Well before he was known as the “Terminator,” before his governorship in California or his role as host of “Celebrity Apprentice,” Arnold Schwarzenegger kicked off his career as a movie celebrity in the film “Conan the Barbarian.”
That was when he was 35 years old. And while the film helped propel him into the stratosphere in terms of celebrity acclaim and financial success, there’s a little-known fact about Arnold that says something about both him and the American economy…
By then, at the start of his movie career, he was already a millionaire.
Yes, you read that correctly. Arnold was wealthy at the early age of 25, before he was a household name, before he was making millions of dollars per film.
The reasons for this are simple. And there are basically only two:
- He knew what to invest his money in.
- He knew how to re-invest his money.
It’s true that Arnold had some success before he ever came to America. He was a four-time winner of the Mr. Olympia title, the pinnacle of the bodybuilding world.
But bodybuilding then was not like pro sports of today. There were no multi-million dollar contracts. Even though he made what was a good deal of money to him at the time – considering he grew up dirt-poor in post-World War II Austria – it wasn’t the kind of money that would set one up for life. By most accounts, he arrived on U.S. soil with about $27,000 left of his bodybuilding winnings. Hardly a fortune.
One of the first things he did when he got on U.S. shores was enroll himself in a community college. He knew very little of the English language, so it was a way to throw himself at something he knew would benefit him. Sink or swim, he would immerse himself in something that would force him to learn English.
One of the other first things he did was take that $27,000 and use it as a down payment on an apartment building. Think about that for a second.
Here’s a young man who arrived in the U.S. with a modest amount of money and a lot of ambition. The first two things he did were: 1). Force himself to learn the language; and 2). Buy real estate.
His first investment in real estate was a modest apartment building that cost $214,000. After a short time, he sold it for $360,000, all the while collecting rents that provided continuous income. Guess what he did with that $146,000 gain?
He bought another apartment building. And after selling that one, he bought another. Here’s an excerpt from an article on Arnold’s early real-estate dealings, which explains just how he treated his windfall from that first property:
Rather than blowing it all as most early 20’s males might be inclined to do, he doubled down, reinvesting the profits back into another building. Once again, his investment proved a wise one, with him selling it for a tidy profit a short while after buying it. Each time, rather than spending the money on cars, alcohol, women, etc. as most early 20’s males with his physique might have been tempted to do, he simply rinsed and repeated, one upping his investment every time. A few years later, he was a millionaire.
So many people think that to make money investing in real estate you have to have a “Midas touch” or somehow be blessed by fortune. But Schwarzenegger is living proof that’s not true. Here you have a 20-something-year-old, who grew up poor, arriving in a country where he didn’t even know the language, with a little bit of money, and he’s a millionaire in a few short years.
That’s why Arnold was wealthy before he was super-famous.
And at first glance, you could say that was because he was able to buy multiple properties that all worked out well for him. But the truth is, he bought ONE property, that first one. After that, his properties were bought by other properties.
Let’s say, for example, that after that first property, Arnold would have wanted to keep that first $27,000 he showed up in America with. He used that $27,000, remember, to help finance a property that wound up putting $146,000 in his pocket. He could have taken that original $27,000 and set it aside, out of the game, for all intents and purposes. That would have left him with $119,000 ($146,000 – $27,000).
If he invested in four more deals identical to that first one, he would have only invested what he already made – the original $27,000 would go untouched. Four down payments of $27,000 each, all paid for by the first deal, would, all other things being equal, net him $584,000 (4 properties x $146,000 net profit on each).
In Las Vegas, the term for something similar is often referred to as “house money.” If you win big at a hand of blackjack, for example, and pull back your original bet, all your subsequent winnings are the result of what you’ve already won. Each winning bet you make will have been paid for by the casino’s (house) money.
This is what Arnold did in real estate. And if you think about it, it’s really what he did with everything in his life that became a success for him.
All the hours in the gym, building his physique, “paid” for what became that first movie role in “Conan the Barbarian.” That role, which audiences responded positively to, “paid” for his ability to land other roles, like the one in “The Terminator,” which led to even more big roles. The fame that came with all those big roles helped him become governor of California. And now he gets to pick and choose whatever he wants to do; he has true professional and financial freedom.
It all started with one little role. Just like his now-massive wealth started with one little apartment building.
We like to use the term “snowballed” as if it’s some mystical force of nature that builds a lot into a little, but we often fail to realize that someone has to build that first snowball, small as it may be, and get it rolling. That’s really what Arnold has done.
And if a 20-something with a few dollars in his pocket, coming to America from a poor family and with only a slim grasp of the language can do all that, what’s the excuse for the rest of us?
Frankly, although it’s unlikely that just anyone can become a world-class bodybuilder or action hero in blockbuster movies, just about anyone CAN use young Arnold’s approach to becoming a millionaire. The factors that made him so wealthy at a young age are available to everybody
Obviously, Arnold’s reinvestment of his real-estate earnings back into real estate was key to his wealth-building. As the excerpt above says, he didn’t blow his earnings on things a typical 20-year-old might.
That probably shouldn’t be that surprising. The amount of discipline required to become a world-class bodybuilder – discipline in diet and exercise – is the same kind of discipline required to not spend his or her monetary gains on frivolous things, such as fancy clothes or cars, or boats and other “toys.” It took discipline to put the money he made in real estate BACK into real estate.
And it’s probably true that not everyone has the same kind of discipline. If it were true, everyone theoretically could have world-class physiques.
But the strategy of reinvesting real estate earnings back into real estate is not Arnold’s alone. In fact, just about everyone who becomes a homeowner already does it.
In Arnold’s case, he first invested into a four-unit apartment building. When he sold that at a nice profit, he invested in a 12-unit building. He sold that and bought a 36-unit building, then a 100-unit building. All he really did was continue to buy “up.” Basically, he turned a $27,000 investment in a modest four-unit building into a 100-unit building.
Most homebuyers essentially do the same. They first buy a “starter” home. When they outgrow it or can afford more, they use the proceeds from the sale of the starter home to buy what many call a “move-up” home. From there, they use the equity built up in that home to by a more valuable home. The typical path of the American homebuyer is the same as Arnold’s: They simply keep “buying up,” or, as the excerpt says “rinse and repeat.”
All Arnold did was apply this to investment properties rather than primary residences. And that has an additional advantage.
See, the typical homebuyer who keeps “moving up” continues to gain equity and can keep using proceeds to buy subsequent properties. But the typical homebuyer is using his or her own money to pay the monthly mortgage payment on each home.
With investment properties, tenants paying rent, SOMEONE ELSE is paying down the mortgage. Arnold’s four-unit apartment building, for example, would have generated enough rent to pay the mortgage each month, which means aside from his down payment, he had to put in no more money.
Now, for all the reading I’ve done on Arnold’s real estate investing as a youth, I haven’t been able to find what he did with the rental income on the properties he owned. Based on his adherence to the idea of reinvesting his proceeds into more real estate, one might assume that he used any net rental income to invest in more properties, too. But who really knows – with rental income from a 100-unit building, even if after expenses you net only $100 per unit each month, you’re talking about $10,000 per month in income or $120,000 per year. Plenty to pay for the average person’s living expenses.
But if you didn’t use rental income for living expenses, sticking to your day job, as they might say, and saving the income, you would have even more money to invest in future properties. The idea of using proceeds from properties to invest in more properties is turned up a notch.
Again, doing so would require some discipline, which we know Arnold possessed in greater abundance, probably, than the average person. But using the rental income to either pay down the principal balance on assets he owned, OR using it toward new investments greatly speeds up the process.
Now, Arnold invested in apartment buildings. But for the typical beginning investor, single-family homes might be an easier way to start, simply because profitable single-family homes can be found in greater numbers than profitable apartment buildings. But the same principals certainly apply.
Here’s Arnold’s strategy:
He started with a small apartment building. After a few years he sold the property and reinvested the proceeds into a medium size apartment building. A few years later, he sold the medium size apartment building for a larger apartment building.
What’s interesting to consider is you can use this same strategy with single-family rental homes, too.
Here’s how it would look:
Starting
with three single-family rental homes this year, you could snowball this into a
portfolio of 24 homes over a period of 6 to 10 years.
To put this plan into action, all you
would have to do is use the proceeds from each rental home you sell to buy two
more rental homes.
I like to call this phenomenon “houses buying houses.” It really is the same as Arnold’s strategy of apartments buying apartments. And it really does start with just one good property.
Above, it says that the tools Arnold used are available to everyone. “Tools” plural, as in more than one. We’ve talked about reinvesting, which you can probably agree is definitely available to everyone. But now let’s take a look at another less-obvious tool he used.
You see, Arnold didn’t luck into buying profitable properties. He had a mentor who helped him pick his investments. An experienced real estate investor named Albert Ehringer took the young bodybuilder under his wing. It was with Ehringer’s guidance that Arnold flourished into a young real estate millionaire.
Sure, Arnold arrived in America ambitious. Yes, we know he had a ton of discipline. But let’s be honest: A bodybuilding background doesn’t exactly set you up with the knowledge to become a real estate tycoon.
Arnold, armed with that $27,000 and a halting grasp of the English language, relied on Ehringer’s guidance. Arnold’s discipline and eagerness aren’t alone what led him to greatness. Yes, he had a near failsafe approach, but his success also depended greatly on investing in the right properties.
It took the RIGHT four-unit building to turn into the 12-unit building, and it took the RIGHT 12-unit building to turn into the 36-unit building. Arnold’s “buying up” approach would not have worked if he had failed, at any one point, to buy a property that didn’t perform.
And that’s where Ehringer came in. He had the expertise that Arnold lacked. Arnold knew what he wanted to do, and Ehringer advised him on the specific properties that allowed him to do it. Ehringer’s coaching in real estate was as big in Arnold’s life as any bodybuilding or acting coaching he might have gotten along the way. Ehringer was the mentor Arnold needed.
Which, like the reinvesting – or “buying up” approach – is something other people can copy. Just like a beginning investor can do what Arnold did in terms of strategy, he or she can likewise find a mentor who will take the newbie investor under their wing.
Unfortunately, not everyone has a potential mentor like Albert Ehringer in their lives. And I’m not talking about an internet guru on real estate investing or the author of some books that give you an outline of how to invest in real estate. For example, I wouldn’t expect you to be able to take the information detailed in this report and go out and become a millionaire like Arnold did. Information is a great starting point, but there is no substitution for real, actual expertise.
Ehringer advised Arnold on specific properties. He helped find the right properties. He knew what he was doing in the areas that Arnold didn’t, and Arnold leaned on his specific expertise in the California coastal real estate markets. You can have all the ambition and discipline in the world, as Arnold did, but without SPECIFIC expertise in local markets, you will likely fail as a real estate investor. Or at least cripple your own potential for success.
If you’d like my help in creating cashflow, and I have over 25 years of specific hands on experience, consider giving my Cashflownaire Membership a try for just $1.00 here.
As a new Member, you’ll actually get my “Houses Buying Houses” system instantly. This is a system that I designed years ago around Using Rent to Own Programs you can use copy Arnold’s approach with your real estate investments.
P.S. When Arnold filed the required disclosures to run for governor in
California, it was revealed that he had over 100 different business enterprises,
many of them still in real estate. His net worth, back then, was more than $300
million, and to this day he remains a major holder of real estate investments.
P.P.S. The information in this
report has not been endorsed or reviewed by Mr. Schwarzenegger. This
information has been compiled from studying articles, books, and interviews
regarding Mr. Schwarzenegger and his various investments.
