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If you're not in Real Estate Investing you are missing out on the Wealth Creation vehicle of the century
Real Estate Investing has made more Millionaires than anything else. But you need to know how to do it correctly. The problem is that there are countless real estate investing programs courses, seminars, experts and gurus. If I were to list all the different strategies that are available I’d fill a page. This is part of the problem. People generally know that they have to get into real estate but with all the information out there how do you choose. Where do you start. And how do you safely invest when you’re so busy with other things in life. And what about interest rates rising. And on it goes. OK here it is. What I am going to give you here is one of the most reliable ways of real estate investing. It’s a proven strategy that has worked for decades and made many millionaires. It is the one strategy that is very low risk with consistent good returns and it doesn’t take a lot of time. It is also the Real Estate Investing Strategy that ties neatly with our Cash Flow Investing Strategy in the Stock Market or the Internet. Remember in the Stock Market and in the Internet sections we looked at passive income from our very own Stock Market and Internet ATM machines. Regular and consistent money, flowing into your bank account every month. Well the Real Estate Investing Strategy has a different objective in our overall Financial Business. Can you guess what Real Estate does the best? Do you know what is the greatest Capital Growth engine today. Yep it’s Real Estate. Capital Growth from Real Estate is what has made thousands of property millionaires. You probably knew this already but do you know why Real Estate is so good for Capital Growth and why the Stock Market isn’t. And why the Stock Market is so good for Cash Flow and the Real Estate Market isn’t? Well you’re about to find out. Before we jump into that let me just say that this website is not your typical website. I’m not the best writer on the planet but the information you’ll find here is what people usually would have paid thousands of dollars for. However I’m not asking you for anything except to donate at least 15% of your new wealth to one of the Charities listed on the home page. These Charities have special importance to me so I’d be grateful if you’d choose one of these but if you have a specific preference for another then fine, donate to that one. So why is Real Estate Investing suited to Capital growth and the Stock Market not? The answer is this. In running your very own Financial Business (the business of investing your money and making it work for you) it's the ROI or Return on Investment that is most important. A high ROI means that your money is working hard, a low ROI means that it’s relaxing on the beach (definitely NOT where you want your money). Now to demonstrate why Real Estate Investing is our chosen Capital Growth vehicle let’s consider a property that is growing at say 5% per annum and we’ll compare this to a Stock that is increasing in price at the same rate i.e. 5% per annum. Same growth rate but vastly different outcomes. Let’s see. You’ve bought a property (the real estate investing selection criteria we’ll cover in a later section) for $100,000. Its growth is 5% per annum so in the first year it increases in value to $105,000, a $5,000 increase. Now when you bought this property you got a loan with an 80% LVR (LVR is Loan to Value Ratio, the percentage of the Property Value that you can borrow). So you borrowed 80% or $80,000 and you put in $20,000 of your own money. So what’s the ROI? It’s $5,000/$20,000 or 25% for the year (less interest charges but we’ll ignore these for now as they are compensated for by the rental income). Now let’s look at Stocks using the same numbers. We buy $100,000 of Blue Chip stocks with a growth rate of 5% per annum. Note that we’re ignoring both the rental income from the property and the dividend from the stocks from this discussion for now. When you borrow for shares you normally can borrow up to 70% of the value of the shares. So using exactly the same growth as in the property example (5%) our return for the year is $5,000/$30,000 or 17% for the year. BUT I hear you say, the difference between 25% for real estate investing and 17% for share investing isn’t that much; And anyway, 25% ROI from real estate investing isn’t that great. You are right on both counts. BUT there is something fundamentally different in what we do NEXT with Real Estate Investing versus Share Investing. And this will explain why Property is so good for Capital Growth. So what’s this amazing difference between Real Estate Investing and Share Investing? Well with property you can do something that you can’t with Shares; You can ADD VALUE. You can give the property a face lift, or add a garage, or just increase the rent. BUT you can’t do this with shares. So what happens when you add value to a property? What happens in this… You create more value to borrow against. In our example we give the property a facelift by painting the outside and polishing the floors (we don’t actually do the work ourselves mind you, we get others to do it because we are too busy making money in our very own Investing Business). So this costs us lets say $6,000. But then something interesting happens, and it happens ALL the time. Buy spending $6,000 on the right things (we’ll cover which things to do later) you have actually added $12,000 in value i.e. the property will be valued at $112,000. Note that this is not an unusual event. If you buy a property for a fair price and you spend a little bit of money in the right areas you will increase the value of your property by MORE that the amount you spend on the facelift. This happens all the time. So how does this help us… Well we said before that we can borrow 80% of the property value (in some cases more but let’s be conservative). So where previously we had borrowed $80,000, we can now borrow 80% of $112,000 or $89,600. Now what’s our ROI… Remember the ROI is the amount of our money we get in return divided by the amount of our money we put in. So in our example, after the facelift, our return is 5% of $112,000 or $5,600 and the amount of our money we put is equal to $89,600 (the new borrowing) - $80,000 (our existing borrowings) + $6,000 (the cost of the facelift) or $15,600. So our new ROI is $5,600 divided by $15,600 or almost 36%. We have just increased the value of our asset and in doing so increased our ROI from 25% to 36%. What if instead of just polishing the floors we put in a new kitchen or bathroom. This would cost us more to do but we would get this money back and increase our ROI even further. What about a real life example I had a fantastic real estate investing deal where I bought a property for $225k. Buying costs were $10k and I spent $30k fixing it up. It was revalued at $400k nine months after I bought it. So what’s my ROI. Can you work it out? Total new borrowings are 80% of $400k or $320k. Total costs were $225k + $10k + $30k or $265k. Can you see what’s happened here? I have none of my money in this property, in fact I got $55k cash back ($320k - $265k). If I have none of my own money on the property what’s my ROI; it’s infinite isn’t it. None of my money means that when I divide the return, whatever it is, by the amount invested I get infinity because the amount invested is zero. Now this might be an unusual example but it goes to show the power of doing the right value add to real estate, then taking your investment out and using the banks money to fund the asset. Some people get concerned about borrowing to invest but let me ask you this. If you own a property worth $50k and you borrow half i.e. $25k, and the property increased in value for whatever reason by 10%. How much money have you made? That’s right $5k (10% of $50k). Now if instead of borrowing only half you actually borrow 90% of the value, so you borrow $45k and the same property goes up by the same amount i.e. 10%, how much money have you made? Yep exactly the same $5k. So it doesn’t make sense to keep YOUR money in your properties when you can get the same return using someone else’s money. So if you could use your $25k to invest in 5 properties instead of one, and they all have the same growth how much money have you made. Yes that’s right, you’ve made $5k times 5 or $25k. In this case you are using the bank’s money wisely to accelerate your wealth creation. Sidebar: People often say that if you borrow more won’t the interest charges kill you. As with most things you just need to think about it logically. Firstly, I only select properties that will pay for themselves based on the full purchase price. That way when you take your money out it still pays for itself. Secondly, even if there was a cash shortfall for any reason, this shortfall is going to be much less than the capital growth of the property (assuming that you buy well). For example, if you have a property worth $100k and you have $80k borrowing on it, the interest payments might be $400 per month. Let’s say the rental income is only $600 per month, and after taking into account taxes and other outgoings you are making an operating loss of $100 per month. But the value of the property is rising by 5% to 10% per annum so you’re actually making $400 to $800 per month from capital growth in the first year alone; so you’re still ahead by $300 to $700 per month. And that's not counting on any increase in rent which normally doubles every 9 years. Now this assumes that you can in fact fund this operating shortfall. But do you know how you can make some extra cash to fund this shortfall? That’s right the Stock Market Cash Flow business and the Internet Business. Now you’re beginning to see how these strategies work together. I can’t stress enough here that the right property selection is key to this real estate investing strategy. We’ll cover property selection later. I’ll show you what to look for and how to do this without spending your weekends driving around looking at house after house. The simplicity will amaze you. Now I'm not saying that other real estate investing
strategies don't work, I'm just saying that the "buy, value-add, hold"
strategy is the easiest and safest way for average people that don't
have a lot of time to get their financial future secure. You simply must
get into real estate investing so you can sleep well at night.
Now I've tried to explain in this website why I think
there is justification, in fact benefit, in doing both. Anyway this book
is only $19 and has some good parts in it. Click on the book then enter
"Value investing in real estate" in the Quick Search Box.
This is actually the course that I used to get started. The only drawback with this course, and it's not really a big drawback, is that it's set in Australia and refers to some specifics of Australian tax which are slightly different for other parts of the world. The homestudy course describes in detail the "buy,
value-add, hold" strategy and I would thoroughly recommend it. As I said
it's actually the one I started with. Click here for details...
Real Estate Investing Homestudy then select "Fast Track Property"
Remember we discussed that the Stock Market and the Internet are great for Cash Flow but Real Estate Investing is suited to capital growth NOT cash flow! Well there are some people who do make some cash flow from properties but I believe it’s a tough thing to do because the profit from each property is just so small. This profit could easily be wiped out by unexpected property maintenance or a new hot water system or one of the hundred other things that can cost money on a property. Generally, income properties are in lower capital growth areas but capital growth is what we want out of real estate. Note that I'm not saying that you should buy negative geared properties; that's a receipe for disaster for most people. You should definetly buy positively geared properties but I'm recommending that you make your purchase decisions based on the potential for capital growth rather than just the income aspect of the property. People do use WRAPS and other financial strategies to make a profit but for all their hard work I believe the tried and tested Value Add and Capital Growth strategy is by far superior. Anyway, now that you know how to make cash flow from the Stock Market or Internet why would you bother trying to squeeze a few bucks out of a property. There is one exception that I think does hold some benefit to real estate investors and that is the Lease/Buy model. I’ll talk some more about this later but for now keep this in the back of your mind as a way for people without a lot of cash to get started in Real Estate Investing. So you now have the overall Real Estate Investing Strategy. Let’s now look at some details of how to go about this. Remember this is a proven system that has worked for years, made thousands of millionaires and doesn’t take a lot of time. Here’s the action plan to begin your real estate empire. I shouldn’t really say "empire" because the reality is that you only need a few good quality properties and you can retire in a few short years. Quality rather than quantity is important. The following sections will give you a good solid
understanding of each step involved in building your Real Estate Capital
Growth Engine. You may need to do some extra study in some areas, and if
you do I have given you some good reference material in the following
pages. Step 1: Get yourself structured correctly. You
might be itching to get started but believe me a bit of planning here
will save you big time in the future...
Click here for Getting Yourself Structured Step 2: Get your finance pre-approved. This step
alone will put your streets ahead of the pack. Most people get their
real estate finance "pre-qualified" and don't even know what
"pre-approved" means...
Click here for mortgage pre-approval Step 3: Get your real estate contract clauses
defined. Understanding what you want out of the contract means you can
move faster and with confidence - a winning formula...
Click here for Contract clauses Step 4: Find your first property. At last we're
ready to find our property. But don't just jump in the car and go. There
are better ways...
Click here for Finding Real Estate Investment
Step 5: Manage your Investment. This doesn't mean
looking after tenants; it means looking after and growing your real
estate asset...
Click here for Managing your investment
Disclaimer: The information provided herein is NOT FINANCIAL ADVICE. It is educational material only. You must make your own decisions when investing and seek appropriate qualified investment advice. The author is not a financial adviser. This material is copyright protected.
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