If you were to investment $50,000 in the stock market today and somehow, someway you were to make a 10% return per year, every year, for 7 years you would end up with $97,435.
You would pretty much double your investment!
However if you were to invest $50,000 in a $200,000 single family residence (SFR) investment property you could create some Velocity.
Last thing I want to do here is another plan A or plan B example or worse… “Brother A invested in the stock market while broker B invested in real estate”
-20% down ($40,000) + $10,000 for closing costs and reserves. (It’s always good to have 3-6 months in reserves set aside in a “wealth coordination account”)
-$160,000 loan amount @ 5.5% fixed for 5years interest only (i/o) = $733/mo i/o
plus…
T -Taxes
I -Insurance (plus HOA if applicable)
M -Management (Get a good property manager, last thing you want to do is have a new part time job! It usually runs about 8% of the gross rental income)
M -Maintenance
U -Utilities (I would recommend the tenant pay)
R -Repairs (A great trick I learned long ago is make the tenant pay the first $100 of any repair. That way they take care of the property and you are not dealing with the bs)
*Make sure the monthly rent at least covers the monthly payment. We are looking for break-even or positive Cashflow. Remember all we need is “OPM”
*Make sure you find a motivated seller that will give you the ideal deal.
Inside our primary residence one could argue that our dollar does only one job (benefit) and that is Mortgage Interest Deduction.
One could also argue that the equity is not safe in the home…and that it needs to be separated into a safe, secure, liquid environment that can do more jobs.
What if a Hurricane Katrina happens in your area?
Earthquake, Flood, Tsunami, Terrorist attack, or you are unable to make your payments or restructure your debt?
(Remember the banks love to lend you money when you don’t need it and hate to when you do)
Your insurance doesn’t pay? You seek refuge in Houston and your equity line checkbook is frozen?
You and your neighbor both go into foreclosure…you have little equity (but a tons of cash in a credit-proof environment) and your neighbor has his home almost paid off…who is the lender going to more willing to work with?
By the way…you don’t ever want to cash-out your house on a payment you can’t afford or up to high. It is always good to leave some wiggle room in case you need to sell.
The best place online to run your value is Zillow (was inaccurate but getting much better).
Outside your home your dollar can do many different jobs all at once. Called “The multiplier effect”
The idea here is to identify under performing or under utilized assets and get them into production. Called “The Velocity Of Money”
You must get your individual MACRO economy moving!
The first benefit or job we can get out of our dollar by investing in real estate is APPRECIATION.
I have included a few historical graphs for your viewing pleasure…
Second benefit or job is DEPRECIATION which could be the most powerful tax advantage of all.
Third benefit or job is the additional tax advantages or expenses you can WRITE OFF.
(I am certainly NOT nor claim to be a tax professional so please consult your own.)
Then what if you were to turbo charge your dollar and borrow back out your initial down payment or investment and buy another property?
Maybe it takes 2yrs, maybe it takes 4?
Is it possible to build a real estate portfolio of $4MM+ within 7-10yrs with a one time investment of $50,000?
Is it possible to create equity of $500,000+ within 7-10yrs with a once time investment of $50,000?
Is the end game a 1031 exchange into a triple NET or something much greater?
Create a technology become Bill Gates, create a real estate portfolio become Donald Trump, create a life insurance portfolio become Warren Buffett, do 2 of the 3 have virtually limitless leverage and abundance!
Disclaimer: Real Estate is an investment and can go up or down. These illustrations are for example purposes only and are not forward looking statements
The Lyons Den 