you make your money? How do you preserve your wealth? How well is that strategy working for you? What needs to change?
2. It’s okay to sell.
One of the popular mantras in real estate investing is that ‘you should never ever sell’. That is certainly a proven way of deferring tax, but as you can see, both Hanks and Schwarzenegger are content to sell when the time is right. So, when exactly is that? When you can make more money, sooner, with less risk and/or lower aggravation.
Questions for further thought…
What assets do you own that could be sold to allow you to achieve better investing results? What will you do with the proceeds?
3. We all start somewhere.
A$23.5m is a lot of money for a couple of properties, but this is unlikely to be Hanks’ first property investment. Indeed, Schwarzenegger testifies that his first purchase was only $27,000. What we learn is that your first deal is unlikely to be your best deal, and that it is a starting point, not an ending point.
Questions for further thought…
What’s holding you back from making your first, or next, property purchase? How can you overcome analysis paralysis?
4. Big numbers don’t necessarily equate to big risk.
Martin Ayles, and investing veteran and friend, once asked me “What’s the difference between $100,000 and $1,000,000?” Being a bean counter, I replied “900,000?”.
“No”, Marty said, “it’s one zero, and zero is nothing”.
What Marty was trying to say is that the investing methodology that makes an entry level property investment feasible is the same methodology that makes a much more expensive property investment viable. For instance, I’ve seen $100,000 property deals with more risk than $1,000,000 property deals. That is, risk is not in the size of the deal per se, but rather in the investor’s skill and expertise to be able to turn a profit.
Questions for further thought…
How are you under or over investing according to your investing skill? Are you an investing thoroughbred doing pony rides or an investing junior out of your depth?
Final Comments
Luckily you don’t need to be a movie star to invest in real estate. Whether you’re just starting, or you have a mega-portfolio, the challenge remains the same – what should you buy, how should you hold, and what should you sell, to make the most money, in the quickest time, for the least risk and the lowest aggravation.
If you need help and guidance with what to buy or how to invest then make sure you are at my upcoming 3-Day Millionaire Mega Conference. Details of how to save 50% on one of the last 25 discounted seats can be found here: http://www3.propertyinvesting.com/mega-conference-discount
Until next time remember that success comes from doing things differently.
– Steve
Do you have any questions, thoughts or comments about this article? Post them below and Steve will reply in person.
Comments
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Hi Steve,
Yes I agree with your thoughts. Arnie is an astute business man – he bought a lot of run down properties in Santa Monica which he bought in blocks of 6 to start then used the rental from 5 apartments to fund the 6th apartment. Interesting strategy but not sure if you can use it in this day and age?
I’m not sure either. What I have learned though is that astute investors change with the market.
– Steve
Hi Steve do you have a course around commercial property investment.
Thanks Peter
Not specifically Peter. I am working on a due diligence product (final stages) that applies to residential and commercial property though.
– Steve
I use the own home ( no capital gain when selling ) model i.e. buy a big house in a posh suburb – live in it and rent 4 rooms out and use the income to pay extra for the repayment of the mortgage. Sure you pay taxes on the extra income but ‘hey’. After 12 years the house is mortgage free ( 1.5 Mio ).
Anyone can do this.
Hi Martin,
I also did a similar thing when I was young (20yo & just out of my apprenticeship), bought a cheap house in a southern district of Adelaide during a recession. Had saved about $3000 up while working in the mid North of SA, this with another $2000 borrowed from my parents made my deposit. I had moved out of home about 18months before to complete my trade as a Diesel Mechanic, so had the skills to run a home & fend for myself. I took on a job at the local bus depot as shift mechanic & took borders on in the 2 spare rooms. During the next 4 years I had 12 different borders, became a Christian, met my wife & married her. We paid the house off in 3.5yrs & then sold it 2yrs later when there was a boom in real-estate for 2 & a half times what I paid for it. Ah the 80s, in Adelaide, you had to be there to appreciate it. Yes it can be done, just be realistic.
Arnold also had a brick laying business on the side, as bodybuilding payed very poorly in the 70s. He did this to accelerate his income to purchase real estate which I find fascinating.