Residential real estate offers5 Major Benefits.
1. Cash Flow -The rent provides income, i.e.“Wake-Up Money”. This is your ultimate goal. When your property is “free and clear,” you have the maximum cash flow and“Wake-Up Money.”
2. Leverage- You can own $100,000 worth of real estate with only 0% - 20% cash. You can also borrow cash out of one property to buy another. Your short term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties free and clear.
3. Debt Reduction -Real estate is one of the few investments where someone else will make your payments.In essence the tenant makes the payments and reduces your debt.
4. Tax Savings -You are allowed to depreciate the house and write off your expenses in order to reduce your taxes.
5. Appreciation- Over time the value of houses and condos have risen.
“Free and Clear”
These are three magic words for the person who’s committed to creating“Wake-Up Money.”Many investors consider“Free and Clear houses”as theultimate investmentfor three reasons:
“Wake-Up Money” Example
Here's an example of how to purchase a“Wake-Up Money” property. This property was priced at $150,000 and sold at full price. Here's how the investment works on this property.
$37,500 25% down payment
$112,500 Loan @ 7.5%; 30 year;fixed rate
$781.73 Monthly principal andinterest payments
$100.00 Monthly taxes andinsurance payments
$25.00 Monthly reserve formaintenance and repairs
$925.00 Monthly rental income
$906.73 Total monthly expenses
$18.27 Monthly cash flow
Here are the5 Major Benefitsof owning this “Wake-Up Money” property.
2. Leverage -You own $150,000 of real estate for a $37,500 cash investment.
4. Tax Savings -About $3,300/year in depreciation. This means that your income from this property will not be subject to tax.
5. Appreciation -If this house goes up 5% in value this year, it will increase by $7,500.
$7,500/$37,500= 20% Return on Investment
(If the house doesn't go up at all, there is no return from appreciation.)
Total Return on Initial Investment of $37,500:
0.6% from cash flow
2.7% from principal reduction
20.0% from appreciation
23.3% Total Return On Investment
The “Wake-Up Money” Easy Investment Analysis and documentation was developed by Larry Kendall and The Group, Inc. Real Estate, and Tim DéLeon of Focus 1st,LLC, and all information associated with it is copyrighted and is used with permission.