5 Reasons to Build a Real Estate Property Portfolio
Published 8/1/2007 7:57:00 PM - Investment Properties
5 Reasons to Build a Real Estate Property Portfolio
I think you'll agree with me that real estate investment deserves a closer look when I tell you that according to many sources 90% of the world's richest people made their fortunes
from property!
So here are just five quick reasons why I think you should consider building yourself a real estate portfolio.
1) Freedom - By working to create a profitable business from your underlying property assets you can free yourself from the shackles of 9 - 5 employment where your creativity is zapped and your potential overlooked!
In this day and age those who can say that they love their job are the much envied few. For the rest of us the daily grind is simply necessary to keep a roof over our heads, feed and clothe our children and hopefully be able to afford to retire some day.
Does that sound like freedom to you? I don't think so!
The creation of a profitable property portfolio will allow you the freedom to make your own business decisions, to work when you wish and to manage your family's finances more effectively.
2) Leverage - if you place a twenty thousand dollar lump sum into a bank you will earn interest on that figure alone – the interest rate will likely be poor and taxation and inflation will eat away at any gains you make.
Alternatively, by placing twenty thousand dollars into a property worth one hundred thousand dollars and using a bank's money in the form of a mortgage to leverage up, you make will make the average annual increase on the full value of the property not just on your twenty thousand dollar investment!
3) Profit Twice - with property you can profit once in the form of regular rental income earned and you can profit twice and big time from the average price gains your property will enjoy each
year.
Even during a real estate market down turn when prices stagnate or readjust your property will hold at least the majority of its value before once again attracting positive capital growth when the property market cycle begins to turn to profit again.
4) Consistent Growth - over the last fifty years real estate has doubled in value every seven years. If you average that out that means that property has grown consistently by just over ten percent a year.
5) Passive Income - As your property portfolio grows so the amount of income you generate will increase. You will not be able to stop this growth once it starts because each year your properties will go up in value and regularly you'll be able to push up rental income!
While you retain ownership of your properties so you will retain ownership of all the income and all of the growth in underlying value - this is a passive income that you can take into retirement and hand on to your children and grandchildren when you're gone.
A Final Word - Making an investment into real estate is just like making any other form of investment. There are associated risks and past performance is not an indicator of future potential. Furthermore this article does not constitute personal direct advice.
About the author: Rhiannon Williamson is a freelance writer whose many articles about international property investing have appeared in publications around the world. Visit her site www.amberlamb.com
Fantastic Article on Real Estate Investing!
Published 7/20/2007 4:19:00 PM - Investment Properties
If Real Estate Investment Is So Great, Why Doesn't Everyone Do It?
Oh, that's an easy one. I can answer that in one word. FEAR. Real estate investment is a great way to change just about everything in your life, but it's one of those things where doing it for the FIRST time is the toughest. In fact, the second is exponentially easier! Is fear folks, plain and simple! And why doesn't make much sense to me.
Consider that:
- "Everyone knows that the surest path from low income to millionaire is through real estate." This appears to be a well-documented truism. I've seen a similar statement in some of the most prestigious financial resources on the planet.
- I rarely hear of someone losing it all from real estate. I might be living in la-la land, but for the most part I only hear of folks prospering from real estate investing. Sure, occasionally I hear of deal going bad or growing complicated, but not to the point of ruining folks.
- There are a lot of properties available. Folks are still divorcing, dying, or just not paying the bills and getting foreclosed on. Much of the foreclosure activity is not SEEN by the public, but most of it is available to the public.
- There are a lot of properties available at below market prices. That's been my experience anyway. Of course, I have folks right here in my area that tell me they can't find properties. I just smile and nod my head.
- Rental demand is strong and rents never go down!
So with all this common knowledge and raw opportunity out there, why isn't everyone investing in real estate? Here's my theory.
* Real estate transactions are more involved than going to Wal-mart for a pair of undies, so that scares people. You have to learn a little bit. Mind you, this isn't a lot of learning, but it is apparently enough to keep some on the sidelines.
* The numbers are big. I've seen folks nearly CEASE UP mentally talking about large amounts of money. Merely talking about a $100,000 mortgage causes some people break out in a sweat.
* Horror stories. Everyone's heard about some scam, sink hole, meteor or something else on the fringes of believability that has happened somewhere at sometime. I mean, there is SOME risk involved.
* Fear of taking action! It's hard to do something you've never done, and harder to do something you've never done before in a subject matter on which you aren't an expert! People fear something, which makes facing that fear hard. What I'm referring to is what I call, "IT'S EASIER NOT TO."
So what does one do to face fear and make a change in their life, Ah, that's just as easy as the last question. I can also answer
that in one word...KNOWLEDGE. Once properly armed with the knowledge they need, most folks can overcome their fears to the point of taking action.
So if you are contemplating taking your financial future in your own hands by investing in real estate, FOCUS on one thing for the next 3-6 months. Buy books or courses, got to real estate investing club meetings, visit websites and get on discussion groups. Let those things be your action steps for awhile. I suspect you'll be ready to dive into the market with the knowledge you'll gain.
I have a motto. -- "Knowledge Always Precedes the Money."
About the author:
Bruce W. Ford is the editor of www.rehab-real-estate.com
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Rehab and Sell, or Rehab and Keep?
Published 7/16/2007 2:01:00 PM - Investment Properties
Rehab and Sell, or Rehab and Keep?
Here's another awesome question I received from my discussion board. The question; Why bother keeping property after it's rehabbed? Why not sell it after the rehab and GET PAID!
Of course, the first questions that you must answer is how emergent is your need for quick cash? You can likely generate the most SHORT TERM cash by selling a freshly rehabbed house. But, you will give much of it away in taxes come next April.
If you keep it, you stand to make more! You will also enjoy some great benefits while you own it such as cash flow, a tax break, and MORE cash with the future appreciation. You can still pull some nice cash a few months after buying it when you refinance
post rehab) the property from your hard money (at 70% loan to value) to long term financing (at 85% or 90% loan to value).
The short answer is an investor is going to make considerably more money by hanging onto a property after it's rehabbed. There
is a downside to it. You have to be a landlord, and you have to decide if you want to do that. I don't think it's too bad as long the landlording is done correctly.
Let me illustrate the difference in overall money between rehab and sell, and rehab and rent investing with this example; Let's say appreciation rates are 5% in your town and the average price of a freshly rehabbed property in the neighborhoods investors buy in is $100,000. Let's also say there is Bill and Fred.
Bill sells his properties after rehabbing and makes $15-18,000 per house. Good boy Bill!
Fred keeps his rehab projects and cash-out refinances, pulling out around $10,000 per house within 3-6 months of ownership.(Fred trades his 70% loan-to-value (LTV) ratio hard money for long term, 30-year mortgages at a lower interest rate with an 85-90% loan to value ratio. He pockets the difference between what it costs to pay off the hard money and the new mortgage less closing costs. This works out to about $10,000 per property.)
Bill (rehab and sell) makes a great living. Ten houses per year is $150,000-$180,000 per year...nice jingle! The downside is that Bill has to keep rehabbing to keep making that living year-after-year and pays taxes on all that money as regular income (ouch!). So his $150,000 per year is in reality somewhat less.
Fred (the rehabber) also makes a great living. Ten houses per year makes him $100,000 or so in tax free, spendable cash. But, Fred controls a million dollars in real estate and it's going up in value year after year. Also, Fred pays no taxes on that money he gets from the cash-out refinances. It's part of a mortgage, so must be paid back, therefore is not income! I love that part!
Let's look at what Fred's doing more closely. Let's say Fred bought 10 houses valued at $100,000 each, owes $90,000 on each on(after the 90% cash out refinance), so he controls $1,000,000 in property. If he keeps them 5 years (assuming a low appreciation rate...which is pretty conservative):
Purchase year - 10 houses x $100,000 = $1,000,000
Year 1 - Same 10 houses X $105,000 = $1,050,000
Year 2 - Same 10 houses X $110,250 = $1,102,500
Year 3 - Same 10 houses X $115,762 = $1,157,620
Year 4 - Same 10 houses X $121,550 = $1,215,500
Year 5 - Same 10 houses X $127,627 = $1,276,270
Essentially, Fred makes an extra $50,000 per year for keeping 10 properties. After owning them 5 years, if he sells, he puts $276,000 in his pocket.
Remember - Some parts of the country will appreciate much faster than 5%. Heck some places properties will double in value in 5 years. - No tax benefits of keeping the property is included here. That equates to thousands of dollars in real income. - This is ONE ten-house year. Let's say you want to "top out" at owning 30 houses. Well, in just a couple of years your buying will slow down to a trickle and you'll start selling and cashing out of properties. I mean, how many ten-house years to you need to string together before you are set for life? - What if you hold these houses 10 years? The numbers get pretty exciting.
If you're like me and you don't want to do this for too many years, then holding properties for a few years makes a lot of sense, especially if you don't have much personal money invested in them.
So what of poor old Bill? Chances are, Bill will satisfy his need for short term cash, then start holding property. What do you think?
About the author:
Bruce W. Ford is the editor www.rehab-real-estate.com
