Real Estate - my new passion
After studying the rich and successful extensively, I noticed that most of them even my original hero Arnold Schwarzenegger had made their success or augmented it with real estate. Why real estate? Because it makes total sense for a LOT of reasons, here I will list just a few:
You get the largest return for your money. The typical person shovels their money into 401k or mutual funds, savings account, etc. After a whole year of not being able to touch your money, you might earn a whopping 10%. Then you have to pay income tax on all those earnings. So what if you only have 5k to invest? After a whole year your 5k grows to 5500, minus taxes you might have made 350 dollars.
Now lets take that same 5k and use it to invest in real estate. For 5k you can buy a 20,000 dollar house by getting a loan from a bank. Around here 20,000 can get you a decent 2 bd fixer house which will rent for 400-500 a month. So bank payment if you set it up right would be around 100 a month, taxes on a 20k property are 25 a month or so, and insurance for 30k cost 25 a month. So lets say you get a mid range rent of 450, after PITI (principal, interest, taxes and insurance) you have a positive cash flow of 300 a month! Not to mention, someone ELSE is building your equity! So in 10-15 years when your loan is paid off, someone else paid for your house, not you. So its like someone else is stuffing money in a piggy bank that = the value of the house, which should appreciate quite a bit in 15-20 years.
So after a year you've got pretty much all of your investment back (3600 income) and you've slugged 12 payments into your piggy bank (equity). On top of that sweetness, if you buy a fixer house, you can get ALL your money back and then some if you want. How is this possible? You buy a house for dirt cheap that needs work, do the work yourself, or get a contractor to do it, then after its all polished up you get an appraisal on the house for a higher value, and then refinance your rental for an amount that would still provide positive cash flow and get your initial investment back. So say you put up 5k, borrow 5k and buy a 10k fixer. You put another 5k into it, and have a total of 15k in the place. You then refinance it for 15k pay the original note off, get all your money back and still have a high cash flowing property. Now your money is free to go do another one. Depending how motivated you are, I think the average weekend warrior could do 1-4 of these a year.
Anyhow, I could go on and on about real estate advantages over other investments. For me they make sense because I am mechanically inclined and I'm not scared to fix toilets or hot water heaters, construction, etc. What I don't know I'll figure out along the way or hire someone if I can't. Its really a decision.
For me my first two projects in real estate are a single family rental home I bought, and flipping my own house. The rental needs siding put on, a good cleaning and a lot of little odds and ends. My house needs updated, landscaping, and new floor covering pretty much everywhere. Stay tuned for progress pics!
You get the largest return for your money. The typical person shovels their money into 401k or mutual funds, savings account, etc. After a whole year of not being able to touch your money, you might earn a whopping 10%. Then you have to pay income tax on all those earnings. So what if you only have 5k to invest? After a whole year your 5k grows to 5500, minus taxes you might have made 350 dollars.
Now lets take that same 5k and use it to invest in real estate. For 5k you can buy a 20,000 dollar house by getting a loan from a bank. Around here 20,000 can get you a decent 2 bd fixer house which will rent for 400-500 a month. So bank payment if you set it up right would be around 100 a month, taxes on a 20k property are 25 a month or so, and insurance for 30k cost 25 a month. So lets say you get a mid range rent of 450, after PITI (principal, interest, taxes and insurance) you have a positive cash flow of 300 a month! Not to mention, someone ELSE is building your equity! So in 10-15 years when your loan is paid off, someone else paid for your house, not you. So its like someone else is stuffing money in a piggy bank that = the value of the house, which should appreciate quite a bit in 15-20 years.
So after a year you've got pretty much all of your investment back (3600 income) and you've slugged 12 payments into your piggy bank (equity). On top of that sweetness, if you buy a fixer house, you can get ALL your money back and then some if you want. How is this possible? You buy a house for dirt cheap that needs work, do the work yourself, or get a contractor to do it, then after its all polished up you get an appraisal on the house for a higher value, and then refinance your rental for an amount that would still provide positive cash flow and get your initial investment back. So say you put up 5k, borrow 5k and buy a 10k fixer. You put another 5k into it, and have a total of 15k in the place. You then refinance it for 15k pay the original note off, get all your money back and still have a high cash flowing property. Now your money is free to go do another one. Depending how motivated you are, I think the average weekend warrior could do 1-4 of these a year.
Anyhow, I could go on and on about real estate advantages over other investments. For me they make sense because I am mechanically inclined and I'm not scared to fix toilets or hot water heaters, construction, etc. What I don't know I'll figure out along the way or hire someone if I can't. Its really a decision.
For me my first two projects in real estate are a single family rental home I bought, and flipping my own house. The rental needs siding put on, a good cleaning and a lot of little odds and ends. My house needs updated, landscaping, and new floor covering pretty much everywhere. Stay tuned for progress pics!
posted by Joel Huenink at
12:06 PM
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