A Fun (Theoretical) Strategy to Build Long Term Wealth in Real Estate

Over the last few weeks (maybe getting to two months now), I’ve been researching the real estate sector heavily. A lot of factors have contributed to this, frothy stock market valuations, some strategic conversations I’m having with some people in my circle, shifts in business strategy and the presence of opportunities aka looking to wherever there is money to be made. But really, real estate represents a solid opportunity to diversify your holdings, make use of leverage and have a visible, valuable and most of the time, appreciating asset that you own fully. It’s rare to build any long term investment portfolio without giving some thought and action to real estate.

Fortunately, or not, at this time I barely have any free capital as I’m locked into this trading set up which is profitable but long term enough that all my commitments kind of have to stay put for the results to come through so all I’ve done with the opportunities I’ve seen in real estate so far is a big fat nothing. Please, if you have capital you want to put to work specifically in this area, reach out to me and let’s work something out. Anything from $5,000 and up is game. We can discuss the terms and figure out how to make it work for you.

Anyhow, that I can’t execute the stuff I’m seeing doesn’t mean I cannot talk about them. And there are many strategies and things that I’m learning so far, including tax lien properties, rent to own set ups, foreclosed properties, wholesaling etc. There are some complexities in these ones so I will wait till I have real life experience before talking more about them but the opportunities and profits look incredible, at least from what I’ve seen and also heard from people already in it. However, for the sake of theory, let me highlight one simpler and more or less typical real estate investment and how you could use that to build long term wealth.

Take this Zillow listing in the Charlotte area, a growing city not so far from where I live.

It’s a 3 bedroom, 2 bath rather old house in a great income neighborhood (always remember, the worst house is a great neighborhood is a better investment than the best house in a bad neighborhood). The area is majorly populated by people within the ages of 20-35 and mixed across all races which tells you that the area is attractive to young working people of all races. The average income in the area is greater than that of Charlotte as a whole, which is also good.

Now, the house is priced at $119,000 but it was only listed two days ago. The actual estimate both by Zillow and from the tax valuations, put the value closer to $90,000 which is where I’d try to get the house if I was buying it today (naturally that means you can start bidding from $60,000 but that’s another story). I’ll assume a $10,000 down payment, and around 5.5% interest (the site calculates with 4% which is where mortgage rates are hovering right now but I’m assuming the lower down payment and my thin credit history might add a thing or two. Run your own analysis as you see fit). That should fetch me somewhere around $500 mortgage payment (I’m estimating), which for an area like this, a 3 bed, 2 bath should be renting at around $1,100 a month or higher.

So with that, you can pay your mortgage, pay another $100 a month in total for tax and management and still net around $500 per month from the property or $6,000 a year with just $10,000 down.

In my case, what I’d do is, rather than keep the $500 net per month, I’ll use it to effectively double my mortgage payment which will allow me to pay off the entire mortgage in 8-9 years instead of the typical 30 years. That leads to a direct savings of almost $40,000 in interest payments. But more than that, it will allow me to build my equity in the home faster. At the end of the 8 years or so, the house, based on the historical trends in the area and the current growth Charlotte is experiencing, should be worth closer to $150,000. And it’ll be 100% in my name.

That means $10,000 with a little smart leverage would become $150,000 in 8 to 9 years, or about 35% annualized return.

The final step, naturally would be to refinance it at the peak of its valuation, basically remortgaging the property but now with you as the receiver. Let’s say I refinance 60% of the equity at the end of the 9 years, that will mean $90,000 in straight cash will be paid to me and in return, I will continue making the payments on the house for another 8 years just like before. But this time, I can use that $90,000 in cash to buy a new Tesla, buy maybe 6 more properties under similar arrangements and repeat the stuff I just did.

In the following 8-10 years of doing the same thing with now 7 properties, what is your guess about the value of my real estate portfolio by then?

Exactly.

This is all theoretical now but one day it won’t be. So help me God.

My company can make you returns of around 3% monthly, or 42% annually. Certain terms and conditions apply. If you’re interested in learning more and figuring out how we can help you make better returns on your investment and grow your portfolio, or you just need to discuss your financial goals, reach out to me on twitter @eldivyn

 

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