So on Saturday January 25, about 12 of us convened to hear Neil Schwartz talk about the exciting topic of generating wealth and up to 20% return on investment when investing in real estate.
I had several of my clients call to say they wish they could attend but were out of town or could not come for whatever other reason, and could I please share my notes with them?
So I thought, why not share my notes with everyone?
So here they are, and these notes are just from my head, and from hearing Neil speak about how to do this real estate investing thing, how he recommends to do it.
First off, why invest in real estate? Real estate is such a powerful wealth building tool because it allows you to invest a particular amount, the down payment, and obtain a mortgage for the rest of the price of the asset, and have your tenant pay the mortgage for you, and pay down that mortgage and add equity to your bottom line, your asset, your net worth.
Here’s the best example: Buy a $400,000 property. Put 25% down. That is $100,000. If you don’t have $100,000, choose a $300,000 property to buy or $200,000 property. Save the 25% to put down. Get a mortgage for the rest (75% of the purchase price, or 75% loan to value).
Then get a tenant. Have the rent cover the mortgage payment and the property tax and the insurance and other costs you may have such as HOA and repairs.
Any positive cash flow you get each month goes toward your mortgage payment and pays down the principal faster than the amortization term of the loan. So in other words, you get a 30 year loan, but you pay it off much faster than 30 years because any positive cash flow you receive, you don’t take out and use it to live on or take vacations with, you put that directly back into paying down the loan.
You put in a calculator/spreadsheet all these factors and factor in an annual rent increase of say 4.5% increase in rent and therefore every year you are actually putting more toward your mortgage and paying down this loan faster. Using this approach, you can actually pay off your 30 year loan in 15 years, and own a free and clear asset that will throw off significant cash flow at that time.
If you remain disciplined and buy one of these properties every 2 to 3 years, then in 15, 18 and 21 years, for example you will have 3 or more paid off properties. And even if at that time, they have not appreciated at all, you will have assets that essentially you have paid 25% into them and the tenants, over time, have given you the other 75%.
Will you 401K do that for you?
So there it is – using (a) leveraging, (b) time, (c) discipline and (d) consistency, you can build lasting wealth with real estate.
It’s not a sexy, fast, get-rich-quick scheme. It is actually quite boring. What do I mean by boring?
It’s boring to get prequalified for a loan.
It’s boring to save money for the down payment.
It’s boring to look at properties that are $200,000, $300,000 or $400,000 to buy so you can rent it out.
It’s boring to do the research on the rents (though Neil shared the site, Rentometer.com which can give you market rents for any address) and crunch the numbers and evaluate properties to buy and do all this.
But your future self will thank you later.
Just like your present self would thank you if you bought a house or a condo 20 years ago and now it’s paid off and the tenant there is paying you $2000 a month to rent it.
The best day to plant a tree or buy a house is 20 years ago. The second best day to plant a tree or buy a house is today.
Think about it! Call me about it. I’m here to help you start this boring but lucrative and proven get rich slow technique.
Nancy Deprez
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